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Essay: Exploring African Banking’s ICT Investments: Impact on Market Share and Strategies

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1.4 African context of ICT investment in banking

The African banking industry has not been left behind in ICT integration although the process is slow. African banks have also realized the need for ICT as a driving force for economic development and staying competitive (Weill, 2009). Banks that have invested in ICT analytically have realized benefits associated with such initiatives. Abubakar, Bin and Tasmin (2012) pointed out that the banking business in Africa is becoming highly ICT-based due to its inter-sectoral link; it appears to be reaping most benefits of revolution in technology, as can be seen by its application in almost all areas of its functions. He noted that ICT has broadened the scope of banking practices and changed the nature of banking as well as the competitive environment in which they operate. The ICT concept in banking including structures, policies and strategies has been regarded with serious importance and their success determine progress of the industry or failure. Berger (2003) states that ICT has changed structures and values in African banks to a wide extend. For instance, managers are able to determine the kind of products and services that best suit a given target market. This is done especially through expert information systems that are capable of analyzing vast databases and making useful conclusions according to Berger. These conclusions help managers determine the best direction to take including what product and /or services satisfy a given market. ICT has also enabled banks to extend their boundaries through trans-border data flow where they are able to relate to other banks across boundaries as pointed out by Akinlolu (2005). This has strengthened relationships between banks and other corporates and has widened the market share.

Berger, (2003) listed some bank services that have been revolutionized through the use of ICT as including account opening, customer account mandate, and transaction processing and recording. Market share has been extended by ICT in the sense that clients are able to conduct transactions online without the need for physical presence. For instance, customers can withdraw, deposit, check and open accounts online. Therefore, without direct access to a preferred bank, clients can still transact.

Just like in the global spectrum, there are a variety of ICT products in use in the banking industry in Africa. Akinlolu (2005) identified these as including Automated Teller Machine, Smart Cards, mobile banking, electronic funds transfer (EFT), electronic data interchange (EDI), telecommunication infrastructure like intranets and extranets and expertise. Casolaro and Giorgio (2004) recommended that financial service providers should modify their traditional operating practices to remain viable in the 21st century and beyond, they claim that the most significant shortcoming in the banking industry today is a wide spread failure on the part of senior management in banks to grasp the importance of technology and incorporate it into their strategic plans accordingly.

Technology is revolutionizing at a fast rate which possess a great challenge on ICT investment. African bank managers have been left no choice but to remain wary of technological trends to remain competitive. Girardone, Molyneux and Gardenerx (2004) claimed that only banks that overhaul the whole of their payment and delivery systems and apply ICT in their operations are likely to survive and prosper in the new millennium. They advise banks to re-examine their service and delivery systems in order to properly position them within the framework of the dynamism of ICT. A study carried out by African Development Consulting Group Ltd. (ADCG) in 2005 on IT diffusion in Nigeria and reported by Akinlolu shows that banks have invested more on IT, have more IT personnel, more installed base for personal computers (PCs), Local Area Networks (LANs), and Wide Area Networks (WANs) and a better linkage to the internet than other sectors of the economy.

As much as ICT strategies, policies and structures have become a major concern to African banks, managers ought to ensure proper plans at each level are enforced so as to realize returns. This can be done through proper analysis of user and organization requirements and putting the right measures in place to satisfy these requirements (Carcary, 2008). Analysis involves studying relevant objects of concern in an environment through information gathering and this facilitates better understanding of an environment which leads to implementation of right ICT infrastructure.  

Gregor, Martin, and Vitale (2006) agreed that there is need for modern information system as they determine the economic and social well-being of a society through access of information. Information systems give way to ideas sharing that leads to wisdom and broad knowledge bases amongst individuals. With these tools, individuals are bound to form opinions, share their preferences and create environments that are productive and can support human needs.

1.5 ICT investment in Kenyan banking industry

Banking in Kenya started way back in the year 1896 with the setting up of the National Bank of India and later on in early 1911 Standard Chartered Bank opened its doors in Nairobi and Mombasa (Kenya Banker’s Association). The Kenya Commercial Bank was established in 1958 and the Co-operative Bank of Kenya in 1965 to provide financial services to Co-operative societies (Kenya Banker’s Association). National Bank of Kenya (NBK) was later incorporated into the banking industry in Kenya. Traditionally, business functions were conducted using manual systems with very little or no technological aspects. Since then, the banking industry has been expanding offering more products and services. Technological innovations have greatly impacted on information processing, storage, manipulation and transfer in banks in Kenya enabling them stay competitive (Central Bank of Kenya, 2003). ICT systems like automated teller machines (ATM), Computer hardware, ERP applications and other software, telecommunication infrastructure amongst others have been implemented in banks as an economic driving force. A report on ICT sector in Kenya by Muhuni (2011) revealed that banks in Kenya have realized the need of technology to support their business functions and improve on their products, services and gain more returns. Currently most banks in Kenya have introduced electronic banking (E-banking) to enable them reach a greater market and provide better banking services. This includes mobile and internet banking services provided by the assistance of telecommunication companies like Safaricom, Orange, Vodafone, International Business machine (IBM) and many others. For instance, recently Commercial Bank of Africa (CBA) and Safaricom came together and partnered to provide M-shwari services that enable clients make savings and get loans using mobile phones.

IBM country general manager East Africa, Mwai (2011) pointed out that Kenya is currently experiencing strong uptake in banking services in line with the growth of the continent’s middle class and the adoption of mobile and internet banking. He further noted that technological advancements are greatly driving innovation enabling banks reach out to unexplored areas in the country. This depicts how far technology has structured and provided direction for banks in Kenya. Reports of Central Bank of Kenya (CBK) (2003 and 2009), also support the fact that Kenyan banks have exponentially embraced the use of ICTs in the provision of financial services which has facilitated implementation of electronic services. As the banking sector in Kenya continues to grow, so is the economy. This is because this sector determines the economic progress of the country thus considered a key economic sector. Therefore, technological innovations and implementations in this sector can determine whether the country advances or not. This is to say that bank managers in Kenya ought to be objective in investing in ICTs because in the long run their decisions influence economic performance. But as much as this is the case, these managers have lagged in ICT investments grounding their decisions on intuition and experience. The results are normally low returns and failed projects as noted by Carcary (2008). Some managers have relied on the international community to provide direction for ICT implementation by establishing partnerships. For instance IBM has been at the fore front in supporting various banks in Kenya invest objectively in ICTs to provide better products and services. IBM supplied Co-Operative Bank with Power Systems as well as storage and software as part of a major upgrading process of the bank’s systems. In its agreement with the NBK, IBM has provided ICT services, hardware and software as the bank intends to transform its operations (Muhuni, 2011).

Nonetheless, for managers who have been critical in technology investments, much has been realized including streamlined operations, improved competitiveness, and increased variety and quality of services provided. At the same time ICT-based financial services have imperatively made a significant contribution in reducing the cost of operations and effective service provision (CBK, 2009). Lapavitsas and Santos (2008) stated that when technology is implemented in the banking industry, it can be understood from three angles:

i. Customer independent which involves a client initiating a transaction with the bank and getting feedback without physically relating with the bank or directly visiting the bank. For instance use of ATMs for cash withdrawals, mobile and internet banking.

ii. Customer assisted where a bank’s employee uses a specific technological item to provide a service. For example, the use of Transaction Processing Systems to access customer information and process customer’s transactions.

iii. Customer transparent technology which represents various business functions that lead to service provision and customer satisfaction.

Therefore, as technology evolves banks should equip and position themselves effectively for better service provision, better products and growth and through sound mind and judgment,  managers can take the industry to great heights and transform the economy.

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