2c Tlyman Budapest Workshop on Regulatory Issues in Bra 1

8/6/2019 2c Tlyman Budapest Workshop on Regulatory Issues in Bra 1

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Joint MFC-EMNConference

Microfinance with a Mission: Learning Together

Branchless Banking for the Poor:Agents, Mobile Phones, Cash Cardsand New Thinking


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Building Financial Systems for Low Income People and Entrepreneurs

Branchless Banking for the Poor: Agents, Mobile Phones, Cash Cards and New Thinking

Budapest, June 8, 2006


Branchless Banking for the Poor: Agents, Mobile Phones, Cash Cards and New Thinking

Budapest, June 8, 2006


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Agenda for the workshop Agenda for the workshop

Overview of b ranchl e ss bank ing co ncept T w o pr om is ing mod els us ing ret a il a gent s

bank-plus-retail agent modelnon-bank-plus-retail agent model

F ou r cou ntrie s reg u la to ry a ppr oa ch to u nle ash b ra nc h less ba n king

B razilIndiaThe PhilippinesKenya (pilot)

B ra nc h less ba n king in th e regi o nA TMs and cash cards already a realityWhat prospects for other branchless banking?


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W ha t is b ra nc h less ba n ki ng?W ha t is b ra nc h less ba n ki ng?

D elivery of f ina nci a l s ervice s ou ts ide tra diti o n a l ba n k premi s e s (b ra nc h e s)

Exp o nenti a l e xp a n s io n of a cce ss p oss ib le th rou g h inf o rm a tio n a nd co mm u nic a tio n s tec h n o lo gie s (ICTs)

Cha llenge s f o r p o licy m ak er s a nd reg u la to rs:

H ow to adapt or apply existing regulatory norms tonew branchless business models? A ny new risksto consider?


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W h y d o e s b ra nc h less ba n king m a tter?W h y d o e s b ra nc h less ba n king m a tter?

T ra n sa ctio n cos ts o f s m a ll-s ca le fina nci a l s ervice delivery (i.e., micr o fina nce ) a re inherently high (b ec aus e cos ts d o n t v a ry pr o p o rtio n a lly with tr a n sa ctio n s ize )

Cos ts o f tr a diti o n a l ba n k b ra nch netw o rks too high f o r rem o te , s p a rs ely p o p u la ted a re as

ICTs h a ve p o tenti a l to cu t tr a n sa ctio n cos ts dr a m a tica lly


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E xa mple s o f b ra nc h less ba n kingE xa mple s o f b ra nc h less ba n king

Internet ba n king ATMs B a n k -issu ed p a yment ca rd s a nd p o int o f sa le (P OS)

device s B a n ks w o rking th rou g h ret a il a gent s ou tfitted wit h P OS

device s o r o th er ICTs Mob ile p ho ne telc os w o rking th rou g h ret a il a gent s

P rep a id ca rd issu er s w o rking th rou g h ret a il a gent s ou tfitted wit h P OS device s o r o th er ICTs


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W h ich ho ld gre a te s t pr o mis e f o r e xp a nding a cce ss ?W h ich ho ld gre a te s t pr o mis e f o r e xp a nding a cce ss ?

Internet ba n king a dis ta nt dre a m f o r m a ny lo w inc o me pe o ple a nd micr o entreprene u rs ATMs:

G etting cheaper but still expensiveRestocking challengesWill customers trust A TMs to take their cash?

Appr oa ch e s b e s t su ited to e xp a nding a cce ss to lo w inc o me pe o ple a nd micr o entreprene u rs ?

C ash cards & POS technologyB anks working through retail agentsTelcos working through retail agents


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B ra nc h less ba n king in th e regi o n a nd th e w o rldB ra nc h less ba n king in th e regi o n a nd th e w o rld

The regi o n - e xa mple s C entral and Southeastern Europe: A TMs and cash cardsRussia, A rmenia: A TMs and cash cards

B elarus: mobile phone banking for certain cardholdersE xciting e xa mple s fro m ab roa d

N orth A merica and Western EuropeJapan and KoreaB razil and IndiaThe PhilippinesKenya (pilot)


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F ro ntier s o f b ra nc h less ba n kingF ro ntier s o f b ra nc h less ba n king

D etermin a nt s:

TechnologyInfrastructureRegulation


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T ec h n o lo gy a nd b ra nc h less ba n kingT ec h n o lo gy a nd b ra nc h less ba n king

ICTs permit re a l-time (o r clos e-t o -rea l-time )s ettlement o f tr a n sa ctio n s

ICTs a llo w f o r det a iled tra n sa ctio n rec o rd s (a t tiny per-tr a n sa ctio n cos t)

Impr o ving d a ta s ec u rity (a nd co mf o rt fro m wide- s pre a d us e in devel o ped fina nci a l s y s tem s)


