Banks' balancing act over need for new branches amid digital shift

For an economy where more than 90 per cent of bank transactions are digital, maintaining a physical branch is a dilemma.

Equity Group Holdings Chief Executive James Mwangi has repeatedly voiced this concern.

Data from the business he heads shows that less than two per cent of transactions are done through physical visits to branches.

But, he insists, branches are still important, especially for branding purposes, and that the lender will continue opening more. Yet, these investments need to count when the bottom line is being drawn.

“We have to really look for uses of branches,” said Mwangi during the release of the bank’s 2025 half-year financial statements.

“Branches are no longer relevant for transaction business, and we need to look at how we innovatively and creatively have the fixed cost channels start generating revenue.”

Mwangi explained that the reduction in physical footprint in banks is the reason why Equity Group Holdings has a technology subsidiary, a complementary business that rides on the brand. He said the business has gone digital, even with third parties – whether it’s agents, merchants and all those electronic platforms with a back office – have adopted technology. As such, brick and mortar contribute just 1.8 per cent of transactions.

Mwangi said data shows customers have migrated from fixed and variable costs to self-service. 

“We had fixed costs, then moved to variable and now no cost model because it’s customers serving themselves. Everything on fixed and variable costs is on the decline. Everything on self-service is on an upward growth trajectory,” said Mwangi.

Fixed cost channels refer to transactions done on physical branches, which include ATMs. Variable cost channels are mainly those done via agents and merchants, while self-service includes mobile and internet banking.

This is where the customer is basically serving themselves.

“The investment in systems to create convenience with compression of distance and time for customers has led to a transformation of the business delivery model with migration from fixed and variable cost channels to self-service channels. While over 98 per cent of transactions happen outside the branch, 87.4 per cent of these happen on digital channels,” says Equity Group Holdings in its half-year financial statements. Mwangi believes there is more juice to be squeezed out of the physical branches.

“We have called that ‘the commercial conversation’,” he said, adding that the bank wants to see if it can move these costs to start generating revenue.

“As you can see, it is not generating; it is a cost only, but importantly, holding the brand. How do we make commercial value? That is the next phase. I want to emphasise, we are increasing branches, not because they are to do transactions, but we are now one Equity. The branches can have a very different business model.”

The bank’s financials for the six months ended June 30, 2025, show the number of transactions done through physical branches dropped to 9.6 million from 10.3 million recorded in the same period last year.

For ATMs, it dropped from 16.9 million in the half-year 2024 to 14.8 million in the same period in 2025. Transactions done via agency dropped from 38.8 million to 33.9 million, while transactions through merchants also reduced to 8.7 million from 10.3 million.

This is while transactions done through Equitel jumped 44.1 per cent to 184.2 million, while those via Equity Mobile and USSD improved 16 per cent to 81.7 million.

While Equity Group Holdings boasts of 220 branches in the country through Equity Bank Kenya, and has footprints across the region stretching to the Democratic Republic of Congo (DRC), other financial institutions are seeking a higher altitude in growth, eyeing more branches in the region, like I&M Group, or even opening business officially in the region, such as Family Bank.

Considering banks are not real estate businesses,  physical presence plays a key role in their bottom line.

Family Bank Chief Executive Nancy Njau has approached this differently. While the bank is not shy to open new branches, it is now relocating some, including Ngara, Kangemi, and Kisii. Njau said all relocations come as a result of customers’ demand.

“They tell us – we are banking with you, but your location is not serving us now. You have to move to a more strategic location – that we take with pride,” she said.

“Our customers are at the heart of everything, so if they tell us they need a new location, and there is a case for it, we do it.”

Njau said the bank strives to make its branches profitable, and relocation is part of this strategy. “We have had a journey of 40 years. Maybe, there are some locations where we were, and currently, because of the developments we have seen, we feel we need to have some relocations,” she said.