Beirut - May 2009

BRANCHLESS BANKING: WHY & HOW?

MICHAEL TARAZISenior Policy Specialist

Sanabel 6th Annual Conference

CGAP

What are the factors that limit access?

• Long distances / low population density • High bank costs relative to income

• Low education and illiteracy

• Poor product / channel design

HOW DOES BRANCHLESS BANKING WORK?

Use of non-bank retail agents and information technology to deliver financial services to low income people beyond traditional banking channels.

Cash in/out

Receipt/Cash

Bank Agent ClientCredit/DebitClient

Account

Debit /Credit Agent

Account

ANY STORE CAN BE AN AGENT

The Power of the Existing Infrstructure

.

~25m

~1m600k500k250k

WesternUnion

Bankbranches

Postoffices

ATMs POS Mobile Phones

Philippines 1,000 branches 7,000 ATMs 25,000 POS

terminals in stores

1.1 million prepaid airtime resellers

Panama Largest bank has

65 branches 850 shared ATMs

(many in branches!)

12,000 prepaid airtime resellers

Worldwide points of presence

Benefits Along the Value Chain

Bank Agent

- Leverage agents’ infrastructure: minimize capex to expand - Change economics of serving poorer clients, remote areas

- Enables rapid drive to high- volume required for profitable payments business

- Proximity of service point: saved time and cost

- Comfort of dealing with corner merchant

- Access to services via regulated entity

- Increase walk-in business

- Fee revenue from bank

- Differentiated service offer

- Bank brand strength rubs off

Client

BENEFITS FOR MFIsAs Agents:

• Differentiated but complementary service• Increased revenue

As Lenders:• Cost efficiencies in loan disbursement• Cost efficiencies in loan collection• Automated ability to track payments and build credit• Ability to track where loan spent

Five Themes Central to Branchless Banking Regulation

Necessary but insufficient:

Proportional AML/CFT

Agents

Other Themes:

Competition and Interoperability in the Payment Systems

E-Money Issuance

Consumer Protection

REGULATING AGENTS

Who is permitted to act as agent?

The Philippines (just about any retailer)Brazil (retailers, post offices)India (cooperatives, NGOs, post offices)

Who is liable for the agent?

Kenya (mobile network operators expressly disavows liability for the agent)Brazil (banks legally liable for agents)

Need for AML/CFT proportionate regulation: a “risk-based approach”

SOUTH AFRICAExemption 17

Proof of residence no longer required to open accounts (subject to daily and monthly transaction limits)

Circular 6Permits non “face-to-face” account opening for cell phone banking without documentary evidence – only national ID number, name and date of birth needed which is then checked against 3rd party database Subject to Exemption 17 daily and monthly

PHILIPPINESCircular 471

Mechanism by which KYC/CDD can be conducted by agentsAgents register with Central Bank, Training by Philippine AML CouncilVerify identity during KYC/CDD, Maintain records for 5 years,Report suspicious transactions

Circular 562Multiplicity of formal identity documents can be presented for verification purposes

What is e-money?

Bank Agent

- Proximity of service point: saved time and cost

- Comfort of dealing with corner merchant

- Access to services via regulated entity

- Increase walk-in business

- Fee revenue from bank

- Differentiated service offer

- Bank brand strength rubs off

Client

MOBILE PHONE

COMPANY

MICROFINANCEINSTITUTION

Welcome to the World of E-MONEY

Regulating E-MoneyE-Money and other stored value instruments challenge

policy makers around the world – if it’s not a bank account, what is it?

Bank Account vs. Payments Service:

What is being done with the funds? (intermediated?)

Is there a limit to the amount which can be « deposited »?

Is there a limit to the length of time the funds can be stored?

Is there a limit to the frequency of transactions?

Is interest paid?

Are « deposits » insured?

Are funds held isolated from issuer creditors in the case of issuer bankruptcy?

THANK YOU.