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World Bank News
Branchless Banking: Innovations Create Opportunity to Serve the Poor
Mobile banking and other technologies need a balanced regulatory approach
WASHINGTON,
"All of this innovation presents challenges and opportunities for regulators," says
While much of the current buzz is around mobile phones, other branchless banking applications are gaining traction as well. Brazil's increase in access to finance has been accomplished largely through the more than 95,000 banking "correspondents" — local merchants and post offices that act as agents for banks, equipped with card-swipe and barcode-reading point-of-sale (POS) terminals. In
In the past five years, technology has brought 13 million people in
"The market is changing, and that creates an opportunity for regulators to adapt the rules to increase the availability of financial services for the poor while maintaining a safe and sound banking system," says
A new CGAP/DFID Focus Note addresses the policy implications of branchless banking. Regulating Transformational Branchless Banking: Mobile Phones and Other Technology to Increase Access to Finance is based on assessments of policy and regulation in seven key countries, including interviews with more than 500 people from governments, the private sector, and international organizations in
"For regulators, it's not viable to simply do nothing. Current regulation tends to be both over- and under- protective," says
Among the countries studied, a surprising consensus surrounds the short list of most critical topics policy makers and regulators should address to formulate proportionate regulatory policy for transformational branchless banking. These include:
— Allowing third parties, such as local merchants to conduct "cash in/cash out" transactions and interact directly with customers;
— Risk-based anti-money laundering (AML) rules, as well as rules for combating the financing of terrorism (CFT) adapted to the realities of remote transactions conducted through agents;
— Appropriate regulatory space for the issuance of e-money and other stored-value instruments (particularly when issued by parties other than fully prudentially licensed and supervised banks);
— Effective consumer protection (on a variety of fronts);
— Inclusive payment system regulation and effective payment system oversight as branchless banking reaches scale;
— Policies governing competition among providers (which balance incentives for pioneers to get into the branchless banking business against the risk of establishing or reinforcing customer-unfriendly monopolies and which promote interoperability).
"In all these areas, regulators are best guided by balancing the costs and benefits against the objectives, a proportionate approach to regulation," says
For branchless banking to reach its potential, consumer protection is essential. Issues include problems with retail agents, redress of grievances, price transparency, and consumer data privacy. Regulators should aim for policy that fosters, rather than inhibits, innovation so market participants are not unduly restricted from launching new financial products and services.
"Based on our research, regulators should avoid limiting the range of possible branchless banking models. They should dialogue with industry, but the private sector ought to have answers on how they'll ensure services are safe and sound," says
Regulating Transformational Branchless Banking is a product of collaboration between CGAP and the UK's Department for International Development (DFID), in partnership with the GSM Association, the global trade association for over 700 mobile phone operators. The authors also benefited from conducting three of seven diagnostic missions with the World Bank's Financial Markets Integrity Unit.
About CGAP
CGAP (the Consultative Group to Assist the Poor) is a consortium of 33 bilateral and multilateral development agencies and private foundations committed to building financial systems that work for the poor in developing countries. Headquartered in Washington, D.C., and housed at the World Bank, CGAP is a global resource center for the microfinance industry, setting standards, offering technical and advisory services, training, and information on best practices, in addition to providing funding for innovative projects. CGAP's Technology Program, co-funded by the Bill and
About DFID
DFID, the Department for International Development, leads the British Government's fight against world poverty. DFID supports long-term programs to help eliminate the underlying causes of poverty. DFID also responds to emergencies, both natural and man-made. Its work forms part of the global goal to attain the eight 'Millennium Development Goals' by 2015. DFID works directly in over 150 countries worldwide, with a budget of some pounds Sterling 5.9 billion in 2006. For more information, please visit http://www.dfid.gov.uk.
SOURCE CGAP
