PAPER WRAP-UP: Consultative Group to Assist the Poor, Focus Note: The Early Experience with Branchless Banking (On the Potential of Branchless Banking in the Microfinance Sector)

This article is based on research conducted on branchless banking projects in 18 countries worldwide during 2007. Written by Gautam Ivantury and Ignacio Mas of the Technology Program at the Consultative Group to Assist the Poor (CGAP), this 16-page document was released in April, 2008 by CGAP and is available here. 

Branchless banking is defined as bank services that use technology such as payment cards or mobile phones to identify customers and record transactions, the use of third-party outlets as agents for financial services providers, offer minimum of basic cash deposit and withdrawal and transaction or payment services, have the backing of a government-recognized deposit-taking institutions, and are available to be used during normal business hours without needing to go to bank branches.

In most countries, government regulation continues to be an obstacle to branchless banking.

Branchless banking can provide basic financial services to customers for less than half the cost of traditional banking channels by leveraging networks of existing third party agents for cash transactions and account opening and conducting all transactions online. This enables poorer and more remote populations to have access to financial services.

Currently, customers use branchless banking services primarily for giving or receiving payments, even though most branchless banking channels also offer credit and savings services. According to CGAP research in Brazil, 87 percent of customers who opened a branchless banking account did so just to receive welfare or salary payments and withdrew all or most of their cash at one time. Less than ten percent of branchless banking customers are using these channels for financial services other than paying bills or withdrawing government cash benefits.

Banks that want to enter into branchless banking partner with businesses that already have well-established networks such as mobile operators, post offices, and major retail chains. Partnerships with businesses that already have a strong local presence are a key competitive strategy. Branchless banking outlets in rural areas are often the first banking services to be offered in a particular area and thus the first mover is likely to catch the greatest market share of an area.

Microfinance institutions currently lack stable core banking systems and technological resources to make use of branchless banking models. Traditionally, informal financial service providers used by poorer populations are founded on personal or community relationships, thus an MFI’s target clients may be more reluctant to use machine interfaces such as mobile phones for their banking services. Also, rural poor have less technological experience and are thus likely to be wary of using a branchless banking system. However, as more agent networks are established in remote areas and poor, remote populations no longer have to skip work and travel hours to make payments or receive funds, branchless MFI banking is anticipated to become a wide-spread method of providing financial services to the poor.

 By Melissa Duscha

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