Branchless banking: Make hay while the sun shines

Recognising the importance for regulations to be flexible enough to keep up with changing business dynamics, SBP has just revised its regulations for branchless banking.
The transaction limits, initially set in 2008, for Level 1 accounts had become lower in real terms given the erosion of customers purchasing power due to double-digit inflation. This made the service of little use to the customers. The SBP has now revised the transaction limits upwards (see table). Linking the account limits with an inflation index would have been a better, albeit complicated, measure.
Revised account limits would also increase liquidity in the system which would benefit service providers and their agents.
The central bank has also introduced "Level 0" branchless banking accounts to bring the low income segments into financial services loop - something missing in previous regulations.
The account opening process for Level accounts requires less paperwork. Now, instead of sending a physical account opening form and copy of customers CNIC, the branchless banking agents could send the digital account opening form, customers digital photo and an image of customers CNIC to the financial institution.
The transaction limits and maximum balance limit for Level 0 accounts seem to be adequate for low income-earning households, especially those working on daily wages.
The preference for a ank-led model in previous branchless banking regulations has not been changed by the regulator in the revised regulations. This means that any interested non-banking corporation cannot go solo and launch a service on its own - it will need a banking license to do so.
Telenor Pakistan did precisely that by first acquiring a 51 percent stake in Tameer Microfinance Bank in November 2008. Later, Easypaisa was launched under Tameer Banks umbrella.
Only four licenses have been issued since the regulatory approval for branchless banking in 2008. The two services which have achieved adequate scale in their operations are Tameer Microfinances Easypaisa and UBLs Omni Dukaan. Both the service providers have primary exposure in person-to-person (P2P) transfers.
Several other players are eager to foray in the branchless banking arena. TCS, the courier and logistics company, has submitted an application for a microfinance bank to the SBP; and Orascom - Mobilinks parent company - has also developed a business plan for a microfinance bank which has been approved by SBP, according to World Banks Consultative Group to Assist the Poor (CGAP).
On the other hand, negotiations and discussions among various banks and telcos have been going on since quite some time, without any concrete development.
The local service providers need to start offering remunerative products, like saving accounts and micro-insurance. The regulatory regime is also supportive in this regard as the revised regulations state that "FIs are allowed to maintain branchless banking customer accounts as remunerative accounts in order to encourage opening of more accounts".
To make most of such enabling environment, it is indeed time for service providers to move beyond fund transfers & bill payments to introduce the value added services.
These services are being offered in many other developing countries. CGAP estimates that more than one-third of customers of EKO (a branchless banking service provider in India) use the service for saving purposes. In Kenya, Ghana and the Philippines, various types of insurances have been offered through the branchless banking platform.

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Revised branchless banking accounts limits (Rs)

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Account     Description                                         Daily         Monthly         Annual         Maximum

levels                                                      transaction     transaction    transaction       balance

                                                                limit           limit          limit           limit

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Level 0     Basic BB account with low KYC req.                 15,000          25,000        120,000         100,000

            & low transaction limits

Level 1     Entry level a/c with adequate KYC req.             25,000          60,000        500,000        No Limit

            commensurate with transaction limits

Level 2     Top level a/c for individual customers with         FIs            FIs           FIs         No Limit

            all BB facilities & subject to full KYC req.    discretion *    discretion     discretion

Level 3     Specific for merchants, businesses, banking         FIs            FIs           FIs         No Limit

            agents or third-party service providers         discretion      discretion     discretion

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* FI can set limits commensurate with each customers profile & FIs own account monitoring capacity

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Source: SBP; Branchless banking regulations (updated on June 20, 2011)

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