Borderless Branchless Banking

Are international remittances the final frontier for branchless banking? Formal remittance flows to developing countries are estimated to be US $325bn in 2010: in some countries these flows outweigh overseas development aid and constitute a sizeable proportion of the economy – international remittances equal 12% of GDP in the Philippines.

The emergence of branchless banking, combining networks of agents that can facilitate banking transactions with communications technology such as mobile phones seem to offer an obvious opportunity as an alternative delivery channel for international remittances. These new models hold great promise for expanding access to services, reducing costs associated with service delivery, and increasing the level of competition in the industry. And given the size of the flows, it is no surprise that branchless banking service providers are looking for ways to get into this market.

Today, however, there are only eight live branchless banking deployments that allow customers to receive funds from abroad directly into an m-wallet which can be converted to cash at a large agent network. This is a small number when compared to the 100 deployments that are live according to the GSMA mobile money tracker and numerous other “bank-based” models. So what are the factors that are preventing branchless banking services from delivering a greater portion of international remittance flows? Actors interviewed in a recent study conducted by CGAP and Dalberg referenced three major issues:

(a) Insufficient maturity of branchless banking infrastructure on the receiving end. In many countries the network of cash out agents is not well enough developed to enable customers to withdraw money at a sufficient number of points across the country. International remittance flows tend to flow in one direction only and can put a big strain on agents who need to maintain sufficient liquidity to provide the cash that customers need.

(b) Lack of customer awareness and trust in new services. Even in markets like Kenya and the Philippines where there are well developed networks of agents, customers are hesitant to move away from trusted remittance service providers that they may have relied on for many years. Migrant workers who are sending home a large fraction of their monthly paycheck may not be willing to trust their hard earned cash to a provider that they have never heard of to save one or two percentage points in fees or to remove the need for a relative to take a bus ride into town to collect their money.

(c) Constraining regulatory environments. In many countries regulations including restrictions on who can provide remittance services, capital controls or simply limits on account sizes that are below what customers typically send all provide obstacles to the use of branchless banking services to facilitate international remittances.

Despite these challenges, a further 15 branchless banking service providers are planning to add international remittances to the menu of services that they offer their customers in the near future and the prize is sufficiently large that we expect to see other players entering this market in time. A summary of the research can be downloaded here.

- Chris Bold