For close to a decade, there has been a major shift towards the digital space. When you mentioned banking the main thought was about a digital future driven by mobile apps, online deposits, and withdrawals.
To many, bank branches as we know them, with tellers behind firm glass windows and bankers huddled in cubicles with desktop computers, were about to die.
They were wrong. Despite the growing preference for fully-automated or self-service platforms including mobile, internet, and chatbots for their banking services, there is no love lost between customers and physical branches.
To many, these brick-and-mortar units are not just centres of service but a good measure of how stable or not their banks are.
Between December last year and mid-March this year, DTB, I&M, Co-operative Bank of Kenya and Absa Bank Kenya have all added new branches, with promises for more.
Some of the factors fuelling the return of branches include the sticky customers who still desire face-to-face service and the shifting demographics that have made some locations change from largely residential areas to commercial hubs.
Shopping malls, new market centres, and residential-cum-commercial centres have on the back of new or expanded road networks emerged as the most popular centres for setting up new branches.
NCBA Group chief executive John Gachora once spoke about this peculiar love-hate relationship of customers with branches: “Customer behaviour is that they still want to know where you are located before they can open an account with you.”
Many banks in the country are now splurging billions of shillings on opening up new branches despite having spent several years betting on digitalisation to win the hearts and minds of the increasingly young and tech-savvy customers.
This is the second time that physical branches are refusing to go away. Even the once revolutionary automated teller machines (ATMs) that had been touted to bring down these branches are the ones showing signs of fading away — banks had by May last year cut the number of teller machines by 2,291, being levels last seen 11 years ago.
In heavily digitalised economies such as the US, JPMorgan Chase has announced plans to add more than 500 new branches by 2027, saying it views branches as ‘one of the key reasons that customers open accounts with us and it has helped us attract deposits’.
“We really view our branches as a storefront for the entire company and it is an anchor for us to expand our relationship with customers as we aim to be their primary financial partner,” JPMorgan added.
While the latest industry survey by the Kenya Bankers Association (KBA) shows 45.7 per cent of customers now prefer fully automated or self-service platforms compared with just 16.5 per cent that prefer human-assisted service, the lobby’s chief executive Habil Olaka says banks are likely to accelerate investments in new physical branches.
“It may look like a contradiction given the high portion of customers preferring digital platforms. But at the end of the day, even as we go deep into technology, that human experience with customers is not going to end,” said Mr Olaka.
“Many customers still want to walk into banks and talk to human beings about their experiences. We have to ensure we still cater for such customers by maintaining physical interaction as opposed to confining them to devices.”
Large banks including KCB, Co-operative Bank of Kenya, NCBA, and DTB Bank have led the way in opening new branches across the country.
The budget for setting up these branches runs into billions of shillings, according to the estimates from the industry.
Mr Olaka in a May 2022 Daily Nation article on what it takes to open and operate a bank business in Kenya put the cost of establishing a bank branch at between Sh30 million and Sh50 million depending on the size and location.
The branches have to meet certain standards including burglar-proofed premises. Each outlet attracts an annual licence fee of between Sh30,000 and Sh150,000 depending on whether the branch is in an urban centre, town, or municipality, according to Mr Olaka.
“Branches are in most cases located along the most expensive streets in a town,” said Mr Olaka.
At least 80 branches have been added to the market over the past three years and about 21 are in the pipeline.
Mr Olaka’s estimates mean that the sector has spent a minimum of between Sh2.4 billion and Sh4 billion on new branches and will require up to Sh1 billion on the ones they have disclosed to be eyeing.
Co-operative Bank of Kenya has set sight on opening an additional 15 new branches this year, in what will mark the third straight year of adding its physical outlets across the country.
Mr William Ndumia, the director of retail and business banking at Co-op Bank, says the expansion is motivated by the “we want something close” pressure from customers in line with the changing demographics in satellite towns bordering cities or rural towns coming to life as devolution initiatives spur growth in once sleepy areas.
“Because of the infrastructure development that has happened across the country, there are some key towns that have come up and there is a lot of business and some of our customers are spreading out,” says Mr Ndumia.
The 15 branches will add to the eight opened last year and five in 2022, bringing the total number of new outlets in three years to 28.
Some of the new branches such as in Greenwood Mall – Meru, Kasarani, Kamakis, and Chwele, and the planned branch in Imaara Shopping Mall have been inspired by the changing demographics.
For instance, Mr Ndumia says a section of the customers who were doing business at Nyamakima — one of the busiest business areas in the capital — moved to Kamakis, a buzzing locality along the Nairobi Eastern Bypass Highway.
Apart from Co-op, NCBA has also been on an expansion drive, adding over 30 in three years to the end of last year. It added 13 in 2021, and 12 in 2022 and said it was putting up an additional 11 within last year.
NCBA, when launching a new branch in Ruaka town in Kiambu County, spoke of how the changing face of estates is influencing the location of new branches.
“Ruaka has in the recent past become one of the fastest-growing satellite towns in the Nairobi Metropolitan Area which has in turn made it become a major centre for real estate investment and development,” said Ms Louisa Wandabwa, NCBA director of strategy.
A similar trend has been observed with DTB, which in December opened eight new branches, adding to six that it had added a year earlier.
DTB, for instance, opened a branch in Gikomba and Eastleigh, allowing it to capture the market of small and medium-sized businesses that operate in these two busy locations.
