Branchless banking

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:

• 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 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

• 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, automated teller machines (ATMs), POS devices, EFTPOS devices and mobile phones. 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.

Mobile phone branchless banking

Mobile phone 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:

• 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 machine)
• 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 agent
• WIZZIT
• easypaisa
• Branchless Banking Group Pakistan