The Path to Success with Branchless Banking

As they strive to add more customers and grow profitability in ever-more competitive markets around the world, retail banks have increasingly turned to branchless banking as a key new distribution channel. Branchless banking is enabling banks to overcome the constraints of geography and cost as they add tremendous numbers of new accounts, whether through organic growth or as part of initiatives such as the Jan Dhan financial inclusion program in India.

Date: 1st October 2015
Categories: Technology

At the same time that the number of accounts is rising rapidly, however, many banks have experienced lower customer account usage than had been expected. Since success requires far more than simply signing up new customers, banks are then looking for leading-edge technology solutions to ensure that customers use their accounts and generate revenue.   

Branchless Banking Models
Between 2011 and 2014, World Bank data shows that 700 million people opened accounts at banks, other financial institutions and mobile money service providers around the world. While many of these new customers did visit a branch to open their account, banks are increasingly using new models of branchless banking such as agents or partners to sign up new customers so that they can do more with less.

A growing number of countries are indeed allowing banks to engage agents to sign up new customers. In 2014, for example, the Reserve Bank of India lifted its prohibition against banks working with agents more than 30 kilometers from the nearest branch. And in 2015, the Financial Services Authority in Indonesia launched a nationwide campaign with four of the country’s largest banks that targets their hiring more than 128,000 agents in this year alone. 

An increasing number of banks are also using indirect channels such as partnerships with mobile operators or supermarket chains to sign up new customers. ING Bank in Turkey, for example, partnered with leading retail company Migros Group to launch a new loan that is available through supermarkets and packaged to look like a milk bottle.     

While using these new channels makes opening new accounts easier, banks are often finding it difficult to expand account usage enough to make the relationship profitable. Even though nearly one-third access mobile banking every week and two-thirds of bank customers access bank websites weekly, according to Capgemini’s World Banking Report 2015, data from every region of the world showed a significant increase in the percentage of customers who said they are likely to leave their primary bank in the next six months. Moreover, there was also a large decrease in the likelihood of customers buying another product from their primary bank.  

Banks also face increasing competition from start-ups and non-bank financial service providers such as telcos. The GSMA estimates that there are nearly 300 million mobile money accounts worldwide, many of them at non-bank service providers, and consumers in 16 countries have more mobile money accounts than bank accounts.   

Leveraging Technology to Optimize Client Decisions
Increasing competition and decreasing customer satisfaction make it more important than ever for banks to deliver high value and ensure that customers actually use their accounts. As the Center for Financial Inclusion explained it, “one theme we come across repeatedly is the discrepancy between financial services access and usage. Access isn’t enough; financial services need to meet client needs and actually be used.” As they increasingly use branchless banking to open more accounts remotely, banks are finding that the best way to meet customer requirements and drive usage is to utilize leading-edge technology and data analytics effectively.  
At a strategic level, fully leveraging technology for branchless banking has the potential to be a game-changer by enabling banks to target the right customers so that they can optimize long-term profitability. When a customer is opening their account, a bank can use predictive analytics to assess the customer’s likely profitability, cross-sell loans or other products proactively and automate service delivery.  

If a customer signs up for a new savings account, for instance, the bank can offer a basic account which is simple to open and pays no interest or a full-featured account which pays interest and is linked to other products. By analyzing customers at this initial stage of the relationship, the bank can promote the right accounts to the right customers and optimize account selection for both the customers and the bank.  

Banks may also offer small loans or overdrafts, potentially to customers with full-featured accounts initially and subsequently by offering customers that are identified as low risk with the opportunity to convert their basic accounts into full-featured accounts. Linear rules monitoring, such as assessing the account balance or tracking funds inflow versus outflow, can be used to identify basic account customers with the greatest potential for conversion to full-featured accounts. Once high-potential accounts have been identified, the solution can automatically send SMS messages to invite customers to convert to full-featured accounts or send SMS messages to the agents servicing the customers.   

When loan customers have paid their full balance on time, the bank use technology and data analytics to offer them new loans, with the offers adjusted based on how the customers used their previous loans. A bank could offer the same amount if the loan was used simply to cover expenses until regular income was received, or it could offer a larger amount with a longer tenure if the first loan was used for a capital injection into the customer’s business.  

The Commercial Bank of Africa and mobile operator Safaricom, for example, used data analytics when they jointly launched a new savings-and-loan product called M-Shwari. CGAP found that reviewing mobile phone records to set initial credit limits and analyzing customers’ subsequent savings or borrowing to adjust credit limits led to M-Shwari reaching 7 million Kenyans in its first 22 months.
Technology to Optimize Profitability
Beyond using analytics for customer scoring or loan monitoring, banks can leverage leading-edge technology solutions to track each accountholder’s transaction behavior, anticipate their needs based on their unique profile and send relevant marketing messages at the right times. Customers who regularly transact at petrol stations, for instance, are prime candidates for motor insurance and automobile loans.
Banks can also support location-based marketing by analyzing real-time transactions from merchants to detect a customer’s location domestically or abroad and then sending SMS marketing messages for merchants in the same location as the accountholder. 
By monitoring account and transaction activity, banks can also detect low activity and trigger appropriate customer contacts such as SMS messages to remind new customers to use mobile or internet banking for transactions or messages from agents to reeducate customers. Banks can also initiate calls from the contact center to notify customers urgently if suspicious activity is detected on their accounts.  
Senior management can leverage reports and dashboards to obtain dynamic views of business health across different performance metrics and quickly assess overall business portfolio results, risk protection and distribution channel performance.   
Banks can also go beyond banking services to offer added value to their customers. Akiba Bank in Tanzania, for example, uses a Mobile Money Engagement Project to provide education and training about mobile usage as well as a call center set up specifically to handle client questions on the mobile platform and ATMs.

Optimizing Risk and Compliance 
While these business initiatives are clearly critical for driving growth, increasing regulatory requirements to combat money laundering and terrorist financing as well as the potential for losses from fraudulent transactions or hacking have also compelled banks to focus more on managing risk.  
When they establish new accounts, banks need to verify the identity of customers so that they comply with Know-Your-Customer (KYC) and Anti-Money-Laundering (AML) requirements. Conducting these checks can be especially challenging for banks that acquire customers with little or no identification and credit history as part of financial inclusion programs. Banks that use agents or partners for branchless banking also need monitoring to ensure appropriate agent behavior and to avoid risks flagged by inappropriate applications or account usage. 
Once an account is open, banks also need to use real-time monitoring to identify potentially fraudulent or high-risk behavior such as frequent fund transfers or high numbers of transactions.
Leading-edge technology such as advanced neural predictive analytics and behavioral profiling can help banks meet KYC and AML requirements and protect against fraud. The solution can also help ensure that banks manage risk efficiently while reducing the costs and inefficiencies of high false positive rates or accessing databases for checks on potential customers.   
One organization that has kept fraud very low by putting the right controls and monitoring in place is Safaricom with their M-PESA branchless banking service, in Kenya. By using advanced technology to understand customer behavior and purchasing propensities, and also implementing neural networks to identify high-risk behaviors, M-PESA has been able to optimize fraud risk management. 
The Way Forward
Branchless banking offers tremendous potential for banks to deliver services and add value for their customers. Beyond just using branchless banking to open accounts, banks can leverage the power of leading-edge technology to enable their branchless banking initiatives to deliver added value to customers and encourage the account usage that will provide greater competitiveness and revenue in an increasingly dynamic financial services market. 


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