Branchless banking on the rise

With mobile connectivity breaching one billion mark and internet users crossing 350 million, banking in India is fast moving to digital mode. The transformation of banking from the mode of ‘bricks’ (physical branches) to ‘clicks’ (virtual) is set to hasten too soon. The ecosystem is transcending fast towards innovative models of alternate delivery channels and hence branch banking mode may become passé. The relevance of age old tradition of brick and mortar bank branches is debated. RBI in its recent policy proposed to redefine bank branches and find permissible methods of outreach keeping in mind the various existing and potential attributes of the banks. World over branchless banking through digital mode is emerging as a vital distribution strategy used for delivering banking services without relying on physical bank branches. While the new disruption strategy may complement an existing bank branch network for giving customers a broader range of channels to access faster services, branchless banking may also be used as a separate channel distribution strategy that entirely forgoes a branch format. In the new digital format, bulk of the standardised banking operations are centralised and only limited customer interface for specialised service is envisaged at the branches with limited staff. It blends faster turnaround time, improved efficiency, cost effectiveness and better customer satisfaction.

According to a 2012 study by Gallup Inc and World Bank, an estimated 2.7 billion people in emerging markets – almost 40 per cent of the world’s population are without access to even basic financial services. They remain ‘unbanked’ and don’t use formal or semi-formal financial services. The lives of these unbanked could be improved through access to the most basic array of banking services, such as deposits, savings, installment loans, simplified and secure remittances and bill payment.

Global experience
Some of the examples of existing predominant branchless banks in Africa, Middle East and Asia are interesting because they solely operate on internet. Smile, or smile.co.uk, is a British-internet bank with a trading name of co-operative bank while Cooperative Bank of Kenya uses the internet, ATMs, POS devices, electronic funds transfer enabled POS devices, and mobile phones as technologies to deliver its banking services through a combination of distribution channels including stationary bank agency outlets, mobile bank branches, ATMs, bank correspondents, online banking, and mobile banking. Also, Equity Bank Ltd, Kenya and Kenya’s M-Pesa are more notable. ‘Easy paisa’ in Pakistan transmits money through mobile. These are only illustrative. There are many more branchless banking entities.
Branchless banks operating across the globe are cheap, efficient, fast and accessible any time. The four critical issues in emerging markets to promote branchless banks is to provide cash-in and cash-out ports, regulatory controls, security features targeted at mass customers who may not be literate and conversant with English language and making public aware of its availability (financial literacy) so that the unbanked people can use the services. In this context, mobile with an internet connection can work as a bank branch for many applications. Other than accessing credit, every other facility is almost now possible through a networked mobile.

Calibrated transformation
Banking in India too is fast moving towards digitisation. The available data amply indicates the faster pace of transformation of banks from traditional mode of branch presence to technology-led alternate delivery channels. Even when compared to total physical presence of outlets of banks – branches and ATMs put together, the percentage of branch presence has come down from 50.41 per cent in FY12 to 40.28 per cent by December 2015. With number of debit cards at 643 million and credit cards at 22.7 million in December 2015, the point of sale terminals (PoS) are now standing at over 1.2 million facilitating purchases and bill payments. These statistics clearly indicate the proliferation of digital banking in India. The E-lobby format of banking presence equipped with digital accessories such as ATMs, bulk note accepter working as a teller, pass book printer, cheque deposit machines and internet-enabled PC etc works as unmanned branch.

Alternate banking in hinterland
While the overall digitisation is picking up fast, banking in hinterland too is changing due to speedy implementation of financial inclusion and engagement of Business Correspondents (BCs). The relevant data would indicate the change.
It shows that even in rural areas, the alternate touch points, other than brick and mortar bank branches have increased. As a result, the percentage of branch share has come down from 49.31 per cent in FY10 to 8.95 per cent in FY15. The alternate delivery channels are gaining more prominence even in hinterland. Internet banking and remittances through use of electronic channels are fast becoming popular even in smaller centers signifying the culture change towards digitization.

Way forward
With new generation banks set to enter, digital banking will arrive in a bigger form. The 11 payment banks will focus only on spreading digital culture while 10 small finance banks will go retail. With financial and digital literacy spreading fast and adhaar cards touching the lives of masses, soon the Indian banking space will go branchless.

While the personal touch points and branch presence will continue to be significant for availing advisory and non-retail credit, most of the routine banking including standardised retail lending operations will go online. Credit history will be the main stay for availing credit from banks with finer interest rates. Hence, consumers have to be sensitive to build their impeccable credit history to avail banking services at competitive rates as human intervention will soon dissipate in branchless form.

[The author teaches at the National Institute of Bank Management (NIBM), Pune. The views are his own]