Going Branchless: Paving way for financial inclusion

The concept of 'financial inclusion' is now widely acknowledged by many economists as an imperative growth strategy in developing economies. It may be defined as a durable solution, aimed at creating expansive livelihood opportunities through enhanced financial access for the lower income and marginalized strata of the society.
According to a World Bank survey in 2010, around 2.7 billion people do not have access to formal financial services. The State Bank suggests that only 14 percent of the rural population is banked in Pakistan, even though 67 percent of the total population resides in rural areas. Furthermore, on average, there is one bank branch per 20,000 people.
One of the earliest serving of the unbanked in Pakistan started when United Bank Limited launched its 'mobile banking' in 2007. Although very simplistic, the beta version of the branchless banking service was the first-of-its-kind payments solution that enabled customers with GSM mobile connections to carry out simple financial transactions using their mobile phones. Combined with customer insights and the central bank's robust regulatory framework in place, the opportunity to introduce a transformational branchless banking service came in 2010.
DIFFERENCE BETWEEN
BRANCHLESS & MOBILE BANKING
Now deemed synonymous with 'financial inclusion', branchless banking may be defined as the delivery of financial services outside the conventional bank branches using communications and information technologies and non-bank retail agents. It may be distinguished into two categories:
1) The 'bank-led' model constitutes a licensed financial institution that delivers financial services through a third party agent or merchant, that can facilitate account opening, payments, cash services and other banking services, usually using a mobile phone or point of sale terminal. The customer account is maintained with the bank but operated through the agent or via other non-branch channels, such as, mobile phone or ATM.
2) In the 'non bank-led' model, a firm such as a telecom operator, or other non-bank entities such as Post Offices, make use of their retail network in conjunction with third party agents to offer customers basic banking services.
Inherent to branchless banking, mobile banking (m-banking) was initially started as a high-tech solution to abate dependence on the traditional branch banking system. The reasons for taking this trajectory are the myriad of costs involved in branch banking and its propensity to financially 'exclude' the larger part of the population.
According to the Consultative Group to Assist the Poor (CGAP), the number of m-banking service deployments has escalated considerably since 2007. Globally, CGAP estimates there will be 1.7 billion people with a mobile phone and as many as 364 million unbanked individuals could be tapped by agent-networked banking through mobile phones. In Pakistan, the State Bank figures suggest that there are only 26 million bank accounts in comparison with the 95 million mobile phone users.
THE UBL OMNI MODEL
UBL Omni is an innovative banking lifestyle for the masses that does not require stringent KYC requirements of the State Bank for account opening. The minimum requirements for opening an account with UBL Omni are the customer's mobile number and CNIC number.
The establishment of a wide network of Dukaans/agents is expected to increase the outreach of financial services at much lower costs compared to a branch.
Non-account holders or 'walk-in' customers are also entertained at a UBL Omni Dukaan where they are eligible to make utility bill payments, send or receive money, purchase mobile card vouchers and make postpaid mobile bill payments. This can help convert the non-bank-account-holders into regular bank-account holders and incorporate them within the fold of the documented economy.
Unlike other branchless banking models, a factor that is unique to UBL Omni's functioning is that it is 'Telco-Agnostic', meaning that it does not discriminate against customers based on the type of mobile network they belong to.
The value proposition for customers is the ease and efficiency of the service in terms of time saving and conveniently located Dukaans for availing transactions. The agent system is available both on a PC as well as on a mobile phone. The incentive from a Dukaan/agent's perspective is the probability of increased foot traffic and the ability to offer additional and differentiated services to existing or new customers.
COMPARISONS WITH GLOBAL TRENDS
Like Pakistan, internationally, branchless banking is largely prevalent in developing nations, akin to the market vacuum left by the 'financially excluded' rural strata.
In Kenya and Tanzania, Safaricom's M-Pesa is considered to be the torchbearer of the branchless/m-banking world. Its staggering growth and success has made Kenya a focal point of growing international interest in mobile commerce.
