Branchless banking offers considerable potential for the financial industry, especially among the unbanked or underbanked. Most of the world's population is considered to be underbanked. In developing countries, banks often cater to the affluent, however, there is much to gain by targeting the low-income population. Brazil and Kenya serve as good models with positive results in reaching the poorer segment of the population. A major advantage in this market is high mobile phone penetration, far exceeding internet access. The developing world accounts for 59% of global mobile users according to the Washington Post in 2010. Branchless banking can be promoted as an affordable option beyond medium-term saving and paying bills, outweighing costs incurred through informal options. Promoting a profitable return on investment produces confidence in the system and will attract more customers. Successful implementation can contribute to developing a banking culture among those who have never banked before. Affordability can encourage access to new opportunities, such as schooling, creating a new client base from future generations or enjoying stronger financial standing. The challenge is to develop new and innovative products which meet the particular needs of potential client groups.
Branchless banking is gaining credence as a profitable option for increasing the financial inclusion of the low-income mass market in emerging economies. Brazilian and Kenyan banks decade-long projects through mobile providers show continued growth among low-income and unbanked customers. This initiative observed a major spike in banking and mobile partnerships between 2009 and 2010, by granting customers quick and immediate access to their accounts through their mobile network and promoting sustained loyalty. The CGAP 2007 report indicates that 75 percent of Brazilians use branchless banking agents, compared to 43 percent who have a bank account. There is great potential to reach a large number of low-income and unbanked customers through affordable services, in comparison to traditional banking. Nokia and Paypal came together to forward a mobile payment platform for all users regardless of their bank.
One of the major benefits observed is its cost-effective performance in contrast to traditional banking. Costs for maintaining infrastructure, security staff and teller personnel are reduced. Low-income and unbanked clientele utilizing this mobile system have benefited from low transaction fees which are proportionate to the amounts they handle, as opposed to a standard fee at a branch. Their activities include bill payments, purchasing airtime or withdrawing government benefits. Branchless customers pay higher fees when deposits are of substantial value, which is not an obstacle for the mass market. Usage of branchless banking has increased the role of banking institutions, growing as fast as MFIs in some instances. Through mobile wallets, the need to visit a branch for basic banking is no longer necessary, saving low income customers a pricey trip just to get to a branch. In some countries there is room to decrease branchless fees as competition increases in the market.
Branchless banking has been successful in active environments studied by CGAP, yet there are challenges to increasing its penetration in existing and future markets. The branchless banking system must develop products based on specific economic and social needs in order to attract the low-income unbanked. Some banks extend a variety of products such as short and medium term investments and pensions. They need to foster relationships with the public sector and market research companies to design further innovative initiatives, probing their consumers and observing their trends to continue leveraging the untapped potential of this mass market. Research suggests that many low-income individuals have easier access to informal options, a costly process with high risks of losing money on transactions. A significant proportion of this target population wishes to earn interest on their savings. In Kenya, 75 percent of clients say they store funds in their M-PESA wallet, and 21 percent say this is their most important resource for savings. An additional 90 percent of users indicate that this is one of the most important benefits. A safe rate of return on investment is a common concern among many of the unbanked and underbanked population. Branchless banking must address these concerns and maintain strong partnerships with mobile providers in order to expand its reach.
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