Branchless banking is at
least one-fifth cheaper than the traditional distribution model.
Now Celent has analysed financial inclusion models from Brazil,
Mexico, India, Kenya and South Africa and identified three core
business models that best generate revenue from banking the
unbanked segment.


Bar chart showing the percentage of households facing financial exclusion in emerging marketsAs technology
is becoming an increasingly integral part of banking product
offerings and services, banks are realising that there is a return
on investment from including low-income groups in the banking
space: offering services via online or mobile channels is cheaper
and more people are keen to use those direct channels.

Celent has identified three
banking models used to drive the financial inclusion of low income
and unbanked groups.

banks appoint financial agents as business correspondents, such as
supermarkets, shop owners, post offices or a combination of

The cost can be low because
banks have access to low-cost funds from local and international
markets and there is better control of money laundering as
appropriate software is implemented in branches already. The
starting point for AML and CFT is always stronger in a

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Customer confidence tends to
be higher – the banking relationship is direct and contractual. But
branch-penetration has to be high and even then, there is a risk of
lack of well-trained agent staff and the service could be
considered too expensive by customers.

: Third-party institutions, such as telecoms and
mobile network operators, use and offer basic banking services and
are likely to generate greater revenue per customer from text
message and transaction fees and income from customers’ e-money
balances. A high telecom density puts the non-bank at an advantage
in areas with low branch density and the transaction costs are
lower than in-branch.

But regulatory constraints
limit product offering to payments and a lack of stringent
regulation may lead to money laundering as regulators are concerned
that unlicensed and unsupervised non-banks will collect repayable
funds in exchange for e-money and then steal those

Hybrid: A
hybrid model mixes the characteristics of the above two models via
a joint venture or third party outsourcing. It usually emerges in a
country with an efficient banking system, but one that does not
reach a substantial part of the population, often simply due to the
size of the country. In this model, various partnerships merge
special expertise. Distribution outreach is higher.

But there can be regulatory
concerns over complex partnerships that arise from joint ventures
between banks and mobile operators. The ‘ownership’ of the customer
has to be clear – who outsources to whom? And the share of
responsibilities needs to be established clearly in order for this
model to work.

Understandably, each of these
models depends on the macroeconomic situation in any



The key problem in the Brazilian
banking space is consumer protection as there is no sufficient
agent compliance. This issue has resulted in the bank-driven model,
but there is opportunity for a non-bank driven model.

The Central Bank of Brazil
(CBB) allows licensed institutions to offer branchless banking
services. In 2010, the CBB changed its rules and now banks have to
register agents on the CBB online system.



In 2006, the Reserve Bank of
India issued guidelines to include the unbanked (about 40% of the
population) in the banking environment by adopting the business
correspondent model of banks and yet exploiting the wide-spread and
growing network of telecoms. Now, joint ventures between banks and
telecoms are common place.

Most notably is the venture
between State Bank of India and Airtel and ICICI with Vodafone. In
2010, lack of consumer protection resulted in a crisis, but new
regulations for compliance will be implemented next



In Kenya, the law and regulation
in the banking sector lacks clear standards for agent banking. But
non-banks are allowed to offer payment services “virtually
unregulated”, according to Celent.

Changes in legislation for
microfinance, payment systems and anti-money laundering are still
pending. In 2009, the bank amended its Banking Act and included
provisions of the use of agents by financial

Before, such approvals took
place on an ad hoc basis. Then in 2010, the central bank began
permitting agent banking provided the partnering bank determines
the service the agent will provide.



Banking agents are part of the
banking sector, although between 1993 and 2008, banks were not
allowed to use agents.

Banks had been outsourcing
agents to distribute various services, but was not responsible for
the agent’s actions and the central bank of Mexico had to authority
to supervise the actions. Since 2008, the central bank has got the
supervisory authority and holds banks responsible for agents’



In South Africa, the regulation
allows banks discretion to use nonbank third parties either as
agents or through outsourcing arrangements to offer banking
services beyond their traditional branch network.

But banks need to comply with
a number of regulatory demands, including provisioning for business
purchases and bad debts.