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1.0 Background

In recent years, retail banking has increasingly gained popularity in Kenya due to
various changes in the market. Retail banking has been defined as the provision of
cluster products and services by banks to consumers and small businesses through
branches, the Internet and other channels (Ashcraft, 2005). This is as opposed to
corporate banking, which consists of different banking services to large companies,
governments or other big institutions.

There are various forms of banking namely corporate, commercial, retail banking and
investment banking therefore banks can offer more than one form of banking.

Banking industry in Kenya is divided into three categories: banks, micro-finance

institutions, foreign exchange bureaus and non-banks financial institutions. There are
forty-six bank and non-bank financial institutions, fifteen micro-finance institutions
and forty-eight foreign exchange bureaus. Thirty-five of the banks, most of which are
small to medium sized, are locally owned. A few large banks most of which are
foreign-owned, though some are partially locally owned, dominate the industry. Six of
the major banks are listed on the Nairobi Stock Exchange (PWC report, 2007)

The commercial banks and non-banking financial institutions in Kenya offer

corporate and retail banking services but a small number, mainly comprising the
larger banks, offer other services including investment banking (PWC report, 2007).

Retail banks exist to service the financial needs of business and society. The
deregulation of financial services markets in the 1980s, and in particular the growing
focus of both consumers and producers on quality, has created a process of structural
change in the banking industry. Retail banking is a commodity service and the effects
of these changes are therefore experienced by most of the population.

Indeed, by the late 1990s, the mainstream banks started restructuring their services
towards wealthier people, and savings services became wealthier people, and savings
services became sufficiently expensive that even middle-income people sought
cheaper alternatives. From the year 2002 there has been renewed interest from the
banks in reaching the mass of middle-income salaried individuals such as teachers and
civil servants and this market segment is quite competitive (Johnson, 2004).

In the last four years there has been increased competition from new entrants into the
banking industry, forcing banks to cut costs and improve efficiency through
automation and price rationalization (Paulson and McAndrews, 1998). While the
banks have been forced to cut costs and improve efficiency, there is increasing
internal and political pressure on banks to expand their products and services to the
un-banked and under-banked.(Bitner, et al 2000).

Due to the competitiveness of the banking industry many banks which were doing
corporate banking changed to partially or completely to retail banking. This is evident
from a lot of advertisements made by banks using various forms and also by use of
sales people, who have tried to convince many individuals to open accounts
((Banking supervision Annual Report,2005).

Banks which have actually incorporated retail banking in Kenya are CFC, Standard
chartered, Barclays, National bank of Kenya, Kenya Commercial Bank, Consolidated
bank, NIC bank, Co-operative bank of Kenya.(PWC Report,2005).

Changes in Retail Banking since 2002

Retail banking has been undergoing dramatic operational transformation in the recent
years. Mergers and acquisitions, increased competition, and new regulatory
requirements have driven banks to rethink their retail strategies. It has become
important for retail banks to leverage technology to optimize sales and fulfilment

processes, manage distribution channels, and streamline operations to acquire, satisfy,
and thereby retain customers. (Chen, 1999)

The retail finance sector is currently one of the most competitive in the banking
industry. However, in order to succeed in such a dynamic market place, Berry (2007)
argues that the skills required to be a successful retail banker are many and varied:
ability to demonstrate a deep understanding of consumer needs and revenue
generating methods, ability to develop new market entry and customer retention
strategies, application of new business models and translating them into revenue
generating projects and programmes.

Financial institutions that are interested in tapping underserved households need new
strategies to segment the large under banked market. The rise in the number of
financial institutions that are designing new initiatives to pursue the under banked
consumer market illustrates the recent realization of retail banking (Karty and
Stewart, 2006)

Rapid technological advances have introduced significant changes in retail banking.

Bank branches alone are no longer sufficient to provide banking services to cater for
the needs of today’s sophisticated and demanding customers. The provision of
banking services through electronic channels (e-channels) namely ATMs, personal
computer banking and phone banking have provided an alternative means to acquire
banking services more conveniently. (Howcroft et al, 2002)

Other changes that have been used by the banks to penetrate into the market is the use
of downscaling. Under the concept of downscaling the banks are trying to modify
their services to meet the needs of the low- income earners. Low-income markets can
be served on a “sustainable” basis, that is, with full cost recovery and a market return,
without subsidy. As a result, in a growing number of countries, the formal financial
sector has begun to take notice and to service these traditionally marginalized sectors.
(Young et al, 2005)

1.1 Problem statement

Retail banking in Kenya in the past years had been severely underdeveloped and
marginalized, since the majority of Kenyans live below the poverty line and cannot
afford the luxury of an idle Ksh 1000. Banks mainly made their money from
corporate clients and huge government deposits. Since many Kenyans were
marginalised from retail banking, they had to develop alternative avenues of finance
and investments for example co-operatives and welfare organizations (CBK
Amendment Act, 2000)

In the past three years Kenyan banking sector has progressed towards increasing retail
banking and decreasing the corporate banking. This is evident in the efforts banks are
putting to attract retail customers through advertisements and sales promotions
(Financial standard, 2006).

This study therefore intends to find out the extent of successfulness of offering retail
banking. To measure the aspect of success, the study will look at the number of
individuals with bank accounts as compared to accounts of large companies,
parastatals and government

1.2 Objectives of the study

1. To determine the extent of successfulness of retail banking as used by selected

banks in Nairobi.
2. To identify factors that have led to the successfulness of retail banking as used
by banks.
3. To identify the challenges facing these banks in implementing retail banking.