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Infr as tru ct u re a nd b ra nc h less ba n kingInfr as tru ct u re a nd b ra nc h less ba n king

F a lling cos ts a nd ris ing a v a ilab ility o f relev a nt ICTs (e s peci a lly m ob ile p ho ne s)

Lo w cos t o f ta pping int o e xis ting ret a il di s tribu tio n cha nnel s, su ch as Post officesLottery kiosksC

ell phone airtime retailersSupermarketsPotentially any retail outlet with cash on hand


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R eg u la tio n o f b ra nc h less ba n kingR eg u la tio n o f b ra nc h less ba n king

T ra diti o n a l ba n king reg u la tio n n o t nece ssa rily well- su ited to b ra nc h less ba n king m o del s

Po licy m ak er s a nd reg u la to rs need to u nder s ta nd new tra n sa ctio n s a nd rel a tio n sh ips (a nd a djus t reg u la to ry th inking )

Imp o rta nce o f ret a il a gent s as cash in , cash

ou t p o int :What needs to be externally regulated and how?


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R ew a rd s f o r p o tenti a l s tak e ho lder s R ew a rd s f o r p o tenti a l s tak e ho lder s

Receive payments (for loans or bills) without costlycollection procedures, and with lower default rates

Gain new customers and reduce customer turnover;earn fees for services provided

Earn fees on transactions processed

Increase customer traffic in store; earn fees

Gain access to financial services that are more secureand less costly than informal financial services

Facilitate access to financial services for poorer/unbanked citizens

Reach previously untapped markets and customers

Government

Banks

Payees

Mobile Telcos

Payment process agent

Retail agent

Customer


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Mo del s f o r a gent- ass is ted b ra nc h less ba n kingMo del s f o r a gent- ass is ted b ra nc h less ba n king

ba n k -plus -ret a il a gent m o delB razilIndia

n o n-ba n k -plus -ret a il a gent m o delThe PhilippinesKenya (pilot)


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B a n k -plus -ret a il a gent m o del ho w it w o rks B a n k -plus -ret a il a gent m o del ho w it w o rks

Cus to mer R et a il Agent Pa yment Pro ce ss ing Agent

(if a pplic ab le)

B a n k


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Service s o ffered wit h ba n k -plus -ret a il a gent m o delService s o ffered wit h ba n k -plus -ret a il a gent m o del

Mo ney tra n s fer (P2P )

RE TAIL AG E NT O FFER S:

Opening a cc ou nt s;

issu ing credit ca rd s

D ep os its &wit h dr a w a ls

Loa n/ b ill/t axp a yment ; loa n

di sbu rsa l


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R isks ca teg o rie s wit h ba n k -plus -ret a il a gent m o delR isks ca teg o rie s wit h ba n k -plus -ret a il a gent m o del

...

Need f o r reg u la tio n? At w h ich level?

Oper a tio n a l risks R ep u ta tio n risks Mo ney lau ndering Leg a l risks

R isks su ch as s y s tem

reliab ility , d a ta s ec u rity , risk o f

mi sus e a nd frau d

R isks su ch as asso cia tio n wit h p oo r

perf o rm a nce o f ret a il a gent s o r

a gent frau d

R isks su ch as cus to mer

verific a tio n ou tsou rced to

ret a il a gent

R isks su ch as u ncert a inty o f

la w o r u ne xpected cha nge s in

th e la w


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B a n k -plus -ret a il a gent m o del e xtern a l reg u la tio nB a n k -plus -ret a il a gent m o del e xtern a l reg u la tio n

B razilB a n ks m a y co ntr a ct a gent s to co nd u ct ba n king co rre s p o ndent

a ctivitie s (defined as d o ing ba n king bus ine ss o n b e ha lf o f a ba n k; risks m us t b e assu med b y co ntr a cting in s titu tio n )

Agent s m us t b e au tho rized b y Centr a l B a n kB a n ks a re h eld f u lly re s p o n s ib le f o r a ctio n s o f its a gent s Centr a l B a n k has f u ll a nd u nre s tricted a cce ss to d a ta fro m ret a il

a gent s

Cus to mer s ca n rec o ver fro m eit h er ret a il a gent o r ba n k in cas e o f frau d , negligence , etc.B a n ks m us t e s tab lish intern a l co ntr o ls to pr o vide f o r s y s tem a tic

m o nit o ring o f a ctivitie s perf o rmed b y a gent s


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B a n k -plus -ret a il a gent m o del e xtern a l reg u la tio nB a n k -plus -ret a il a gent m o del e xtern a l reg u la tio n

