Branchless Banking in Timor-­‐Leste

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  Branchless  Banking  in  Timor-­‐Leste:   Opportuni8es  and  Challenges    
Briefing for representatives of the Government of Timor-Leste  Erik  Aelbers  -­‐  June  2013  

What  is  “Branchless”  Banking?  
•  Branchless  banking  =  the  use  of  the  technology  and  agents  to   increase  access  to  banking  services   •  Services  can  be  provided  through:  
•  Mobile  vans  (banks  on  wheels)   •  Electronic  payments:   •  ATMs   •  Retail  agents  using  Point  of  Sale  (POS)  devices   •  Mobile  phones   •  Internet    

What  is  “Branchless”  Banking?  
•  Branchless  banking  services  can  include:  
•  Access  to  customized  informa8on:  balances,  account  history,  loan   statements  etc.   •  Transac8ons:  account  transfers,  cash-­‐in,  cash-­‐out,  bill  pay  etc.   •  Brokerage:  access  to  insurance,  savings  plans  etc.  

•  Two  main  models:    
•  ‘bank-­‐led’     •  ‘nonbank-­‐led’  –  by  mobile  network  operators  or  3rd  party  provider  

•  Government-­‐to-­‐People  (G2P)  payments  can  be  an  important   contributor  to  the  business  case  for  branchless  banking.  

ADB  Assessment  -­‐  Background  
•  Study  on  the  poten8al  introduc8on  of  branchless  banking     services  in  Timor-­‐Leste     •  Determine  under  what  condi8ons  poten8al  service  providers   could  enter  the  market  to  provide  one  or  more  of  the  following   services  on  a  na8onal  level:  
•  Government-­‐to-­‐People  (G2P)  disbursements   •  Branchless  banking  –  banking  services  through  technology   •  Agent  networks  –  to  convert  electronic  payments  into  cash    

•  Study  supported  by  INFUSE  rural  client  survey  and  agent  survey  

Government-­‐to-­‐  People  (G2P)  Payments  
•  Significant  number  of  people  receive    G2P  payments   •  Payments  made  in  cash  and  bank  accounts  at  BNU/BNCTL   •  Various  ministries  in  conjunc8on  with  Ministry  of  Finance   •  Research:  Walk  down  of  processes/costs  at  MoSS  and  SEFOPE  
Number  of   Beneficiaries   2010   13,458    83,645      4,154   9,102   2011   13,908   84,623    5,539   10,953   2012   15,000   84,569   5,558   27,960  

Bolsa  da  Mãe  
Elderly  pensions   Disability  pension   Veteran  pension    

Total  Beneficiaries  

110,359  

115,023  

133,087  

Government-­‐to-­‐  People  (G2P)  Payments  
•  Ra8onale  for  G2P  payments  through  electronic  payments:  
•  Reduce  the  cost,  risk,  poten8al  delays  and  errors  in  disbursements   •  Increase  frequency  of  payment  –  but  demand  lacking  (INFUSE)   •  Financial  inclusion  of  the  poor  

•  Finding:  It  is  unlikely  that  conver8ng  all  G2P  payments  to  an   electronic  system  with  field  agents  is  feasible  in  the  near  term  
•  High  levels  of  illiteracy  /  Not  all  recipients  have  mobile  phones   •  Cost    of  managing  agent  networks  /  telecommunica8ons  fees   •  Need  for  large  amounts  of  cash  at  specific  8mes   •  If  it  is  not  possible  to  switch  all  recipients  to  a  new  scheme,  the  current   processes  will  have  to  con8nue  to  be  implemented  -­‐>  cost  savings?  

Branchless  Banking  
•  Person-­‐to-­‐person  payments  (P2P  –  remikances)  can  be  another   important  driver  of  branchless  banking  transac8ons   •  But  there  needs  to  be  an  exis8ng  demand  to  make  such  payments   •  Research  from  INFUSE  indicated  that:  
•  Most  remikances  are  delivered  in  person,  via  bus  drivers  or  through   friends  and  family  (not  via  banks)   •  More  than  three  quarters  of  households  receive  remikances  quarterly   or  less  frequently    

•  Finding:  the  number  and  value  of  remikances  are  es8mated  to  be   insufficient  to  underpin  investment  in  an  electronic  payment  system    -­‐>  Electronic  payment  services  will  have  to  be  developed  as  ‘add-­‐ons’  to  exis8ng  banking  services  

Branchless  Banking  
•  Exis8ng  providers  could  launch  branchless  banking  services  (G2P   and  P2P)  as  extensions  of  current  services:  
•  Commercial  banks  (via  ATMs,  POS,  and/or  mobile  phone)   •  Mobile  network  operators  (Mobile  Money  or  wallet  schemes)  

•  BCTL  has  indicated  a  strong  preference  for  bank-­‐led  model   •  But:  The  viability  of  branchless  banking  services  by  commercial   banks  will  depend  on  the  quality  and  cost  of  services  provided  by   mobile  network  operators.   •  The  commercial  banks  also  need  to  validate  whether  their  current   core  banking  IT  systems  can  deliver  the  services  

Agent  Networks  
•  Branchless  banking  systems  reach  full  poten8al  when  there  is  a   well-­‐managed  agent  network,  where  customers  can  ‘cash-­‐in’  or   ‘cash-­‐out’  and  open  accounts   •  Agents:    
•  Can  be  businesses  like  stores,  kiosks,  petrol  sta8ons,  restaurants     •  Need  more  advanced  financial  literacy  skills  than  e.g.  pulsa  sales   •  Need  to  have  liquidity  to  make  payments  –  ‘cash-­‐out’  

•  Concern  about  the  availability  of  businesses  that  can  be  agents  in   the  districts  –  par8cularly  for  government  payments  for  wages  and   social  payments,  which  require  a  lot  of  cash  at  certain  8mes.     •  INFUSE  carried  out  a  survey  of  poten8al  banking  agents    

Recommenda8ons  
•  The  assessment  shows  that  there  are  challenges  to  developing   branchless  banking  services  in  Timor-­‐Leste   •  But  there  are  also  posi8ve  developments:  
•  Introduc8on  of  new  and  improved  mobile  telecommunica8ons  services   •  Increased  interest  of  commercial  banks  in  branchless  banking   (upgrading  banking  infrastructure)  

•  Development  of  branchless  banking  will  likely  take  some  8me,  but   there  are  things  that  the  Government  can  do  to  encourage  changes  

Recommenda8ons  
•  Government  payments  through  MoSS  and  SEFOPE  should  con8nue   to  be  carried  out  as  is.  It  is  recommended  that  Government   con8nue  to  try  to  convert  manual  payments  to  bank  accounts.   •  BCTL  is  recommended  to  consider  the  possibility  of  adop8ng  a   ‘responsive  framework’  for  regula8on  
•  Evaluate  applica8ons  from  service  providers  on  a  case-­‐by-­‐case  basis   •  Closely  monitor  pilot  projects   •  Apply  risk-­‐based  licensing  and  repor8ng  criteria  

•  It  is  in  the  interest  of  Government  to  promote  a  compe88ve  retail   banking  environment  in  Timor-­‐Leste  -­‐>  ‘fair  and  level  playing  field’   •  Commercial  banks  should  be  encouraged  to  add  branchless  banking   to  their  current  service  offerings  -­‐>  dialogue  with  Government  on   service  needs    

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