Banking beyond conventional branches for financial inclusion

Photo credit: bKash

Photo credit: bKash

This post is written by Debbie Watkins, Head Implementation, Alternative Delivery Channels at SBI (Zeist/Washington), and reposted from Upsides. 

Banks in emerging and developing countries are increasingly recognising the potential of the low-income market segment. However, setting up and running a bank branch is an expensive business. This is where branchless banking comes in. Read the first article in an insightful series of three on how banking beyond conventional branches creates financial inclusion for all.

Low-income and rural populations are often inherently ‘bankable’ – they save for a wide range of different purposes, source both short- and long-term credit for capital purchases and business building, and demonstrate (often very sophisticated) financial management skills. The fact that most of their financial interactions are with informal channels is due to a number of reasons: banks may be far away from their homes or workplaces; may not be open during the hours they are not working; or may have prohibitively high minimum balances or monthly fees.

Logistical problems
Banks are increasingly recognising the potential of the low-income market segment. However, setting up and running a bank branch is an expensive business. The net cost to a bank of conducting a single over-the-counter transaction can be more than $1, and understandably banks are somewhat reluctant to have their branches full of clients conducting small transactions – the cost/benefit ratio just does not make sense. Establishing branches in rural areas also causes significant logistical problems – ensuring the branch always has sufficient cash on hand (but not too much), connecting the branch to centralised banking systems, and of course the fact that one branch covering what may be a catchment area of many square kilometres will still result in it being out of the logistical reach of a large number of people.

Banking through retail stores

This is where branchless banking comes in. ATMs are technically branchless banking – but, of course, planting an ATM in a village marketplace is unlikely to be viable. Therefore, the branchless banking model most prevalent in developing countries is based around recruiting retail stores as ‘agents’, who are able to accept deposits and enable withdrawals in addition to their usual business lines in return for a small commission. The bank provides the agent with simple technology such as a POS device or phone, through which they can connect directly to the bank using the mobile phone network in order to verify customer identities and record transactions. The customer’s money is never technically ‘at’ the agent.

Driven by the target market and business model of the bank, geography, infrastructure and local regulations, the approach to offering branchless banking varies significantly. A few South-Asian examples:

  • In Pakistan, United Bank’s Omni network equips its agents with either a mobile phone or a PC, and agents can sign up customers and digitally capture the necessary ID for electronic transmission to the bank. Customers can send money for collection at any other Omni agent point, deposit and withdraw from their savings account and pay utility bills. Omni also acts as disbursement and collection partner for a number of MFIs and NGOs, allowing for convenient loan repayments and collection of stipends.
  • Sub-K in India recruits and manages agents on behalf of a number of different banks, who offer ‘no frills’ savings accounts to rural populations. Agents are provided with a specially-programmed mobile phone that uses a Bluetooth link to a battery-powered printer with an inbuilt fingerprint reader. Customers record their fingerprint when they sign up for an account, which is automatically transmitted to the bank and used to confirm their identity whenever they transact, so they do not need a phone or passbook.
  • bKash in Bangladesh is a mobile financial services company that is joint venture of BRAC Bank of Bangladesh and Money in Motion of the US. Customers with a mobile phone can sign up at an agent for a ‘mobile wallet’ – a form of virtual current account that is dynamically linked to their mobile phone number. They can deposit and withdraw at any agent, and also send money to other mobile wallet holders directly from their phone at any time. This can be another person; a merchant, or a business such as a leasing or insurance company.

In two related articles we will soon be looking at some of the challenges in launching a successful branchless banking initiative, and discussing the importance of really understanding the current financial behaviour of the customer.


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