Reasons Why Kenyan Banks Must Adopt New Service Models to Stay Competitive

For many years, growth in Kenya’s financial services sector was driven by physical expansion. Banks competed to grow their branch networks and increase their headcount, with many prioritizing scale. However, the underlying economics of banking have recently evolved with today’s customers demanding performance, seamless service, quicker responses, and meaningful access, as opposed to physical presence.

In response, restructuring physical presence has become a critical element in the strategy of forward-looking banks that recognize the need to align with these new market realities. When implemented effectively, branch restructuring enhances speed of service, accountability, and relevance to the customer, essential for strengthening the balance sheet, profitability and cost of service for a bank.

Achieving this transformation requires a careful assessment of one’s distribution models. Across Kenya, mobile money and agency banking have changed how customers consume financial services. While physical infrastructure still plays a role, it must now integrate with digital platforms and community-based channels. In this new environment, a smaller, more intelligent network can often deliver better results than a larger, less agile one. Indeed, accessibility and ease of transacting, rather than geography alone, define proximity in the modern context.

Faulu Microfinance Bank provides a strong example of this shift in action. Over the last 18 months, the Bank has invested heavily in digital-first transformation, expanding its online services to reach more customers across Kenya. By realigning its distribution channels and strengthening its agency network of over 70 outlets, Faulu has improved convenience for traders and small businesses alike. As a result, post-restructure, the Bank has managed to increase its customer deposits in addition to more than halving its losses in the first half of 2025 compared to the same period in 2024. This demonstrates the tangible benefits of a leaner, more agile operating model.

Equally vital is the rethinking of human capital, as banks can no longer operate with rigid hierarchies and siloed teams. Success increasingly depends on institutions that empower agile, tech-savvy professionals who can make decisions closer to the customer. As automation handles more routine tasks, the real differentiator from now henceforth becomes the ability to address problems and deliver value in real time. The bank has rolled out digital tools such as the Digital Field Agent tool to empower staff to deliver banking services digitally at the customers’ premises to realize this evolution.

However, distribution model restructuring must remain grounded in customer outcomes. Internal changes often fall short when they fail to improve the client experience. Streamlined structures, smarter systems, and reduced costs are only meaningful if they result in faster onboarding, simpler transactions, and greater trust. The most important question today is not whether a process is efficient, but whether it better serves the people it was designed for.

Meanwhile, even as banks continue to innovate, they must remain critically aware that competition in the financial sector is intensifying. Fintechs, mobile operators, and other non-traditional players are offering services that not only rival those of established banks but frequently outperform them. These challengers benefit from their focus and flexibility, unburdened by outdated systems or institutional inertia.

Against such realities, banks that delay restructuring risk falling behind, resulting in eroded market share and heightened cost of change. Those that act early, with clear goals and disciplined execution, however, have the opportunity to gain both efficiency and renewed relevance.

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Julius Wamae Ouma is the Chief Executive Officer at Faulu Microfinance Bank