The Business Case for Branchless Banking - Whats Missing?

The Business Case for Branchless Banking - Whats Missing?Article By: Ann-Byrd Platt July 2011 Presented By:Shameer FazeelSaad KhalidRajesh KumarAbdul Latif Shaikh

Flow of the PresentationWhat is Branchless Banking? Non-bank retail outlets are used as customer touch-points, at least for cashing in or out of the accounts Technology, such as payment cards or mobile phones, is used to identify customers and authorize transactions electronically and, in some cases, to allow customers to initiate transactions on their own Transactions can be processed against an electronic store of value (although cash-based services for non-customers may also be offered in addition) Accounts are issued by institutions recognized and explicitly or implicitly authorized by the banking regulator, although they may not be formally licensed and regulated Introduction to Branchless BankingBranchless Banking PlatformA branchless banking platform is made up of three key elements: The retail network, composed of the collection of retail outlets where transactions are originated The payment network, which aggregates the transactions from the collection of retail outlets and routes them to the appropriate issuer The account platform, which manages the service logic by authorizing individual transactions and maintaining the value of accounts Introduction to Branchless Banking4ExtractThis article highlights:The potential of Branchless BankingThe elements of value-chain in Branchless BankingBanks- Mobile Network Operators- Third Party Agents

And Is Branchless Banking desirable for banks?

Introduction to Branchless BankingDilemma of Branchless Banking How to make all these new ways of bankingby mobile phone, via card readers and enhanced ATMs, and with third-party agents who act on behalf of branch staffeither profitable or at least sustainable. Potential of Branchless Banking2.7 billion, or 72% of adults in the developing world, who have limited or no access to guaranteed deposits and other licensed banking benefits.CGAP report on branchless banking in low- and mid- level income countries around the world shows an estimated 185 million active users for 2010, up from 137 million a year earlier

Branchless banking is a process of reinventing how people send and receive money in remote locations, how they pay bills and loans, how they save and insure against emergencies, and for increasing numbers, how they enjoy greater freedom and control over their financial future.leveraging the costs involved in opening and servicing low-income savings accounts is important.

In most scenarios, new customer acquisition is the highest costanywhere from US$6 over a three-year period to $50 for inactive customers.The conventional banking business model works just fine for these larger deposit accounts. And dormancy in the smaller accounts is an expensive problem that will not go awayThe elements of value-chain in Branchless BankingNew and active accountsOptimal technology, pricing and collaboration And a highly motivated agent network to serve themBanks Mobile Network Operators Third Party AgentsBanks- banks do not want this business. The burgeoning middle classes is swelling in many parts of the developing economies.And dormancy in the smaller accounts is an expensive problem.Partnering with MNO and Third Party Agents is Important for Branchless BankingMost banks, however, see few shared rewards in such joint ventures and numerous potential new liabilities.

Mobile Network Operators- MNOs have a business model predicated on volume, more volume, and diversified services to minimize churn. Nothing creates more loyalty than banking, so operators would dearly love to take on as much mobile banking as regulators will allow.But there are many legal issues of responsibility which are to be handled properly.Example: although local operators may now be able to transmit money instantly from mobile to mobile, if subscribers try to pay a bill or send part of their monthly wage to another phone or bank account and the money does not arrive, legally this is not the phone carriers responsibility. The sender may have entered the phone or account or his/her passport number incorrectly, or the transfer may simply be delayed. Unlike a bank transaction, however, the onus of proof lies with the customer. Authentication, fraud, and other accountability issues also pose higher risks without bank-grade security systems. To offer the level of service and trust customers need, MNOs must partner with banks or obtain their own banking licenses.

Third Party Agents- serve either as cash-in/cash-out points for mobile and other branchless money transfers in remote areas, or as field officers with responsibilities for new accounts and basic financial planning.Increasing number complains that their revenues do not sufficiently compensate for costs, time away from core business, and the extra sales effort and expertise required. Conclusion/ RecommendationWith sophisticated management, branchless banking can be made profitable or at least sustainable, as many bank have been able to do this earlier and continue doing it. Yet complexities and cost associated to it do make it difficult at times.But the fact that new customer acquisition is expensive, as is dormancy in the smaller accounts. So it is important to provide the best of service.Also keeping up with technology is important.Our Assessment & Criticism