BRANCHLESS SERVICES AND DISTRIBUTION

The complement to downscaling is what might be called “outreach,” i.e. using branchless methods to extend services. One approach is the direct use of non-branch methods by the banks, such as sub-branch offices, ATMs, outlets at schools and markets, and outreach by means of motorbikes and boats (see above). Alternatives that do not involve banks directly – or do not involve them at all – are agent banking, point-of-service payment and transfer systems, and electronic funds (e-money) deployed via stored value cards and mobile phones.

On both the agent banking and e-money fronts, BOT has taken a cautious, gradual approach in legalizing these services (see the box below). Each of these modalities still has regulatory restrictions that limit its potential. The rationale for going slowly appears partly prudential and partly based on the idea that Thailand is less in need of such “leapfrogging” than much poorer and more geographically fragmented countries. But rapid expansion of e-money systems, with their ability to overcome barriers of distance and cost, is a priority for financial inclusion.

Agents

A.

The outsourcing of certain banking functions, permitted in principle under FIBA (art. 47), is spelled out in Bank of Thailand Notification 9/2553: Rules for Appointment of Banking Agent. The regulation authorizes six types of agents that commercial banks may use, but prohibits such agents from opening deposit accounts or carrying out loan approvals or disbursements. The main agent types – categorized by activity (e.g. Depository and Withdrawal) – can in most cases be other banks and in some cases other financial institutions or Thailand Post Co. Ltd. Electronic payment service providers may be used for credit card transactions. In contrast to the banks, finance companies112 may use agents for a more limited range of purposes: deposits, withdrawals, and transfers. Permission must be obtained from BOT for certain of these agents as well as for purposes not indicated in the regulation.113 (The table below summarizes the types, requirements, and activities of different agents.)

1. This arrangement represents a liberalization of regulatory controls. Here, BOT approves certain types of agencies, while under the prior regulation (from 2010), it required preapproval of not only agents, but also the agency agreements and systems to be used. Initially, agent approval was a laborious process involving a long list of questions, requiring some six months to complete. This is now reported to take about one month, and some agency arrangements require no prior review. KTB is a leader in this area, having experimented early on and now using agents with a real-time link to the bank. Also moving to set up agencies are other commercial banks, GSB, and BAAC. The SFIs can set up agencies without BOT approval. KTB obtained BOT approval to use certain cooperatives as agents, many of its vetted candidates having been rejected. KTB installs software to enable transactions (mainly savings deposits) at the cooperative’s offices by means of a web link to KTB, and the institutions share fees. Now, the Village

112

I.e. NBFIs, including credit card and personal loan companies. 113

The notification mentions cost savings as the rationale for permitting agents. The limitations included in the rules have a prudential rationale, constraining risks such as the potential for fraud and money-laundering.

Funds are being considered as agents, and BOT is looking into the feasibility of this under certain conditions.114

Table 2 Banking Agents: Types and Requirements Type of Agent Legal person No Permission and

no advance notice

No Permission but need 30 days advance notice

Permission required

As representative of commercial bank Depository

Agent

Banks Yes

Thailand Post Co. Ltd.

Yes

SFIs Yes

Withdrawal Agent

Thailand Post Co. Ltd.

Yes

Transfer Agent Thailand Post Co. Ltd. Yes Agency Payment Service Banks Yes

Thailand Post Co. Ltd. Yes Electronic payment services provider Yes SFIs Yes

Paying Agent Banks Yes

SFIs Yes

Others Yes (case by

case) As representative of finance company

Depository Agent115 Banks Yes Other financial Institutions Yes

Credit Agency Banks Yes

Thailand Post Co. Ltd. Yes Electronic payment services provider Yes

Others Yes (case by

case)

Adapted from: Bank of Thailand Notification 9/2553 Rules for Appointment of Banking Agent.

Meanwhile, the role of agents is shifting. Agents have been used for the physical outreach of ordinary banking services to under-banked groups – for example, the collection of cash savings. But increasingly, agent services are provided through electronic means, and this brings them under an additional regulatory framework, that dealing with electronic commerce and banking (see below).

114

E.g., having the Funds grouped under banks (to provide BOT with regulatory authority) and having regular daily office hours. KTB interview.

115

FIBA provides for credit foncier and finance companies (NBFIs) to accept term deposits. Currently, however, the only licensed NBFIs – credit card and personal loan companies – are not permitted to accept any deposits.

Thailand also has an array of non-financial companies that provide payment and transfer services. These companies include Counter Service, Tesco Lotus, and Jay Mart. These firms provide a channel for customers to pay utility and credit card bills, to make loan and insurance payments, and to conduct certain purchases. Tesco Lotus even offers customers the convenience of paying their taxes at its counters. The payments services providers have grown in part in response to the market for agency services to the financial institutions, although some (e.g. Counter Service) developed independently.

Electronic services