Regulation and Supervision of Branchless Banking in Latin America: One Region, Many Approaches

December 16, 2009    

In the evolving and expanding field of branchless banking, the view from Latin America includes a wide range of country-by-country experiences. While the region is a mix of novices and market leaders, with varying degrees of penetration of financial services and differing approaches to models, the prospects are certainly promising. There is growing interest among regulators and providers across the region to increase financial access for low-income and remote users in their countries. 

To help foster communication and learning practices, CGAP recently convened a conference of representatives from governments, civil society groups, and the private-sector in Latin America to share their experiences with branchless banking and discuss the key regulatory and supervisory challenges.

Even with varied levels of experience in branchless banking among countries in Latin America, there is already evidence from several countries that can serve as road maps for later-adopting nations. For example:

• Peru introduced regulations for agents in 2005, and has seen the number of agents in the country reach 5,469¹ in just four years. Important regulatory components include limits on the types of transactions agents can handle for banks (for example, they cannot open new accounts), linking the volume of transactions agents can handle to the size of the business, and making financial institutions responsible for the actions of third-party agents.
• Financial service providers in Brazil have aggressively grown their network of financial services, reaching a greater number of unbanked citizens in recent years. According to the Bank of Brazil, there were nearly 117,000 branchless banking agents by October, 2009, serving as representatives for both national and international banks. These providers are dispersed in locations that include post offices, supermarkets, and lottery kiosks. In addition to stationary agents, the Bank of Brazil operates buses equipped with ATMs, an internet connection, and other basic services, to reach rural areas that do not justify the presence of a branch or an agent.
• The Chilean experience with branchless banking presents a clear case of how these new financial services can satisfy an unmet demand and improve consumer access to financial services. While conventional banks in Chile generally have limited hours of service, the Chilean BancoEstado created Cajas Vecinas, which offer remote banking services for customers with expanded hours of operation. According to Jose Miguel Zavala, Director of Financial Research and Analysis for the Superintendence of Chile, 65% of the operations Caja Vecina handles occur outside of normal banking hours, demonstrating how branchless banking services can supplement traditional banking channels and improve consumer access to finances.

Latin America is a heterogeneous region of large and small countries, with both open and more restricted economies, and persistent challenges of inequality in income and infrastructure inside national borders. Country-specific contexts will be of primary importance for regulators and providers seeking to expand branchless banking services. This means that each government will have to customize its approach to account for country-specific factors in branchless banking. “The fear that strikes a small regulator [regarding branchless banking] is not the same that strikes a large regulator,” is how Gastón Repetto, Research Chief of the Central Bank of Argentina, described the differing challenges he and other regulators confront within their respective countries. Still, there are several universal considerations in branchless banking that the regulators, supervisors, and providers were able to identify as focal points going forward:

• How much responsibility and risk should be assumed by the agent, and how much should be assumed by the banks that contract with these third-party agents?
• Should restrictions on transaction types and/or transaction size be placed on agents? Similarly, who is allowed to be an agent, and should they be certified?
• What role does education play both for financial literacy and proper use of branchless banking technologies by consumers, especially those with low education levels?
• How do you reduce the risk of fraud and criminal activities that range from small-scale agent fraud to money-laundering concerns?
• What role is there for an ombudsman or alternate channels for consumers to register—and resolve—complaints?

Given the potential these new financial services carry for increasing financial access to low-income populations, the concerns described above should not dissuade nations in regions like Latin America from exploring how this sector could be adapted to their citizens’ needs.

CGAP continues to support the dialogue on branchless banking expansion in Latin America, and are making available some of the presentations made by participants from across Latin America at our recent regional workshop on regulation and supervision of branchless banking. See the Additional Resources section to access these presentations. We expect the discussion of different models for provision, regulation, and supervision of branchless banking that started with this meeting of representatives of central banks, civil society groups, and private sector organizations will lead to continued and broader dialogue that can contribute to continuing innovation in branchless banking for Latin America.

¹ As of September 2009