Branchless banking in India


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Branchless banking in India

  1. 1. Building Financial Systems for Low Income People and Entrepreneurs Branchless Banking in India By Prasenjit Roy
  2. 2. What is Branchless Banking? <ul><li>Use of technology , such as payment cards or mobile phones, to identify customers and record transactions electronically and, in some cases, to allow customers to initiate transactions remotely </li></ul><ul><li>Use of third-party outlets , such as post offices and small retailers, that act as agents for financial services providers and that enable customers to perform functions that require their physical presence, such as cash handling and customer due diligence for account opening </li></ul><ul><li>Offering at least basic cash deposit and withdrawal in addition to transactional or payment services </li></ul><ul><li>Structuring of the above so that customers can use these banking services on a regular basis and without needing to go to bank branches at all, if that’s what they choose </li></ul>
  3. 3. Examples of services <ul><li>Internet banking </li></ul><ul><li>ATMs </li></ul><ul><li>Bank-issued payment cards and “point of sale” (POS) devices </li></ul><ul><li>Banks working through retail agents outfitted with POS devices or other ICT </li></ul><ul><li>Mobile phone telcos working through retail agents </li></ul>
  4. 4. International Scenario <ul><li>Two promising models using retail agents </li></ul><ul><li>Bank-driven model </li></ul><ul><li>Telco-driven model </li></ul><ul><li>The region - examples </li></ul><ul><li>Russia: cash cards </li></ul><ul><li>Armenia: card-based online payment system </li></ul><ul><li>Belarus: mobile phone banking for certain cardholders </li></ul><ul><li>North America and Western Europe </li></ul><ul><li>Japan and Korea </li></ul><ul><li>Brazil and India: Bank driven model </li></ul><ul><li>The Philippines: Telco driven Model </li></ul>
  5. 5. USP and Risks: Branchless Banking’s USP: Reduces cost of servicing clients for banks while increasing convenience for clients leading to greatly increased financial inclusion. Branchless Banking’s Risks: Increased risk of fraud as agents are smaller, less easily monitored, and (potentially) less concerned about their long term reputation than banks.
  6. 6. Branchless banking in Brazil * Source: Planet Finance <ul><li>Results </li></ul><ul><li>19 million new accounts opened in only four years (Brazilial pop = 200 mn) </li></ul><ul><li>Total flows in 2006 > $100 bn </li></ul>
  7. 7. Branchless Banking in India A new model: Business Correspondent model” by RBI in 2006 <ul><li>Banks permitted to outsource transaction processing to non-profits (section 25 cos), co-ops, post offices, societies, trusts, and ex-service-people </li></ul><ul><li>All transaction information must be updated in bank’s CBS by end of day </li></ul><ul><li>Agents must be located within 15 kms of a partner bank branch </li></ul><ul><li>It was hoped that the model would allow banks to offer financial products, especially savings accounts, to previously unreached populations. </li></ul>
  8. 8. Channel Basics: Who does what
  9. 9. Frontiers of branchless banking <ul><li>Determinants: </li></ul><ul><li>Technology </li></ul><ul><li>Infrastructure </li></ul><ul><li>Regulation </li></ul>
  10. 10. The business correspondent model: 2010 Sub-district government Office Partner bank FINO district office FINO agent NREGA workers Worksite details Cash and info on individual disbursement amounts Cash and info on individual disbursement amounts Disbursement info downloaded to mobile transaction device Cash hand delivered to agents Wages Example of the BC model used for delivery of government benefits: the FINO smartcard payment system
  11. 11. The business correspondent model: 2010 Use of BC model to deliver savings accounts remains relatively limited due to… <ul><li>Restrictions on what types of organisations can serve as business correspondents. </li></ul><ul><li>Lack of a clear business model for agents serving as business correspondents </li></ul>
  12. 12. Issues <ul><li>Both banks and service providers are losing money in this initiative </li></ul><ul><li>A large population has been still out of reach </li></ul><ul><li>A strong IT infrastructure along with financial services is required </li></ul><ul><li>Burden of regulation </li></ul>
  13. 13. Road ahead <ul><li>Use of handheld and mobile devices for data transfer, information exchange, and service delivery (M-Banking) </li></ul><ul><li>Spread of internet data services in rural areas </li></ul><ul><li>Infrastructural development for low cost and real time transactions </li></ul>
  14. 14. <ul><li>Thank you </li></ul>