KCB Group’s Data Migration Signals Growing Trend Toward Colocation Among Kenyan Banks

KCB Group, Kenya’s largest bank with a market capitalization of $963.3 million (KES 124 billion), recently completed a major technological migration, transferring its entire IT infrastructure from in-house data centers to iColo, a tier III data center in Nairobi. This strategic move highlights a significant trend within Kenya’s banking sector: a shift towards cost-effective and scalable colocation solutions over traditional, on-premise data centers. As KCB adapts to an increasingly competitive and digitalized banking environment, this decision reflects the financial sector’s growing reliance on off-site infrastructure to drive efficiencies.

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Why KCB Chose Colocation

The migration to iColo facilities, located in Karen and Gigiri, Nairobi, began in 2022. According to sources close to the matter, cost control was the primary driver behind KCB’s decision. By moving from an in-house data center to a colocation model, KCB aims to manage the soaring expenses associated with maintaining its own IT infrastructure, including high power, cooling, and maintenance costs.

While KCB has yet to disclose specific cost savings, the switch to colocation allows the bank to benefit from economies of scale by sharing a professionally managed space with other tenants. “Colocation offers a more cost-effective solution compared to building and maintaining an independent data center. Banks can achieve economies of scale by sharing common resources,” an industry insider familiar with the situation told TechCabal. The flexibility to only pay for the space and services utilized within a larger data facility has also provided KCB with a more predictable cost structure.

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The Role of Colocation in Banking: Reducing Costs and Enhancing Agility

The move to a colocation facility signals KCB’s recognition of the advantages that third-party data centers can offer in terms of scalability, flexibility, and cost-efficiency. Unlike in-house data centers, where the institution bears the full cost of infrastructure upkeep, colocated data centers allow organizations to pool resources, benefiting from shared services like security, power, and cooling. This not only cuts down on operational expenses but also ensures that these services meet the highest industry standards for data security and reliability.

Colocation centers such as iColo are designed with robust infrastructure to ensure uptime and reliability, which are essential for banks that operate critical financial services 24/7. For banks like KCB, where downtime can have costly consequences, iColo’s tier III infrastructure is an attractive solution. Tier III data centers guarantee a minimum of 99.982% uptime, ensuring that KCB’s digital services remain available to customers round-the-clock.

Digital Transformation and Data Strategy

The move to iColo is just one part of KCB’s larger digital strategy. In addition to the colocation move, KCB has already adopted cloud-based solutions, with certain services like Exchange—a platform offering currency exchange, online trading, and international money transfers—already hosted on Microsoft Azure. Plans are also in place to shift additional services to Amazon Web Services (AWS), further cementing KCB’s strategy to utilize external partners for enhanced agility and scale.

By diversifying its IT infrastructure through a mix of colocation and cloud, KCB is better positioned to respond to evolving market demands while avoiding the high upfront costs and complexity of maintaining all IT assets on-premises. This hybrid approach, which balances colocation with cloud-based solutions, allows KCB to maintain control over sensitive banking data and applications while still gaining the scalability and cost benefits of outsourced IT infrastructure.

One individual close to the transition explained, “This transition involved moving to a professionally managed colocation facility,” indicating KCB’s focus on entrusting mission-critical operations to an external provider with specialized expertise. This strategic shift allows KCB to better prioritize its resources, focusing on customer service and product innovation rather than on infrastructure maintenance.

Kenyan Banks Embrace the Colocation Model

KCB isn’t alone in this journey. Kenyan banks, under increasing pressure to cut operational costs, have started gravitating towards off-site data center solutions. According to sources within the banking sector, both Equity Bank and NCBA have adopted colocation models in recent years to streamline operations and manage IT expenses. The cost efficiencies and operational resilience offered by third-party data centers are driving more financial institutions toward colocation, marking a transformative shift within the industry.

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The trend is not unique to Kenya; globally, banks are increasingly relying on colocation and cloud services to achieve operational efficiencies. These facilities provide banks with an attractive alternative to the high capital expenditure associated with constructing and maintaining in-house data centers. As more banks embrace colocation, Kenya’s data center sector is experiencing a boom, with increased investment from both local and international operators, enhancing the nation’s digital infrastructure.

A Commitment to Technological Upgrades

KCB’s recent infrastructure migration aligns with a broader push among Kenyan banks to upgrade their core banking systems. In October, Stanbic Bank migrated to the latest version of the Temenos platform, R24, a core banking system widely used within the banking sector. KCB also relies on Temenos for traditional banking, having recently upgraded to version R21 for its Rwandan operations. This updated core system supports improved operational efficiency and enhances service delivery to KCB’s customers in Rwanda.

For its digital banking services, KCB uses Sopra, a separate core system tailored to meet the distinct needs of its digital customers. This dual-platform strategy enables KCB to optimize its technology stack for both conventional banking and emerging digital services, allowing the bank to compete more effectively across multiple channels.

Paving the Way for the Future of Banking in Kenya

KCB’s embrace of colocation, cloud services, and core banking upgrades speaks to a broader digital transformation trend within Kenya’s financial sector. As customer expectations shift toward more convenient and secure digital services, banks must modernize their IT infrastructure to remain competitive. By adopting advanced data strategies and innovative IT solutions, KCB and its peers are reshaping the banking landscape in Kenya, enhancing service delivery, and reducing costs.

In a market where operational efficiency can make the difference between success and stagnation, KCB’s decision to colocate its data center functions highlights a pragmatic approach to digital transformation. With competition mounting and customer demands evolving, the bank’s move to iColo reflects a commitment to leveraging cutting-edge technology to provide reliable, cost-effective services.

This shift also underscores the role of data center colocation as an enabler of digital growth for Kenya’s financial sector. As more banks follow KCB’s lead, investing in shared data centers and cloud services, the financial sector stands to benefit from improved infrastructure resilience, streamlined costs, and the ability to scale services rapidly in response to customer needs.

Looking forward, KCB’s ongoing investments in technology—from colocation at iColo to the gradual migration of services to AWS and the continuous upgrade of core banking platforms—position the bank as a leader in digital banking within East Africa. By adopting a future-ready IT infrastructure, KCB is not only strengthening its competitive edge but also setting a benchmark for technological excellence within Kenya’s financial services industry.