1.3 Research questions

The study is carried out to answer the following questions:

1. To what extent is retail banking successful as used by selected banks in

2. What are the factors that have successfully led to the use of retail banking by
these banks?
3. What are the challenges facing these banks in implementing retail banking?

1.4 Significance of the study

This study will benefit the bank managers since it will identify an opportunity that has
not been ventured into by many banks. This opportunity therefore can help them
diversify their risks and improve the profitability of their operations.

The paper also will help under banked in the long run. This is because when the
banks identify potential opportunity i.e. retail banking they will try to fill in the gap
and the underserved market will get an opportunity to use services provided by these

Other researchers interested in the problem under this study will also benefit, as the
research will lay a platform on which further research on the topic can be undertaken



2.0 Introduction

Literature review will document the extent of retail banking by commercial banks that
have opted to expand into retail banking as a new line of business. This chapter also
analyses the factors that have enhanced the use of retail banking and the challenges

Retail banking is the cluster of products and services that banks provide to consumers
and small businesses through branches, the Internet, and other channels. As this
definition implies, banks organize their retail activities along three complementary
dimensions: customers served, products and services offered, and the delivery
channels linking customers to products and services (Ashcraft, 2005).

In banking today, as in other service industries, managers must remain alert to

constant environmental changes, and be ready to redefine their corporate mission and
reformulate their marketing policies, plans and strategies to meet the needs of the
evolving, complex marketplace (Karty and Stewart,2006).

The retail finance sector is currently one of the most competitive in the banking
industry. However, in order to succeed in such a dynamic market place, Berry (2006)
argues that the skills required to be a successful retail banker are many and varied:
ability to demonstrate a deep understanding of consumer needs and revenue
generating methods, ability to develop new market entry and customer retention
strategies, application of new business models and translating them into revenue
generating projects and programmes. A successful product development, effective
distribution and efficient marketing programme can make a real difference to the
retail bank’s performance and impact on its bottom line.

2.1 The extent of successfulness of retail banking in Kenya

Many studies have been carried out in other countries to explain the successfulness of
retail banking. Stewart (2006) argues that over time retailing and retail banking have
developed side by side, albeit far from independently. There are several intersection
points. The most important ones are centered round the point of sale (POS) and the
customer payments of purchased goods. Holmberg and Suslin (2001) argues that at
the time of the deregulation of the financial market in the mid of the 1980s there was
a clear-cut borderline between retailing and banking.

Retail banking was developed by investors who perceived opportunities to exploit

gaps in financial markets. Foreign and government owned banks were generally
conservative in their lending policies, they concentrated only on the multinational
corporations(MNCs) and other large corporate customers (Harvey, 1993).

In recent years, retail banking has become a key area of strategic emphasis in the U.S.
banking industry, as evidenced by rising trends in retail loan and deposit shares on
commercial bank balance sheets and a continuing increase in the number of bank
branches (American banker, 2005)

The U.S. banking industry is experiencing renewed interest in retail banking. These
activities—broadly defined as the range of products and services provided to
consumers and small businesses—have grown in importance over the past several
years. Retail-related positions now account for larger shares of commercial bank
balance sheets, and the number of bank branches continues to grow. The recent focus
on retail contrasts sharply with industry views held during the 1990s, when banks’
attention turned to broadening products, diversifying revenues, substituting alternative
delivery channels for branches, and offering a multitude of financial services to all
types of retail, corporate, and wholesale customers. (White, 2005)

In Western economies it is widely recognized that retail banking is becoming a more

competitive business everyday. Banks are realizing that revenue growth cannot be
taken for granted anymore, and that survival will not simply be a question of turning

revenues into reasonable profits, but to actively secure that flow of revenues in the
first place. In other words, banks must shift their focus away from the singular
obsession with efficiency of recent years, and return their gaze to revenue growth,
market share, and put back in the center of attention the very source of that revenue:
the customer. (Stewart, 2006)

Niche marketers have a competitive advantage in today’s highly segmented financial

services market. The consumer marketplace is continuing to fragment into smaller
subsets of needs and behaviours, which is affecting the way banks and other financial
institutions market products and services (Laurino, 1993).

Success stories indicate that low-income markets can be served on a “sustainable”

basis, that is, with full cost recovery and a market return, without subsidy. As a result,
in a growing number of countries, commercial banks are beginning to take notice and
to service these traditionally marginalized sectors through retail banking. This
experience suggests that local formal financial institutions have a business incentive
to serve this market segment.( Arora and Sukhwinder,2005)

Approaching new customer segments as a potential source of additional revenue –

mainly lower, but secured income segments - retired people and public institutions
employees (e.g. teachers) as potential target groups for simple and low volume loan
products (cash loan, credit card) can expand the revenues of the bank. . (Klinkers,

Retail banking is a relatively a new market opportunity for many banks in developing
countries like Kenya. Interest in the social, economic and business potential of low-
income market segments has grown and financial products have been created to meet
their needs. These financial services include loans for business and personal use,
savings and other deposit products, remittances and transfers, payment services,
insurance, and potentially any financial product or service a bank can offer to this
market segment. The market segments include, low-income salaried employees, day
laborers, pensioners, and poor households, which have historically been un-served or
underserved by banks. The products and services can be targeted to meet the financial

needs of the households as well as their income generating activities. (Drake et al,
Many commercial banks in Kenya are beginning to examine retail banking as an
opportunity to explore and are even changing their operations from corporate banking
to retail banking. This is because there is stiff competition in the banking industry
that have forced them to diversify into new markets. These banks do not only initiate
this form of banking but they always want to be successful.

