Kenya’s banking industry classifies cyber threats as the key risk slowing investment in innovation, even as most of their clients prefer services served through digital platforms.
Central Bank of Kenya’s Banking Sector Innovation Survey 2023 shows that the sector has ramped up innovation efforts with an aim to enhance service delivery to customers, create new markets, and achieve operational efficiency.Commercial banks generated more innovative products in credit, deposit, and capital-raising services than in payments, clearing and settlement services in 2023, signalling increased interest in credit services to customers.Conversely, Micro Finance Banks (MFBs’) focus on credit, deposit, and capital-raising services has remained steadfast.96 percent of the institutions had adopted or developed a mobile banking solution to assist in administration of banking and customer relationship services, consistent with the 2022 survey.
“Cyber-risk turned out to be the key risk area for institutions in their innovation endeavors, similar to the findings of the 2018-2022 Innovation Surveys. 97 percent of banks and 71 percent of MFBs identified it as one of the top three innovation-related risks,” noted the survey.
“Operational risk was identified as the second highest key risk area by 84 percent of banks and 86 percent of Micro Finance Banks MFBs. 79 percent of MFBs and 82 percent of banks considered third-party and vendor management risk as one of the top three innovation-related risks. This correlates with most of the institutions that responded to using an outsourced or collaboration and partnership approach to the development of innovative products.”
The 2023 Innovation Survey Report informs the impact of Fintech on the current operating models, including the emergence of new business models and evolving and emerging risks. It also provides an informed basis for evidence-based public policy decisions on Fintech going forward.
The survey shows that the banking sector is leveraging Big Data and Data Analytics to harness data insights for enhanced service delivery. API technology and cloud computing offer support to banking sector services in their innovative use of data. Cloud computing is increasingly becoming important due to the efficiencies of scale and cost savings.
The banking sector is also cognizant of the importance of addressing climate action and has increased its efforts towards offering innovative climate-related financial products and services. In this regard, CBK’s Guidance on Climate-related Risk Management, issued in 2021, was a timely policy action and will steer the banking sector towards greening efforts.
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