Branchless Banking is an entirely new business model

1) Awareness of the disruptive innovation characteristics of branchless banking

As a business scheme, branchless banking carries all the characteristics of Clayton Christensen’s (1997) definition of disruptive innovation. This classification mandates the need to need to collectively and consciously recognise branchless banking as such. Managers will need also to be mindful on the implication of branchless banking’s disruptiveness on their organisation’s strategy, process, and most importantly, values and paradigms.

2) Creation of a new branchless banking business model

In congruence to point 1, in most cases organisations will need to devise an entirely new business model for their new branchless banking business. Note that the ‘new business’ is the operative word here. Too often banks try to jumble branchless banking business into the existing electronic banking channel, which I will argue will eventually result in a conflict.

3) Establishment of a fully empowered corporate venturing unit tasked at implementing the new business

It’s possible that traditional banking bureaucracy might kill a branchless project early. Thus, it will be necessary to form a flexible, empowered, and well-endowed ‘corporate venturing’ unit tasked at rapidly developing and bringing the new product to market, while maintaining the option of integrating it back into the core business later on.

Detaching Banking from Branchless Banking

In a recent CGAP blog article, branchless banking was touted as ‘the future of microfinance and banking’. Curiously, the particular article was also mindful of the fact that the progress of branchless banking has been slow. Indeed, despite the increased number of implementations worldwide, branchless banking’s reach has been relatively dismal. 

Currently, there are only 26 deployments globally that can claim reach of more than one millions users. Before going any further, it is necessary to make a distinction between the common notions of ‘mobile money’ versus ‘branchless/mobile banking’. Generally both terms are described as technology-delivered financial services products and several experts in the field suggest that the terms can readily be interchangeable. However, for the purpose of this article, I would argue that further classification based on the core product being deployed is necessary: electronic wallets for mobile money, and interest-bearing bank saving accounts for branchless banking. Naturally, this distinction implies that only financial services institutions have the ability to deliver branchless banking, not only due to regulatory reasons, but also due to technical and strategic grounds.

Given the impetus to expand the service to scale – particularly in the emerging markets where branchless banking has the highest potential of fulfilling its high promises of being safer, more efficient, and a more affordable way to transact – much has been said about the impediments for fully-fledged branchless banking implementations. More often than not, regulators are criticised for their lack of support towards the “need of the millions of poor who are denied access to affordable financial services”. In light of continuous advocacy by both international development institutions and donor agencies alike, and fuelled by well-publicised examples of successful (albeit unfortunately still very rare) mobile money case studies, we are now starting to see more innovative regulations geared specifically toward facilitating the implementation of branchless banking. Nevertheless, this is exactly where most of the confusion begins, especially for banks.

First of all, the issued regulations naturally imply traditional banking industry characteristics and constraints. This could result in two potential responses from bankers: the tendency to look at branchless banking as just an additional channel for their customers, e.g. the “electronic banking? We have been doing that for years,” type of response. And the other response, which could come even from the more enlightened organisations: the lack of banking-complied technology out there. This is not too surprising given the fact that the majority of solution providers out there confine their offerings to the Mobile Network Operator (MNO) environment. It requires extraordinary creativity and determination from the bank’s IT team to adopt MNO technology and adapt it to the specific needs of their banking business. 

Second, given the fact that the majority of banks carry heavy luggage in the form of traditional brick-and-mortar infrastructure, it is expected that they will attempt to use these infrastructure as much as possible for their new branchless banking business. Although this might be well justified for some organisations, this rather traditional –and hasty, way of thinking could potentially induce strategic complications for the service in later stages. By looking at the issue as a technical problem, banks are at risk of losing sight over the fact that branchless banking should be treated as a new business model, which does not necessarily fit the traditional way of working. Any effort made to encapsulate branchless banking within the confines of a traditional banking model could potentially imprison the new service with the old paradigms. 

Third, and often the most complex challenge, is the need for banks and MNOs to rethink their traditional form of partnership. While in the past banks and MNOs have been partnering to serve their mainstream clients’ needs, the specific requirements of branchless banking business models, especially those that are geared toward the mass market, would require a significant shift of perspective, which is not the easiest thing to accomplish. 

Based on my involvement with two recent commercial implementations of branchless banking in Indonesia (SinarSip and btpnWOW!), I want to bring forward a new perspective for banks wishing to capitalise the emerging trend of branchless banking. Branchless banking is not for every bank to implement. Indeed, successful implementation will require a confluence of unique exogenous factors (conducive regulations, supporting government, advanced penetration of the mobile network, and so on), as well as a strong visionary leadership in the private sector. On a firm level, the development of branchless banking as a new business would require the possession of advanced organisational capabilities and strong support from the stakeholders. 

Luckily, if the existing services might serve as credible indicators, there is less need for a full profusion of banks offering branchless banking products in one single economy. The establishment of a few, solid services might be all it takes to provide widespread financial inclusion access to the entire populations in most economies, which eventually could even change the way its citizen deal with money and finances. For a bank in possession of the right set of capabilities, as well as visionary leadership, this undoubtedly represents an extraordinary large and enduring opportunity going forward. But to accomplish this goal, they need to detach banking from branchless banking.

Hello World!

Finally, a blog!



This is way overdue as I meant to do this since long time ago, but I guess the decision to go back to school that I made last year was the last straw that finally pulled me in into creating (or more appropriately, trying to create) this blog.

Regardless, blogging is seems as a common milepost in a PhD journey anyway, so while I was expected to create tons of writing in the next couple of years, it looks just logical to create a place where I can dump them all... plus some more thoughts.

Let's see how this thing progress