Branchless Banking Policy

Branchless banking is the delivery of financial services outside conventional bank branches through the use of retail agents and information and communications technologies to transmit transaction details. By relying on already existing retail infrastructure and widespread technologies, such as mobile phones, branchless banking dramatically reduces the cost of delivery and increase convenience for customers.

As a relatively new business model, branchless banking cuts across a broad spectrum of regulatory “domains,” making a cohesive and coordinated policy and regulatory environment a challenge for policymakers. The key to unlocking branchless banking’s potential depends on policies and regulations that mitigate the risks to customers and their funds without stifling the innovation of new business models and market actors.

There are two central preconditions to regulating branchless banking:

1. Use of Agents. Authorization to use nonbank retail agents as the “cash in/cash out” point and principal customer interface, so as to increase the number of accessible service points; and
2. A risk-based approach to AML/CFT (anti-money laundering / combating financing of terrorism) rules adapted to the realities of (i) poor customers who often do not have required documents and (ii) remote transactions and customer enrolment conducted through agents.

In addition, regulators must address another key regulatory issue—whether they will permit e-money issuance by parties such as mobile network operators (MNOs), who are not fully prudentially licensed and supervised banks. Due to their experience with retail distribution networks and with high-volume, low value transactions, MNOs have often taken the lead in branchless banking models. Regulators permitting nonbank e-money issuers typically impose fund safeguarding and isolation requirements.

Other key regulatory issues include effective consumer protections to address the risks involved in electronic payments and promoting interoperability and related competition issues.

Topic Contact: Michael Tarazi

Recommended Reading:

• Regulating New Banking Models that can Bring Financial Services to All (SSRN)
• Putting the Banking in Branchless Banking: Regulation and the Case for Interest-Bearing and Insured E‑money Savings Accounts (World Economic Forum: Section 1.4 of The Mobile Financial Services Development Report 2011)