History of Banking in Kenya: Impact of Technology

The use of technology in banking in Kenya in fact dates back to the days of the National Bank of India. The technology in use at that time, manual weighing scales, was fairly crude and mechanical. The weighing scales were manufactured in London and shipped in already calibrated and ready for use. They came in varying sizes and used different weighing stones whose fixed weight was the equivalent of a certain amount of rupees.

Huge volumes of books were used for purposes of keeping accounts as well as documents that constituted powers of attorney and wills. Customers were issued with passbooks in which all their transactions with the bank were entered by clerks. Withdrawal of large sums of cash was rare and one was required to notify the bank in advance. The notice duration was dependent on the sum one wished to withdraw but ranged from one to three weeks. Cheques were mostly the preserve of companies and individual clients who were very wealthy. And in the 1950s it took longer than a month for a cheque to clear. This improved to 21 days in the 1980s, compared to two days at present.

Front office operations remained fairly manual. As a result banks were generally open to clients for a half day, five days a week so as to give bank staff more time to balance the books and attend to other internal matters before closing. This was still the case in the 1980s. The fastest way of sending and receiving money at the time was through telegraphic transfer.

Beginning in the late 1960s the main banks started investing in computerizing their operations. In June 1968 National and Grindlays Bank installed a 16K 1901 ICL main frame computer at its headquarters in Nairobi to serve as the central depository for information from all the bank’s branches countrywide. The information was first entered onto paper tapes which were then fed into the mainframe. The bank bought a second mainframe in 1971. Even then, only computer operations (data entry) were carried out locally. All programming was done in Britain.

In 1972, KCB established its own systems and programming division based at Gigiri. Three years later, the bank acquired the Key-Edit computer system whose key feature was the ability to capture and output data on a magnetic tape. This was followed in 1977 by the purchase of two new mainframe computers to replace the ageing 1901 and 1902A mainframes.

Barclays Bank of Kenya was the first bank to fully computerize its operations in the country. Its Barclays International Accounting System computer programme was rolled out in November 1982, with its Enterprise Road, Nairobi, branch being the first beneficiary. The programme was a phenomenal success and the bank soon expanded its use to cover all branches within Nairobi and later countrywide. Other banks would eventually follow suit and computerize operations in their branches.

In 1989, StanChart pioneered the use of debit cards and automated teller machines or ATMs. Barclays, KCB and Co-op Bank followed not long thereafter. And in 1994 KCB introduced The Swift System, a fast, secure and cost-effective method of transferring money to other banks worldwide.

By early 2000 bank customers were able to access services from any branch of their bank unlike before when one had to go to their branch. ATMs were enhanced to offer a variety of services besides cash withdrawal. These included cash and cheque deposit, issuance of mini statements, and transfer of money directly to another account within the bank. Banks also interconnected their ATM networks thereby allowing customers to access the services on ATMs beyond those of their banks. A case in point is the PesaPoint network of ATMs to which the majority of banks subscribe.

An even more innovative system of banking would come in 2004 when Co-op Bank pioneered mobile banking in Kenya. But although the service allowed customers to check their account balance, request statements and track the status of cheques, it did not facilitate actual transfer of money. That only became a possibility with the launch of the M-pesa mobile money transfer system by Safaricom in 2007.

M-pesa has drastically transformed the way the majority of Kenyans send and receive money, in the process generating billions of shillings in profit for Safaricom. Currently, most banks have adopted and integrated the M-pesa concept in their everyday services.

Most banks are also offering internet banking, where customers can transact their business on personal computers or smart phones in the comforts of their homes or offices. This is being achieved by banks partnering with local technology firms, in particular companies that facilitate on-line financial activities or e-payments.

Data released by the Central Bank in August 2012 revealed that the introduction of internet banking has resulted in a substantial increase in the amount of money being remitted by Kenyans living and working abroad, with an average of a hundred million dollars being remitted every month.

Technology is important in banking, but it is beneficial only when it is used by employees who understand not just the technology but the intricacies of the banking industry.