The initial concept involved creating a service which allowed microfinance borrowers to easily receive and repay loans using the network of Safaricom. M-Pesa was later re-launched with a different value proposition; i.e. sending remittances and making payments across the country.
As with UBL Omni, the mass appeal of M-Pesa is partly the ease and simplicity of its account opening. Safaricom subscribers can register for the M-Pesa service by filling up a simple form and presenting any legitimate identification proof.
Unlike UBL Omni, which supports the use of any mobile network, Safaricom replaces the customer's SIM with an M-Pesa enabled one. M-Pesa's success is evident from the 8.6 million users it possesses out of which more than 90 percent believe their money is safe. Furthermore, 81 percent of the users find M-Pesa very easy to use. Analysts posit that one of the significant reasons for M-Pesa's success is the care with which agents were selected. Similarly, UBL Omni also adopts a strict agent selection process.
BRANCHLESS BANKING IN DISASTER MANAGEMENT
The ubiquity of the 2010 Flood Crisis prompted the banking sector to appropriate their resources to help victims. UBL, having been successful in previous aid disbursement assignments, collaborated once again in tandem with the Government of Pakistan and NADRA to make electronic payments to approximately 1.3 million affected households.
Making branchless banking their primary avenue of disbursement, UBL is using the Omni accounts and distributing cards, so that respective recipients can withdraw their cash at ATMs. To ensure efficiency in the disbursement process, local resources were hired according to regions for Sind, Punjab, Khyber Pakhtunkhwa and Azad Kashmir under the supervision of UBL staff.
Additionally, UBL also hired staff with local language skills to work at the call centres to guide and assist flood affected people with their queries. Moreover, UBL built its own infrastructure to guarantee consistent online connectivity to the NADRA verification system while mapping individuals to Watan cards.
The first installment of Rs20,000 each, has been distributed among 1 million flood affected people through UBL Watan cards. This has taken overall disbursement, thus far, to around 20 billion which has been funded equally by the Federal and Provincial governments.
OUTLOOK
Branchless banking has revolutionized the very meaning of the 'financial sector' by augmenting it to welcome the unbanked into the financial world.
It is there to help that segment of society who feel compelled to hide their cash in odd places in fear of theft; who feel the need to conceal their value to prevent other people from incessantly borrowing; who adopt difficult channels of sending money to their loved ones across the country. From the factory worker in Rohri to the milk shop owner in Sahiwal, branchless banking aims to reach out to those for whom the world of banking seems daunting and beyond their access.
Pakistan's advent into the world of branchless banking is still nascent, however, the experience of the international players, thus far, demonstrate it to be a promising endeavor.
A survey, by CGAP's Mark Pickens in 2010, conducted to assess whether branchless banking is really catering to lower income groups, found that each of the high profile pioneers brought 1.39 million people into the formal financial system.
The survey, which analyzed the operations of Banco Postal (Brazil), FINO (India), GCash & Smart Money (Philippines), WIZZIT (South Africa), WING (Cambodia) and of course M-Pesa (Kenya & Tanzania), also found that 37 percent of their active clients were previously unbanked.
It was also found that branchless banking serves more previously unbanked individuals in comparison to the largest Micro Finance Institutions (MFI), who also target the unbanked market. It, therefore, took only three years for branchless banking services to surpass the outreach of even the largest MFI.
It is indeed evident that branchless banking is serving its purpose by reaching out to the un-banked. While it may be too early to declare it as an imminent success, a service like branchless banking, whether bank-led or telecom-led, has created the much-needed inroads towards financial inclusion. And before we know it, solid evidence of the positive effects of branchless banking on the economy will hopefully start emerging.
The writer is currently working as Product Analyst for UBL Omni and holds a Bachelors degree in Economics with Development Studies from SOAS, University of London. He can be reached at [email protected].