IndiaB a n ks h eld f u lly re s p o n s ib le f o r a ctio n s o f th eir ret a il a gent s; ba n ks

assu me a ll o per a tio n a l, leg a l, a nd rep u ta tio n a l risks B a n ks s tro ngly enc ou ra ged to perf o rm f u ll d u e diligence o n p o tenti a l a gent s a nd to m o nit o r th eir perf o rm a nce

B a n ks h eld re s p o n s ib le f o r en su ring tha t a gent s meet AML /CF T req u irement s (m o re fle xib ility f o r p oo r cus to mer s)

B a n k rem a in s re s p o n s ib le to cus to mer in cas e o f frau d , negligence ,etc. b y ret a il a gent (bu t G riev a nce R edre ssa l Officer a nd B a n king Om bu d s m a n a lso a v a ilab le)

Agreement s wit h cus to mer s m us t cle a rly s ta te tha t ba n k rem a in s re s p o n s ib le to cus to mer s f o r a gent s a ctio n s


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No n-ba n k -plus -ret a il a gent m o del ho w it w o rks No n-ba n k -plus -ret a il a gent m o del ho w it w o rks

Cus to mer R et a il Agent T elc o B a n k


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No n-ba n k -plus -ret a il a gent m o del s ervice s o fferedNo n-ba n k -plus -ret a il a gent m o del s ervice s o ffered

Money transfer (P2P)

T EL CO O FFER S: Item p u rchas eCash -in/ ou t

Loa n/ b ill/t axp a yment


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W ha t is different w h en th ere s n o telc o ?W ha t is different w h en th ere s n o telc o ?

The n o n-ba n k -plus -ret a il a gent m o del a lso w o rks wit h prep a id ca rd issu er s a nd netw o rks o f ca rd-re a ding device s a t th e ret a il a gent s

D ifference s:Technological method of communication amongparties (card scanners versus text messaging)Without a telco, customer must visit a retail agentfor each transaction


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R isk ca teg o rie s wit h n o n-ba n k -plus -ret a il a gent m o delR isk ca teg o rie s wit h n o n-ba n k -plus -ret a il a gent m o del

Need f o r reg u la tio n? At w h ich level?

Liqu idity risk Credit risk Mo ney lau ndering Leg a l risk

B a n k (a nd su pervi so r)

ca nn o t directly obs erve m o vement s o f

cus to mer a cc ou nt s (i.e.

a cc ou nt m a n a gement

ou tsou rced )

R isk o f cus to mer n o t b eing ab le to

co nvert e-m o ney int o

cash

R isks su ch as cus to mer

verific a tio n ou tsou rced to

ret a il a gent

D o e s dep os it-tak ing a nd

p oo ling co n s titu te ba n king

bus ine ss ?


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No n-ba n k -plus -ret a il a gent m o del e xtern a l reg u la tio nNo n-ba n k -plus -ret a il a gent m o del e xtern a l reg u la tio n

The Philippines

Mos t e xperience wit h telc o -bas ed m o del to s erve previ ous ly u n ba n ked client s R et a il a gent s a re s to re s, cell p ho ne ou tlet s, etc.Centr a l B a n k circ u la rs req u ire telc o to ob ta in Centr a l B a n ks

a ppr o v a l (as p a yment pr o ce sso r) b ef o re lau nc h ing new s ervice Appr o v a l bas ed o n det a iled de s cripti o n a nd pr o jecti o n s

Centr a l B

a n k ca n req u ire cha nge s in s ervice s if deemed too risk y Mo ney lau ndering reg u la tio n s a pply to cell p ho ne co mp a ny (as p a yment pr o ce sso r)


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No n-ba n k -plus -ret a il a gent m o del e xtern a l reg u la tio nNo n-ba n k -plus -ret a il a gent m o del e xtern a l reg u la tio n

Kenya

Pilo ting wit h telc o (Vo d a f o ne a ffilia te ) u nder w a tc h f u l eye o f th e Keny a n Centr a l B a n k (sa fe )

Prep a id ca rd issu er (Sma rtMo ney ): n o reg u la tio n (so s ignific a nt risks)


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B ra nc h less ba n king in th e regi o nB ra nc h less ba n king in th e regi o n

ATMs a lre a dy co mm o nCash ca rd s incre as ingly co mm o n (prep a id

ca rd s, de b it ca rd s a nd credit ca rd s)B u t w ha t is needed to ro ll ou t eit h er th e ba n k -plus -ret a il a gent o r th e n o n-ba n k -plus ret a il a gent m o del?

EU mem b er s a re g o verned b y EU E -Mo ney D irective (so n o n-ba n k m o del is limited )


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Thank you!


Thank you!

2c Tlyman Budapest Workshop on Regulatory Issues in Bra 1

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Transcript of 2c Tlyman Budapest Workshop on Regulatory Issues in Bra 1