The Economics of Branchless Banking

Abstract

This setup is called agent or branchless banking. Because finance is about exchang-ing the cash people need on a daily basis for promises of value, and vice versa, proximity is objective number one. And because those promises need to be maintained if people are going to find finance at all useful, trust becomes the second important objec-tive. Enter technology: if customer, retail outlet, and bank are linked by a com-mon secure technology platform, they can transact with sufficient certainty that they are dealing with whom they think they are, that transactions will be recorded, and that promises will be kept. Also enter regu-lation: the government will be looking over the bank's shoulder to ensure that it is doing right by the small depositor in the rural village. GROWING EXPERIMENTATION IN DEVELOPING COUNTRIES The last few years have seen a significant increase in experimentation with branch-less banking. Figure 1 lists a sample of such schemes that are currently operating or have been announced around the globe, and the Annex highlights the key dif-ferences in the business models in use today in terms of choice of technology plat-form. In Africa, mobile phone–based projects predominate, reflecting the low lev-els of banking penetration and the poor state of fixed communications infrastruc-tures. In Latin America, on the other hand, bank-based projects, which rely on cards and point-of-sale (POS) terminals as the enabling infrastructure, are the dominant model. The two countries where technology-enabled agent models have propagated most successfully are Brazil and Kenya. The Brazilian model is driven by the larg-er banks, such as Caixa Federal, Bradesco, and Banco Popular, and it uses more tra-ditional card/POS terminals. Brazil now has 39,000 agents covering every munici-pality in the country, with whom customers can deposit, withdraw, and electroni-cally transfer money from their accounts. The Kenyan model is driven by mobile operator Safaricom. It uses a menu-driven application on their customers' mobile phones (in their SIM cards, more specifically) to authenticate and facilitate trans-actions by both customers and agents. Only two years after its launch, Safaricom's M-PESA service now has over six million registered customers who can transact at almost eight thousand retail agents nationwide. innovations / spring 2009 59