2.2 Factors that have led to retail banking in Kenya

Retail banking has been triggered off by a number of factors namely multiple
distribution channels, cross-selling services and liberalization of financial sector.

2.2.1. Multiple distribution channels

The rapid pace of development in information technology and communications (ICT)

has offered a wide range of delivery channels in retail banking. Banking institutions
need to exploit opportunities that arise for these developments to bring significant
gains to their customers. The successful banking institutions will therefore be those
that are able to derive most from information and communications technology
development. The winners will be those that are able to harness the capability of ICT
in making decisions in terms of business alignment, work management and better
customer relationship. (Central bank of Kenya, 2003)

The efforts to optimize distribution channel strategies have led banks to place
renewed focus on their branch networks and concentrate on transforming them into
centers for high value product sales and advice. A key driver for branch renewal is the
imperative for delivering optimum advice to improve cross-sell and up-sell rates and
further the aim of becoming providers of integrated financial solutions. In doing so,
banks are faced with the challenges of replacing antiquated IT infrastructures in
branches and enabling them to deliver sales and advice. Furthermore, banks will
have to transform traditional teller roles in branches into seller and customer
relationship manager roles either by replacing or training existing staff. (McDonald,

In the last 5 years, many financial institutions in Europe have implemented advanced
technological platforms , introducing a number of interactive marketing channels: e-
banking, Internet banking, mobile banking and ATMs. he research has shown that
sustainable profitability in the banking sector depends on mastering the skills of
managing and integrating customer relationships across multichannels, by using
advanced data and communication technologies (Kirby, 2001; Yulinsky, 2000).

An important factor in the introduction of additional banking channels was the

progress of information technology applications, especially Internet and mobile
communication (Hadidi, 2003; Isarescu, 2001). The increased informatization of
society has determined a transition toward an e-payments economy, in which money
is perceived as information stored or transmitted through various communication
channels (Pastore, 2001). The organization segments the market in terms of priority
channels, promoting distinctive offers for each type of customer.

In time, the search for greater convenience makes customers access various channels,
depending on personal needs and circumstances. These multichannel customers
expect and request a similar level of service from every delivery channel. On the other
hand, the necessity to improve customer loyalty through personalized customer
relationship management determines the financial institutions to introduce a unique
platform technology, integrating the information flows from all existing channels
(Martz, 2003). The banks are therefore adopting a multichannel approach, which is
characteristic for a fully informatized economy in which information has become the
primary strategic asset for building and maintaining competitive advantage.

According to rational channel planning models (e.g. Stern and Sturdivant, 1987;
Stern et al., 1996), retail banks should identify profitable customer segments attracted
to branch banking, telephone banking, PC banking and Internet banking or
combinations thereof. Based on this knowledge, they have to decide which
distribution channels they want to offer their present and future customers. Hence,
they have to predict both the consumer acceptance of these distribution channels and
the dominating distribution channel strategies of their competitors.

In nearly all banks in the United States, internet banking usage enjoys strong growth
rates. Nordic countries are most advanced, whereas Southern European countries
seem to be lagging behind. Currently, the internet is most attractive for the
distribution of standardized products whereas more complex products are almost
exclusively distributed via branches. However, this is likely to change as more and
more customers become familiar and equipped with modern and cheap
telecommunication and internet services. At the same time, the currently limited
supply of cross-border online banking services (especially those offered by specialist
providers such as internet banks) is another major factor restraining market
development (Meuter, 2000)

Finance and banking are information-intensive industries, which can be positively

transformed by the development of ICT. However, a 1999 World Bank (Purcell &
Toland, 2003) survey reported the average on-line banking penetration for developing
countries to be only 5%. The main challenges encountered by developing countries in
implementing multichannel banking activities are (Hadidi, 2003)

• The ability to adopt global technology to the local requirements

• The ability to strengthen the public support for e-finance
• The ability to create the necessary level of regulatory and institutional frameworks
• The ability to mainstream SMEs toward e-finance.

Despite the sound theoretical basis of the multichannel banking

strategy, the banks
implementing it have encountered unexpected problems and
challenges (Martz, 2003). First of all, the customers did not adopt
the new interactive channels, such as internet banking or mobile
banking, with overwhelming enthusiasm. Many customers have
continued to rely on bank branches as their main channel of banking
services, occasionally using alternative channels, when convenient.
Second, by introducing new banking channels, some banks have lost
the direct contact with the customer. This problem was created
mainly by the incapacity of these banks to properly integrate the

interaction with clients across all the banking channels available.
The use of different IT systems has created important barriers
against the sharing of customer data by various operational
departments, which is specific for multiple-channel organizational
configurations. These difficulties highlighted once more the
necessity of a clear, focused strategy for multichannel banking
operations, and the need
for a unique IT platform for integrating information flows and
customer databases.

