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

Signicant 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 Beneciaries 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 Me
Elderly pensions Disability pension Veteran pension

Total Beneciaries

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 eld 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 specic 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 insucient 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 nancial 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 eld Commercial banks should be encouraged to add branchless banking to their current service oerings -> dialogue with Government on service needs