Banks are drawing their customers away from the branch to digital channels. This is manifested through different pricing strategies that these banks have adopted.
According to a study by Financial Sector Deepening (FSD) 2018 titled creating Value Through Inclusive Finance’ an increasing number of banks are deliberate in moving their clients to the digital space.
This report was released in December 2019.
But even as banks push their customers to digital channels, the survey from FSD shows that a large proportion of bank customers’ still use branches as their main banking channel.
A customer who prefers to transact at the branch will incur an average of KSh 14,970 in annual transaction costs compared to KSh 5,620 if transacting digitally.
However, a lot of costs are stacked on digital transactions such as the cost of an SMS receipt which was as high as KSh 28 for one bank.
The cost of running an account, including making withdrawals, deposits, transfers and paying for account maintenance such as ledger fees or balance enquiries and so on, is diverse across banks, averaging KSh 4,419 and ranging from KSh 845 to KSh 17,750 annually.
FSD says some banks have priced over-the-counter (OTC) transactions relatively higher than equivalent transactions over digital channels.
Other banks have thresholds on the value of transactions that can be done at the branch, especially withdrawals.
Data indicates that the annual average cost of running a bank account is KSh 4,419 with accounts that charge a monthly ledger fee having higher annual costs.
Bank customers on average spend KSh 3,944 on withdrawal charges, KSh 4,485 on bank transfers and KSh 1,007 on account maintenance fees annually.
Digital channels offer significant cost savings to customers. A bank customer who transacts digitally saves an average of KSh 9,350 in annual transaction costs.
However, some transactions such as balance enquiries and deposits that are free over-the-counter are charged by some banks when done digitally.
The FSD study found out that third-party costs related to digital transactions are not disclosed all the times. There were instances of unexplained debits from the customers’ accounts but not perverse across all the banks.
This report is the second in a series of studies that measure the cost of banking services in Kenya. It follows the first report that was released in 2017 and constitutes a complementary element in the measurement of the financial inclusion landscape in Kenya.
In its executive summary, the report observes that over the last decade, Kenya has witnessed a remarkable expansion in access to financial services. Overall access to formal financial services now stands at 83per cent, up from 67per cent in 2016.
However, aggregate data suggests that the average number of transactions per customer is still relatively low. Usage of traditional bank accounts has dropped from 32per cent in 2016 to 30per cent in 2019.
Cost is often the most visible constraint to access and usage, but it is not the only one.
While the primary focus of this study was to measure cost, the objective was wider to include identifying opportunities for enhancing value to both the banks and their customers.
The 2018 Cost of Banking study focused on deposit accounts offered by 11 banks that cumulatively controlled 97per cent of the total number of deposit accounts in Kenya as at December 2017