Despite the growing interest in the introduction of multichannel financial marketing,

there is little research regarding the development and implementation of multichannel
banking strategies in developing economies. Most of the articles dealing with this
subject present only general information, without attempting to analyze primary and
secondary data in a systematic way (Baliamoune, 2004; Efinance, 2001, Hadidi,

In Kenya this multiple distribution is growing faster due to the rapid development in
Information technology. Although there are many forms of distribution not all people
have been banked thus the study will find how banks are successful by using many
distribution channels.

2.2.2 Availability of Cross-selling services

Cross-selling services refers to the practice of providing other services that potential
banking clients might find useful in addition to the traditional banking services
currently being provided by banks. Cross-selling services can be useful marketing
tools for banks to reach segments of the population that do not yet use traditional
banking services.(Deborah and Young,2005)

According to Vogel (2005) the following are examples of services that could be
provided are: Money orders, consumer lending, overdrafts account, mortgages,
affordable alternatives to payday loans, consumer lending and mutual funds
Free tax preparation assistance to low-income individuals

In fast growing markets, such as the Central European countries, banks still compete
to gain significant market share which lets them create a customer base for further
cross selling initiatives and thus enhance revenues. Due to the fact that the market
grows at a double digit pace (e.g. Polish retail mortgage loan portfolio growth
amounted to almost 41% for the first nine months of 2006) and competition is getting
more intense, repackaging of financial products is necessary for growth of revenues.
(Hirschland, 2002)

Although loans and deposits are the primary products, retail banking units provide a
range of other financial services to consumers and small businesses. For individual
consumers, these services include sales of investment products (such as mutual funds
and annuities), insurance brokerage, and financial and retirement planning. For small
businesses, they include merchant and payments services, cash handling, insurance
brokerage, and payroll and employee benefits services.(McDonald,2003)

Retail banks can reach a large number of the currently unbanked by providing
services that commonly are used by that segment of the population. Such access
allows individuals to avoid the high cost of fringe financial services, such as check
cashing and payday loans - ultimately benefiting the whole community when those
savings are reinvested in families and communities. (Harper, 2005)

Banks view retail banking as a strong opportunity for cross-selling products.

Depending on a bank’s overall strategy, it may enter traditionally marginal markets
with one or many products. For example, banks may be mobilizing deposits and
accepting utility payments from individuals with low income, but may not have
considered lending to customers at a lower rate.(Drake et al,2005)

Although loans and deposits are the primary products, retail-banking units provide a
range of other financial services to consumers and small businesses. For individual
consumers, these services include sales of investment products (such as mutual funds
and annuities), insurance brokerage, and financial and retirement planning. For small
businesses, they include merchant and payments services, cash handling, insurance
brokerage, and payroll and employee benefits services.(Dick,2006)

In addition to new product development, banks find opportunities to cross-sell
existing financial services. Loan proceeds are typically disbursed into savings
accounts that clients also use to make their payments, leaving a residual balance that
may grow over time. (Keasey ,2003).
Depending upon the laws and regulations to which a particular bank is subject, banks
can offer services that potential clients might find appealing. These services might
include income tax preparation, low or no fee checking/savings accounts, lower fee
money transmission and check cashing services and convenient money deposits into
foreign bank accounts. Experience has shown that the strategy of cross-selling is a
highly effective means of reaching unbanked communities (Jennifer et al, 2003).

According to Barney(2002) multi-channelling has benefits as well as disadvantages.

- Customers can choose how and when contact with the bank is wanted
- Different channels appeal to different types of customers and thus customers can
easily choose they channel of their choice.
Cost savings, because of relatively cheap virtual channels
- Customers become more anonymous
- Customers can switch more easily between banks this is because there is low cost of
- There is a high investment in ICT systems
-Complexity of control

Many banks in Kenya are putting in more efforts by trying to differentiate their
products and services to suit and innovating more. This study therefore will find out
whether this strategy of offering several services and products is fruitful especially to
retail bankers.

2.2.3 Liberalization of financial markets

Competition is growing in retail banking, however, as new banks enter the market
under banking laws that allow more freedom of entry and a less repressed regulatory

environment. The struggle to survive is forcing many of these banks to look at new
markets, and the deregulation of financial markets is creating an environment in
which these opportunities can now be explored for the first time.(Churchill and

With the advent of structural adjustment and financial liberalization in the 1980s,
banking industry expanded rapidly in the Western economies thus all interest rates
had been deregulated, creating the opportunity to freely charge the higher, more
realistic interest rates required for lending to individuals with low income at a below –
market rate. (Almeyda and Gloria, 1996)

Studies also show that the change of the political regime in Romania, in December
1989, oriented the national policy toward the development of a free-market economy.
The creation of a complex financial and banking sector has represented an important
priority in this context. Before 1990, the Romanian banking system was limited to a
handful of banks that managed the financial operations of state enterprises, and by the
national savings banks that were servicing the needs of the population. After the fall
of the communist regime, the country attempted to open its structures toward the
world and to adopt the models used in industrialized countries.( McNamara,

Policy makers are increasingly concerned by the relative lack of retail banking
in Europe. For many, the long-term success of the “Single Market” depends on
bringing the benefits of economic liberalization in a tangible form to consumers and
the public at large (McDonald,2003).

Liberalization and deregulation of the Greek banking industry, mainly of the

retail sector, has intensified competition, which is particularly noticeable in
the area of banking charges (Gortsos , 1992).

