This is an excerpt from a recent CGAP paper, The Early Experience with Branchless Banking. The paper synthesizes the observations and research of the CGAP Technology Program. Gautam Ivatury and Ignacio Mas wrote the paper, with substantial input from the entire program team. This blog series will cover seven observations, four uncertainties and four predictions for branchless banking – what we call mobile banking and other technology-enabled banking solutions.
The opportunities presented by branchless banking in broadening access to banking services across the population are limited by two factors. First, assembling a proprietary retail network of agents is time consuming and implicates financial service providers in agency operational risks they may find difficult to manage. Second, because customers are able to convert their savings to/from cash only at designated agents, financial service providers are generally compelled to support the liquidity position of their agents, which exposes them to additional credit risks. Indeed, proprietary agent networks continue imposing a significant burden on banks that want to expand.

The alternative is to develop branchless banking models based on shared agent networks. This would allow financial service providers to be “liberated” from location constraints and able to compete for customers anywhere purely on the basis of product design, marketing, and branding. And rather than rely only on exclusive agents to handle customer liquidity needs, the liquidity at all agents in a given location would be pooled to serve any customer and, hence, can be used most effectively and with minimal credit support.

Without this added layer of benefits underpinning the branchless banking model, providers are not likely to find branchless banking viable, particularly in rural areas where agents are few and cash transportation is costly. Making this a possibility will require changes in bank regulation, industry business models, and commercial strategies by individual financial service providers.