Use of agents in branchless banking for the poor: rewards, risks, and regulation
In a growing number of countries, banks and other commercial financial service providers are finding new ways to make money delivering financial services to “unbanked” people. Rather than using bank branches and their own field officers, they offer banking and payment services through postal and retail outlets, including grocery stores, pharmacies, seed and fertilizer retailers, and gas stations, among others. For poor people, “branchless banking” through retail agents may be far more convenient and efficient than going to a bank branch.
Two models of branchless banking through retail agents are emerging: one led by banks, the other by non-bank commercial actors. Both use information and communication technologies, such as cell phones, debit and prepaid cards, and card readers to transmit transaction details from the retail agent or customer to the bank. Branchless banking through retail agents appeals to policymakers and regulators because it has the potential to extend financial services to unbanked and marginalized communities. But it also raises a challenge: What are the risks of these new approaches, and are they different from those of conventional branch-based banking? How should we respond to these risks, so as to permit branchless banking with retail agents to operate safely and expand access to finance?
This Focus Note offers insights on these questions by examining the experience of five pioneering countries – Brazil, India, South Africa, the Philippines, and Kenya – where agent-assisted branchless banking that targets poor customers is already a reality. The Note begins with some background on branchless banking through retail agents and its two main models: the bank-led model and the non-bank-led model. It then examines the new or enhanced risks these branchless banking models raise and explains how banking regulators have responded to these risks so far in the five countries studied. It concludes with considerations for prudent but access-oriented regulators and policymakers regarding branchless banking for the poor.