In developing countries like Kenya liberalization has not been achieved and thus some
initiatives to enhance access to financial services. These initiatives include promoting

market discipline through targeted communication of bank lending rates, fees and
charges. This initiative is expected to result in increased competition in the banking
sector with attendant lowered costs and enhanced access. When the banking rates and
fees are lowered the banks can easily enter into retail segments by pricing their
products at considerable price to their customers( Ahmad and Buttle, 2002).

2.4 Challenges faced by banks in implementing retail banking

New entrants to retail banking confront significant challenges even in a purely

domestic environment, in particular due to economies of scale and network effects
that apply to the industry. At low volumes and numbers of clients, new entrants suffer
higher marginal and average costs (Bergman, 2002)

According to the survey carried out by Baliamoune ( 2004 ) on Vodafane bank in

Europe, retail banking involves a lot of difficulties. Retail banks firstly face
challenges achieving profitability while financing the large fixed investments often
needed in order to establish a service and acquire clients. Although the Internet has
reduced the importance of having a local presence, branch networks continue to be
important, and costly. Secondly, retail banks may be subject to important constraints
on competition and innovation in the provision of payment services. A new entrant
working through existing networks may be unable to diverge from established
practices and pricing. But in seeking to introduce new payment instruments, they
would face very significant challenges due to the strong network features of payment
services and the
market power of the existing collaborative payment organizations that dominate most
European countries.

Too risky: Bankers perceive individuals with low income can cause a bad credit risks.
This is because clients cannot repay their loans. The perception is that clients with
low income do not have stable, viable businesses for which for which to generate
repayment. Moreover, these potential clients lack traditional collateral to guarantee
their loans. Banks also do not appropriate technologies to serve these clientele i.e

correct screening mechanisms to separate good from bad credit risks. (Chakravorti et
al, 2006).

Heavy investment:Retail financial services require heavy investments in information

technology and branch network IT systems represent significant fixed costs for retail
banks. And the investments can be important even if a bank is serving just a small
numbers of clients. IT systems have increasingly enabled banks and other financial
services providers to automate processes for large volume standardized services,
increasing the role of economies of scale. New entrants may need to acquire a large
number of clients before they are able to break even while charging competitive
market rates. (Massoud, 2004).

Branch networks are still important means of acquiring and serving clients, in
particular for higher margin products for which clients still demand (or require)
advice. And within a limited area, there may be increasing returns to branch network
size – i.e. clients may be more inclined to choose a bank that has numerous branches
in the areas in which they work and live. This will be costly for banks to initiate.(
Alistair and Tang,2005).

Client acquisition can be slow and expensive. Acquiring clients is expensive, both in
terms of time and money. Marketing costs can represent a significant portion of total
costs during the early stages of development for a new financial services provider.
The quicker a critical mass of clients can be acquired, the sooner a new operator can
break even. Hence many foreign expansion strategies are based on a ‘stepping-stone’
model, building on existing networks or following other strategies associated with
smaller up-front investments and lower risks; alternatively, expansion abroad is

conducted through acquisition of an existing client base (Rochet and Tirole,2000)

Socio-economic and Cultural Barriers: According to bankers, micro and small

enterprise clients have difficulty approaching a bank because they lack education and
do not possess business records to demonstrate cash flow. In many developing
countries, social, cultural, and language barriers do not allow for an easy relationship

with a modern banking institution. It is hoped, however, that with a more widespread
diffusion of innovations in financial methodologies, reducing the risks and costs of
micro lending, more banks will begin to incorporate micro entrepreneurs into their
portfolios( Aladwani, 2001).

Although retail banking has been practised in Kenya for several years, it might be
successful due to some challenges and thus the study will therefore find out factors
that hinder its successfulness.

Success stories indicate that low-income markets can be served on a “sustainable”

basis, that is, with full cost recovery and a market return, without subsidy. As a result,
in a growing number of countries, commercial banks are beginning to take notice and
to service these traditionally marginalized sectors through retail banking ( Arora and
Sukhwinder,2005). According to Chakvavorti et al (2006) bankers perceive
individuals with low income can cause a bad credit risks. This is because clients
cannot repay their loans.In his perception retail banking cannot actually succeed
compared to corporate banking.These two researchers have different perceptions and
thus the study will find out whether this form of banking is successful.

There are conflicting researches on the factors that facilitate the successfulness of
retail banking e.g. according to Yulinsky (2000) research regarding multiple
distribution channels showed that introducing a number of interactive marketing
channels such as e-banking, internet banking, mobile banking and ATMs has enabled
banks to reach to many individuals who were under-banked. While other studies show
that multichannel is only theoretical. This is because many customers have continued
to rely on bank branches as their main channel of banking services (Martz,2003).This
therefore gives the need to undertake the research and find out whether multichannel
is one of the factors which facilitate the use of retail banking by banks




This chapter discusses how the study will be conducted, explaining the methods and
steps that will be used to conduct this research. The basis of any meaningful research
depends on the methods and procedures employed in data collection and a clear
definition of the target group of respondents.


This will be a qualitative research. Qualitative research is concerned with subjective
assessment of attitudes, opinions and behaviour. This type of research also provides
an understanding of how or why things are as they are.
The population of interest involves selected banks in Nairobi, which were dealing
with corporate banking but now have changed to include retail banking. According to
Financial standard (2006) there are 15 banks, which have actively incorporated retail
unlike the past three years. The target population in the banks are the marketing


Since the population is small i.e. fifteen banks a census will be carried out to give
appropriate results.

