Branchless banking
Encyclopedia
Branchless banking is a distribution channel
strategy used for delivering financial services
without relying on bank branches
. While the strategy may complement an existing bank branch network for giving customers a broader range of channels through which they can access financial services, branchless banking can also be used as a separate channel strategy that entirely forgoes bank branches.
By the definition of the Consultative Group to Assist the Poor (CGAP)
, branchless banking comprises essentially all of the following elements:
Examples of branchless banking technologies are the Internet
, automated teller machines (ATMs)
, POS devices, EFTPOS devices
and mobile phone
s. Each of these technologies serve to deliver a set of banking services and are part of distribution channels that may be used either separately or in conjunction to form the overall distribution channel strategy.
For example, Co-operative Bank of Kenya uses the Internet, ATMs, POS devices, EFTPOS devices, and mobile phones as technologies to deliver its banking services through a combination of distribution channels including stationary bank branches, mobile bank branches, ATMs, bank agents, Online banking
, and mobile banking
. All of these are distribution channels, yet only the last four are branchless distribution channels and form part of Equity Banks's branchless banking strategy (Equity Bank refers to its branchless banking channels as alternate delivery channels).
first direct
in the United Kingdom
are an early pioneer of this class of service. Launched by the then-Midland Bank
(now part of HSBC
) in 1989, first direct's accounts are operated solely via the Internet, post, or (principally) telephone, and they do not themselves operate any retail branches (although HSBC branches can be used to make deposits) while at the same time offering a full range of banking services. Smile
are a similar venture, again operating solely via the Internet and telephone.
Branchless banking technologies and distribution channels should be distinguished from each other as the two may overlap, which can be confusing: ATMs and mobile phones can be technologies and distribution channels, while POS and EFTPOS devices are only technologies but not distribution channels—rather, the latter two technologies are placed at points of sale through other distribution channels such as agents, which are usually retail outlets that allow their customers to pay for purchases by using their debit
or credit
cards. For an overview of distribution channels and technologies used in branchless banking and how they differ, see Porteous (2008, p. 4).
A recent example would be the partnership model by Telenor Pakistan (the second largest cellular provider in Pakistan) and Tameer MicroFinance Bank (a Branchless Banking license holder from the State Bank of Pakistan). These two organizations came together with Telenor serving as an agent to Tameer and providing 2,500 of its 175,000 retail shops across the country as sub-agents for Branchless Banking services. The brand was named 'easypaisa' and launched in Oct 2009. In a year from launch, easypaisa has more than 11,000 shops all over Pakistan and has moved over PKR 11 billion (USD 120 million) through 6 million transactions.
branchless banking has successfully function mainly in Kenya
with 7 million customers, followed by South Africa
and Philippines
.
On March 2011, a pilot project mobile phone brachless banking has been launched at Bali
, Indonesia
by the country's biggest bank.
The advantages of mobile phone branchless banking:
Distribution (business)
Product distribution is one of the four elements of the marketing mix. An organization or set of organizations involved in the process of making a product or service available for use or consumption by a consumer or business user.The other three parts of the marketing mix are product, pricing,...
strategy used for delivering financial services
Financial services
Financial services refer to services provided by the finance industry. The finance industry encompasses a broad range of organizations that deal with the management of money. Among these organizations are credit unions, banks, credit card companies, insurance companies, consumer finance companies,...
without relying on bank branches
Branch (banking)
A branch, banking center or financial center is a retail location where a bank, credit union, or other financial institution offers a wide array of face-to-face and automated services to its customers....
. While the strategy may complement an existing bank branch network for giving customers a broader range of channels through which they can access financial services, branchless banking can also be used as a separate channel strategy that entirely forgoes bank branches.
By the definition of the Consultative Group to Assist the Poor (CGAP)
Consultative Group to Assist the Poor (CGAP)
The Consultative Group to Assist the Poor is a consortium of 33 public and private development agencies working together to expand access to financial services for the poor in developing countries...
, branchless banking comprises essentially all of the following elements:
- 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
- Use of (exclusive or nonexclusive) third-party outletsBanking agentA banking agent is a retail or postal outlet contracted by a financial institution or a mobile network operator to process clients’ transactions...
, 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
- Offer of at least basic cash deposit and withdrawal in addition to transactional or payment services
- Backing of a government-recognized, deposit-taking institution, such as a formally licensed bank
- Structuring of the above so that customers can use these banking services on a regular basis (available during normal business hours) and without needing to go to bank branches at all, if that’s what they choose
Examples of branchless banking technologies are the Internet
Internet
The Internet is a global system of interconnected computer networks that use the standard Internet protocol suite to serve billions of users worldwide...
, automated teller machines (ATMs)
Automated teller machine
An automated teller machine or automatic teller machine, also known as a Cashpoint , cash machine or sometimes a hole in the wall in British English, is a computerised telecommunications device that provides the clients of a financial institution with access to financial transactions in a public...
, POS devices, EFTPOS devices
EFTPOS
EFTPOS is the general term used for debit card based systems used for processing transactions through terminals at points of sale. In Australia and New Zealand it is also the brand name of the specific system used for such payments...
and mobile phone
Mobile phone
A mobile phone is a device which can make and receive telephone calls over a radio link whilst moving around a wide geographic area. It does so by connecting to a cellular network provided by a mobile network operator...
s. Each of these technologies serve to deliver a set of banking services and are part of distribution channels that may be used either separately or in conjunction to form the overall distribution channel strategy.
