How neobanks can break into the kenyan market

Kenya’s financial market has seen exponential growth over the past 10 years. From Mshwari from Safaricom to the plethora of digital lending apps in the country, the landscape has definitely evolved. However, neobanks have largely been non-existent in the market  even when they were rising in other markets such as Nigeria and Latin America. So what was the bottleneck?

Strategic planning

Strategic planning is paramount for neobank startups looking to succeed in Kenya’s competitive financial sector. A well-thought-out strategy can help them navigate regulatory challenges, identify market gaps, and create innovative solutions that resonate with the local population.

Understand the Kenyan financial landscape

Understanding the existing financial landscape is the foundation of any neobank’s success in Kenya. The traditional banking sector is composed of both local and international banks, and mobile money services like M-Pesa have a significant presence which according to the Central Bank of Kenya, the number of banking agents in Kenya has grown to over 200,000 with total agent transactions totalling over Ksh 5 trillion.

Identifying Opportunities and Gaps in the Market

Neobanks can identify gaps in the market by analyzing the specific needs of the Kenyan population. Some opportunities include reaching the unbanked and underbanked populations, providing affordable and accessible financial services, and catering to the digital-savvy youth.

Conducting thorough research and market analysis is crucial for neobank startups. This can involve surveys, focus groups, and data analysis to gain insights into the needs and preferences of potential customers and use of data sources such as the Kenya National Bureau of Statistics and FSD Kenya.

Regulatory compliance and licensing

Kenyan financial regulations aim to maintain the stability and integrity of the financial system. Neobanks must adhere to these regulations, including licensing requirements, to operate legally.

Central Bank of Kenya’s Regulatory Sandbox provides information on regulatory requirements for fintech companies. Financial startups then need to follow a structured process to obtain the necessary licenses. This involves engaging with regulatory authorities and meeting specific compliance criteria.

The Capital Markets Authority and the Insurance Regulatory Authority can provide information on licensing for financial services in Kenya.

Develop innovative banking solutions

Innovation is at the heart of neobanking. To stand out in Kenya’s competitive market, startups must develop products and services that meet the unique needs and expectations of their target audience.

According to a survey by FSD Kenya, 50% of Kenyans use digital financial services, making innovation in this sector particularly relevant.

Examples of innovative neobank offerings

Several neobanks in Kenya have set examples of innovative offerings. For instance, some have introduced savings and investment products that are accessible through mobile apps, making it easier for customers to grow their wealth.

Successful Kenyan neobanks like KCB M-Pesa, Equitel, and Absa’s Timiza for inspiration.

Leveraging technology

Technology is a neobank’s greatest ally. By embracing modern technology, neobanks can provide customers with a seamless and user-friendly banking experience.

According to a GSMA report, Kenya is a leader in mobile money adoption, with 66% of adults using mobile money services and the number only going up as the years go by.

Partner with local institutions

Collaborating with established financial institutions, such as banks and microfinance institutions, can open doors to resources and expertise. These partnerships can also facilitate regulatory compliance.

The Kenya Bankers Association can provide information on the banking landscape in Kenya.

Mutual advantages

Partnerships are mutually beneficial, as neobanks can leverage existing customer bases and established institutions can tap into the startups’ innovative technologies.

Financial inclusion

The Global Findex Database indicates that around 82% of the Kenyan population had a mobile money account in 2017, a significant leap in financial inclusion and thus a solution that can utilize mobile money penetration can help in improving financial inclusion.

Digital marketing and user acquisition

Digital marketing is a powerful tool for online-first startups to reach a broader audience. Leveraging online advertising, social media, and content marketing can help neobanks connect with potential customers.

As of 2023, Kenya had 14 million Facebook users  which can be an ad reach of about 28% of the country’s 50 million population.

Future neobanks in Kenya

Neobank startups have the potential to disrupt the traditional banking sector by changing the status quo and bringing the services closer to people in a simplified and secure interface. The road to success may be challenging, but with the right strategies and a commitment to innovation, neobanks in Kenya can thrive in this exciting landscape.

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