Primary data will be collected using interview guide. The researcher will carry out in-
depth interviews with the marketing managers, one from each bank. The interview
guide will be structured into 4 sections. Section A will include demographics
questions, section B will involve questions on general perspective of managers on
retail banking, section C include questions on factors that have led to the use of retail
banking and section D will include questions on challenges facing banks in
implementing this form of banking.


Information collected will be arranged according to themes. Analysis will be done
using content analysis




In this chapter the researcher gives a full account on the findings of the conducted
research. Analysis and interpretation of these findings is also given.

The population of the research was fifteen banks. The response rate was only ten
banks, in each of these banks one marketing manager was interviewed. Interview was
carried out by booking an appointment with the marketing managers so that the
researcher with the interviewee would have face to face discussions.
4.2.1 The target market for the banks
According to the interview carried out each bank has its own target market.
Standard chartered bank
The bank targets the following: Corporations, companies, personals and SMEs
Co-operative bank
This bank aims at serving only individual bankers and small and medium enterprises
(SMEs). According to the marketing manager the bank has changed its market from
corporate banking to retail banking.

Kenya commercial bank (KCB)

According to the marketing manager, in the past 3 years the bank has been actively
involved in retail banking. It also offers their services to corporations, companies and

Barclays bank
This is a market leader in retail bank and thus most of its services is for individual
bankers. The bank is also aggressively growing its corporate business i.e. corporate
banking in order to offer numerous world-class financial services.
National bank of Kenya
The bank has divided its services into three groups where it can serve its customers
more efficiently. This include:
Retail banking: This targets individuals and small businesses such as partnerships and
sole proprietors.
Corporate and institution banking: This mainly serves corporations i.e. companies
owned by the government. It also targets institutions such as schools, colleges and

CFC bank
It is a medium sized bank focused on providing banking financial services to
commercial, corporate and retail customers including large corporate institutions,
parastatals, non-governmental organizations, diplomatic missions and multi-nationals.
Commercial bank of Africa
It targets corporations, institutions and individual customers.
East Africa development bank
The bank serves individuals and SMEs.
NIC bank
The bank aims at serving all customers in the market. This is because they serve
individuals, corporations, companies and SMEs.
Consolidated bank of Kenya Ltd
It serves individual bankers, SMEs and corporations.
Equity bank
The bank serves only individuals i.e. retail banking.
K-rep bank
It targets individuals with low incomes and entrepreneurs.

4.2.2 The range of products offered by banks

Standard chartered bank
Bank overdrafts, Consumer lending, Mortgages

Co-operative bank
Consumer lending
Kenya commercial bank
Insurance premium finance, standing orders, travellers’ cheques, money transfer,
salary and credit payments, personal loans, KCB card products such as payroll card,
students card, travel card, credit cards such as local and international classic cards,
gold card and MasterCard products
Barclays bank
Home loans, Business solutions loan, Barclaycard, Barclays foreign currency account
La Riba current account for Muslims
National bank of Kenya
Overdrafts, asset financing, business loans, personal loans, tax collection/transmission
Payroll processing and distribution.
CFC bank
Asset financing, personal loans, overdrafts, Import and export letter of credit facilities
bills and invoice discounting

Commercial bank of Africa

Personal secured and unsecured loan, overdrafts, CBA premium financing, visa
electron debit card, personal and business credit cards.
NIC bank
Bank overdrafts and consumer lending.
Consolidated bank of Kenya Ltd
Bank overdrafts, consumer lending and money orders.

Equity bank
Bank overdrafts, consumer lending, mortgages, standing orders, remittance
processing, treasury bills, bank guarantees

Range of products offered in retail banking

Standard chartered bank
Overdrafts, secured and unsecured loan, deposit plus and debit cards.
Co-operative bank

Loans such as biashara plus loan, hekima savings account and co-op insurance
Kenya commercial bank
Personal loans ,insurance premium finance KCB prepaid card products such as
payroll card, students card, travel card, credit cards such as local classic card,
international classic card, gold card and MasterCard products
Barclays bank
Home loans, Barclaycard, la Riba current account for individual Muslims

National bank of Kenya

Loans such as car loan, NBK personal loan, HELB loan (education),cards such as
local and international credit cards and Visa debit cards.

CFC bank
Fixed deposit, savings and current accounts, personal loans, asset financing and trade
Commercial bank of Africa
Lending products: personal Secured loans and overdrafts, personal unsecured loans
and overdrafts facility, motor loans, home loans, CBA premium financing.
Card products and services: visa electron debit card, personal credit cards(classic&
gold) and business credit card(silver and gold).
Investment products: Offshore products and unit trust.
Deposit products: The personal savings account, current account, deposit account and
safe deposit lockers.
East Africa development bank
Loan, trade financing, equity investments, asset financing, real estate and property
development, agency for donor funds, loan guarantees, eligible sectors

NIC bank
Overdrafts, standing orders, foreign exchange transactions, loans, insurance premium
finance, foreign fare accounts, asset financing and insurance brokerage
Consolidated bank of Kenya Ltd
Loan: Solid loop, asset financing, personal loans and overdrafts