For example, Co-operative Bank of Kenya uses the Internet, ATMs, POS devices, EFTPOS devices, and mobile phones as technologies to deliver its banking services through a combination of distribution channels including stationary bank branches, mobile bank branches, ATMs, bank agents, Online banking
Online banking
Online banking allows customers to conduct financial transactions on a secure website operated by their retail or virtual bank, credit union or building society.-Features:...
, and mobile banking
Mobile Banking
Mobile banking is a term used for performing balance checks, account transactions, payments, credit applications and other banking transactions through a mobile device such as a mobile phone or Personal Digital Assistant . The earliest mobile banking services were offered over SMS...
. All of these are distribution channels, yet only the last four are branchless distribution channels and form part of Equity Banks's branchless banking strategy (Equity Bank refers to its branchless banking channels as alternate delivery channels).
first direct
First Direct
First Direct is a telephone and internet-based retail bank in the United Kingdom, a division of HSBC Bank plc. First Direct has headquarters in Leeds, West Yorkshire, England, and has 1.16 million customers....
in the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
are an early pioneer of this class of service. Launched by the then-Midland Bank
Midland Bank
Midland Bank Plc was one of the Big Four banking groups in the United Kingdom for most of the 20th century. It is now part of HSBC. The bank was founded as the Birmingham and Midland Bank in Union Street, Birmingham, England in August 1836...
(now part of HSBC
HSBC
HSBC Holdings plc is a global banking and financial services company headquartered in Canary Wharf, London, United Kingdom. it is the world's second-largest banking and financial services group and second-largest public company according to a composite measure by Forbes magazine...
) in 1989, first direct's accounts are operated solely via the Internet, post, or (principally) telephone, and they do not themselves operate any retail branches (although HSBC branches can be used to make deposits) while at the same time offering a full range of banking services. Smile
Smile (bank)
Smile, or smile.co.uk, is a British internet bank, and a trading division of The Co-operative Bank. It was established as the UK's first full internet bank in 1999. Other banks, like Egg and First-e, had opened in previous years but Smile was the first to offer full-service current accounts,...
are a similar venture, again operating solely via the Internet and telephone.
Branchless banking technologies and distribution channels should be distinguished from each other as the two may overlap, which can be confusing: ATMs and mobile phones can be technologies and distribution channels, while POS and EFTPOS devices are only technologies but not distribution channels—rather, the latter two technologies are placed at points of sale through other distribution channels such as agents, which are usually retail outlets that allow their customers to pay for purchases by using their debit
Debit card
A debit card is a plastic card that provides the cardholder electronic access to his or her bank account/s at a financial institution...
or credit
Credit card
A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services...
cards. For an overview of distribution channels and technologies used in branchless banking and how they differ, see Porteous (2008, p. 4).
A recent example would be the partnership model by Telenor Pakistan (the second largest cellular provider in Pakistan) and Tameer MicroFinance Bank (a Branchless Banking license holder from the State Bank of Pakistan). These two organizations came together with Telenor serving as an agent to Tameer and providing 2,500 of its 175,000 retail shops across the country as sub-agents for Branchless Banking services. The brand was named 'easypaisa' and launched in Oct 2009. In a year from launch, easypaisa has more than 11,000 shops all over Pakistan and has moved over PKR 11 billion (USD 120 million) through 6 million transactions.
Mobile phone branchless banking
Mobile phoneMobile phone
A mobile phone is a device which can make and receive telephone calls over a radio link whilst moving around a wide geographic area. It does so by connecting to a cellular network provided by a mobile network operator...
branchless banking has successfully function mainly in Kenya
Kenya
Kenya , officially known as the Republic of Kenya, is a country in East Africa that lies on the equator, with the Indian Ocean to its south-east...
with 7 million customers, followed by South Africa
South Africa
The Republic of South Africa is a country in southern Africa. Located at the southern tip of Africa, it is divided into nine provinces, with of coastline on the Atlantic and Indian oceans...
and Philippines
Philippines
The Philippines , officially known as the Republic of the Philippines , is a country in Southeast Asia in the western Pacific Ocean. To its north across the Luzon Strait lies Taiwan. West across the South China Sea sits Vietnam...
.
On March 2011, a pilot project mobile phone brachless banking has been launched at Bali
Bali
Bali is an Indonesian island located in the westernmost end of the Lesser Sunda Islands, lying between Java to the west and Lombok to the east...
, Indonesia
Indonesia
Indonesia , officially the Republic of Indonesia , is a country in Southeast Asia and Oceania. Indonesia is an archipelago comprising approximately 13,000 islands. It has 33 provinces with over 238 million people, and is the world's fourth most populous country. Indonesia is a republic, with an...
by the country's biggest bank.
The advantages of mobile phone branchless banking:
- very mobile, the users and the agents
- open up to 24 hours a day, depends on the agents
- very small fees for the agents
- may withdraw or deposit a small amount such as $1 (less than limit of the automated teller machineAutomated teller machineAn automated teller machine or automatic teller machine, also known as a Cashpoint , cash machine or sometimes a hole in the wall in British English, is a computerised telecommunications device that provides the clients of a financial institution with access to financial transactions in a public...
) - no need bank account, only mobile phone number
- almost no paper (administration)
- generate low income for thousands of agents
- very small bank overhead
- suitable for many people with low income
- suitable for many people with less literacy
- very low or no transportation cost to so many agents
See also
- Banking agentBanking agentA banking agent is a retail or postal outlet contracted by a financial institution or a mobile network operator to process clients’ transactions...
- WIZZITWIZZITWIZZIT Payments Ltd is a provider of basic banking services for the unbanked and underbanked in South Africa. Its services are based on the use of mobile phones for accessing bank accounts and conducting transactions, in addition to a Maestro debit card that is issued to all customers upon...
- easypaisa
- Branchless Banking Group Pakistan