Regulating New Banking Models that can Bring Financial Services to All

This paper highlights areas where focused regulatory analysis would help strike a better balance between maximizing the opportunities of branchless banking models and containing their risks.

Technology, particularly the spread of real-time communications networks, permits banks to delegate the last mile in cash management and customer servicing functions to third-party retail outlets. Banks can increase their physical footprint and transform the economics of low-balance savings by making basic financial functions available securely through retail shops that exist in every neighborhood and village.

The paper highlights five areas where banking regulations need to be adapted to suit these new possibilities of branchless banking. They include:

• Branching regulations, which distinguish between pure transactional outlets and full-service bank branches;
• Regulations which permit banks to engage third-party retail outlets with minimal financial risks for banks and their customers;
• Consumer protection regulations that help customers understand and act upon their rights in a more complex service delivery chain;
• Tiered know-your-customer regulations that permit immediate account opening with minimum barriers for poor people;
• Creating regulatory space for a class of nonbank e-money issuers authorized to raise deposits and process payments, but not to intermediate funds.