Products: solid plus account, solid E-cash account, dream saver account and foreign
currency account.
Services: Kenswitch ATMs, Pesa point ATMs and M-systems
Equity bank
Bank overdrafts, consumer lending, mortgages, standing orders, remittance
processing, treasury bills, bank guarantees
Factors that have made banks successful in retail banking
Standard chartered bank
According to the manager, consumer-banking business continuously meets the
challenges of developing new products and services to match the specific
requirements of customers. To offer customers a greater banking convenience, the
bank has introduced many modern banking facilities that include: Evening banking,
largest 24-hour ATM network, Visa Debit Card, Internet banking, e-statements, SMS
banking and 24-hour BillsPay service.
This form of banking also has been successful because of the quality service offered
by the bank, which has earned the bank good reputation among the customers.
Co-operative bank
The bank has many branches countrywide and its activities are centralized. This has
enabled bank to grow rapidly especially in personal banking. It has also committed
significant resources to boost service delivery to customers. Multiple channels of
distribution such as ATM network has been expanded to successfully reach customers.

Kenya commercial bank

Branch network: The bank ahs the widest network of outlets in the country compared
to other banks. All these branches provide a whole range of retail banking and
financial services. It has also approximately 119 ATMs which enable customers to
withdraw their money 24 hours.
The bank also co-operates with external economies. It has over 400 correspondent
banks throughout the world. This enables the customers to be served even when they
are out of the country.
Provision of quality and customer friendly services has geared towards mobilizing
many individuals to open an account with the bank. This quality service has also
ensured consistent growth in customer deposit that have in turn provided a strong
reservoir for steady growth in customer borrowings every year.

Barclays bank
The bank has many outlets countrywide. All the outlets are computer linked making it
possible for customers to access their accounts from any branch as if it were their own
home branch for all their cash and cheque transactions. The bank also has a lot of
ATMs approximately 82 in number.
The bank also is able to provide its services without much regulation on interest rates
and bank charges .This has enabled the bank to impose their rates which suit their
individual customers.
National bank of Kenya
The bank has structured its products to suit its customers. It also offers a variety of
products and services which are affordable to all customers depending on their status
i.e. low, middle and high income levels.
The bank also has branches and ATMs which enable them to serve many customers
more effectively and efficiently.

CFC bank
The bank offers a variety of products to the customers. What has actually made the
bank successful in retail banking is that it can grant unsecured loans and oversrafts to
individuals. It also has minimum requirement on loan borrowing compared to other
The bank has also invested much on ATMs network for example their ATMs are
divided into CFC ATMs, MasterCard ATM and Pesa points ATMs.
Commercial bank of Africa
The bank is continuously innovating new products for the retail segment. In the past
two years the bank has reported an increase in their customers due to the new product
know as offshore investment which gives the customers an opportunity to invest in
other countries.
The loan granted by the bank also has attractive interest rates and flexible investment
NIC bank
The bank has a variety of products and services. It has a good reputation of granting
of loans to individuals who want to acquire assets .The bank grants loan and keeping
their pricing competitive.

Consolidated bank of Kenya
It offers a service built on personalised and specialised banking solutions.It aims at
offering the best quality and according to the manager the bank has reported huge
turnover through its quality service offered.
It has employed modern technology that will greatly benefit their customers in
efficient delivery of financial services. The banking technology includes:

a). Bankmaster and Branch Power – Real time, online banking solutions
enabling ‘branchless’ operations.
b). M-Systems - Money Transfer Services.
c). Cheques / funds transfer – Electronic funds transfer.
d). Swift Connectivity - Connectivity to a worldwide community of financial
institutions that is the leader in communications solutions that enable inter
operationability between its members, their market infrastructures and the end user

Equity bank
It has a lot of branches countrywide and thus can reach many customers. The bank
also has many channels of distribution for example Internet banking, ATMs and e
banking. The bank is therefore able to capture many individuals through these forms
of distribution.
The extent of successfulness of retail banking
According to the interview carried out most banks have similar response on their
successfulness in retail banking.
The following five banks had the same responses: Barclays, Standard chartered, Co-
operative bank, KCB and Equity banks.
They rate retail banking as an excellent form of banking. They use the following
aspects to analyze this form of banking:
Number of accounts operated: Accounts are many compared to other form of banking.
These accounts are active i.e. there is a lot of transactions taking place daily either
deposit or withdrawals are made.
Loans offered: Individuals borrow at a higher rate with a given interest rates, which
are competitive. Repayment rate also is good.

Variety of products offered: Since there is a lot of competition these banks have
designed a lot of products. Statistics show that the most active market for these new
products is the retail segment.
Branch network: These banks have integrated systems which allow individuals to
access their accounts everywhere. The banks also offer the same products in all their
branches and this has given positive results in retail segment
The marketing managers of the following banks had the same responses: CFC, NIC,
Consolidated, Commercial bank of Africa and National bank.
They rate retail segment as good and the reasons for not being excellent is as follows:
These banks do not operate in all parts of the country and thus it caters for only few
individuals. Banks like NIC, Consolidated and Commercial bank of Africa operates
only in three towns and thus cannot most of the unbanked who are not located in the
three towns.
Since the core service offered by these banks is consumer lending, the results have
shown that the repayment rate is lower compared to lending to companies and
corporations. They argue that they have not been impressed by these market segment
and they would prefer corporate and institutional banking

Challenges facing banks in offering retail banking

Standard chartered bank
The main challenge facing bank is that lending to retail segment is too risky. This is
because individual with low income can cause bad credit risks. The bank also does
not have appropriate technology to serve this clientele i.e. correct screening
mechanisms to separate good from bad credit risks.
Co-operative bank
Since the bank is facing too much competition from SACCOs, it has been forced to
repackage its products and invest much on innovation. This has actually decreased the
returns since most of it is used in capital investments.
Kenya commercial bank
Over the past two years the bank has rapidly invested in branch networks outside the
country this has really taken a lot of capital from the bank compared to the returns.
Equity bank
The bank has found out that socio-economic and cultural barriers have hindered their
operations. While trying to serve the under banked, this market segment has difficulty

in approaching a bank because they might not posses business records to demonstrate
cash flow.
Consolidated bank of Kenya ltd
The bank find heavy investment in multiple distribution channels to be too expensive
compared to the returns from these investments.
The bank also does not have enough experienced and qualified employees who can
influence the market to open an account with their bank.
CFC bank
The bank commands a small portion in the market. This is because its branch and
ATM network is only located in three towns i.e. Nairobi, Naivasha and Mombasa.
Their retail activities do not reach many individuals in the country and thus their
returns are not as high compared to those of other banks offering the same service.
Barclays bank
Slow acquisition of clients: Most individuals prefer other banks. This is because they
belief that Barclays has high banking charges. Although the bank is trying to reduce
their banking charges to suit all individuals from different income levels most of them
still don’t take the advantage of this.

Commercial bank of Africa

The bank has invested so much on innovation of many products with the aim of
selling them to retail segment but these customers do not make use of them.
National bank of Kenya
The bank closed most of its branches in many towns and thus customers find it hard to
be served especially where there are no ATMs or branches. When the bank closed
these branches the customers lost also trust in this bank and thus acquiring clients is

NIC bank
The main service offered in retail banking is lending and the bank has recorded many
instances of bad credit risk. The bank does not have enough machinery to separate
good from bad credit risk.

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Sample Cover Letter
Date; ________________
Name (optional): _________________________
Job Title/Occupation: _____________________
Name of the bank: ______________________________
Address: _______________________________
Dear Sir/ Madam


The researcher is a 4th year student studying Bachelor of Commerce in Strathmore
This questionnaire is designed to study the extent of retail banking in Nairobi.
The objectives of the study are to:
To determine the extent to which retail banking is used by banks in Nairobi.
To identify factors that have enhanced the use of retail banking
To identify the challenges facing banks in implementing retail banking.

Please note that the study will be conducted as an academic research and the
information you provide will be treated in the strictest confidence and ethical
principles will be observed to ensure confidentiality. The study outcomes of the
research will not include reference to any individuals or organizations.

The researcher requests the employee of the organization to kindly complete the
questionnaire in order to ensure comprehensive analysis of the findings.

In case of any clarifications needed, please do not hesitate to contact the undersigned
on Tel: 0724-890350 or Email at chepkiruiagnes@yahoo.com.Thank you very much
for your invaluable contribution.

Kitur Agnes

Sample of Questionnaire

Please tick in each box for the option that represents your appropriate response to
each of the following questions.
Section A

1.What is name of your bank?

2.What is your gender?

3.What is your position in the bank?

4.How long have you worked with the organization?

5.How many employees do you have in the bank?

Section B
6.Who is your target market in your bank?

SMEs ( )
Co-oporations ( )
Compnies ( )
Others Specify

7.What range of products do you offer?

Bank overdrafts ( )

Consumer lending ( )
Motrgages ( )
Money orders ( )

8.Do you offer any of the following products in retail banking?

Overdrafts ( )
Loans ( )
Insurance brokerage ( )

9.How can you rate retail banking compared to other forms of banking in your bank?

Excellent ( )
Good ( )
Average ( )
Bad ( )

Section C

10.What are some of the factors that have made your bank successful in retail
a) Availability of multiple distribution channels ( )
b) Availability of variety of products ( )
c) Liberalization of financial sector ( )

Others, please specify


11.Which form of distribution channel do you prefer?

a) ATMs ( )
b) E-banking ( )
c) Internet banking ( )
d) Mobile banking ( )
e) Branch banking ( )

Others, please specify


12.Why do you prefer this form(s) of distribution?

--------- -------------------------------------------------------

13.What are some of the activities you undertake to attract more customers and to sell
more products in the market?
a) Differentiating the products to suit the needs of each market ( )
b) New products development ( )
c) Low pricing of products compared to your competitors ( )
d) Repackaging the existing products ( )
14.Do you have any government intervention in determing the price of the following
a) Interest rates ( )
b) Bank charges ( )

Section D
15.What are some of the challenges you experience while carrying out your

a) Lending to SMEs is risky ( )

b) Heavy investment in multiple distribution channels is too expensive ( )
c) Client acquisition is slow and expensive ( )
d) Socio-economic and cultural barriers ( )
Others, please specify

16.Do any of the following pose a challenge in trying to serve under-banked?

a) SACCOs ( )
b) NGOs such as K-rep bank ( )
c) Micro-finance institutions ( )


1. CFC bank
2. Barclays bank
3. ABN Amro bank
4. Standard chartered bank
5. Consolidated bank
6. Commercial Bank of Africa
7. Kenya Commercial Bank
8. Citibank
9. Stanbic bank
10. NIC bank