Branchless banking to transform Indonesia

Indonesian regulators are setting up guidelines for branchless and mobile banking, which will help expand the country’s retail banking sector and improve the lives of millions.

The World Bank’s 2012 Financial Inclusion Data indicates that only 20% of Indonesians above the age of 15 have a bank account. MarketLine Advantage* figures show that in 2012 there were just 9.6 bank branches for every 100,000 adults in Indonesia, compared to 35.3 in the US. Clearly, servicing almost 250 million people scattered around 6,000 islands is a huge challenge.

Yet mobile phone penetration is notably high in Indonesia, with 115 phones per 100 people compared to the US’s 95. In many other developing countries, high mobile phone usage has been able to compensate for the lack of branches and hence boost banking penetration. However, this has not been the case in Indonesia.

The government has finally taken note, and is finalizing regulation to allow for branchless and mobile banking in the country. Given Indonesia’s fast-growing population, high mobile phone penetration, and limited banking services, branchless banking through mobile phones offers a very lucrative business opportunity. Once regulation is in place it will boost the retail banking sector by greatly reducing costs and increasing the reach of banking services.

The impact of branchless banking on the country will be huge. Firstly, it will significantly improve the lives of millions of Indonesians, especially those in the unbanked category. Secondly, it will provide banks serving the country’s mass market with a lot more business. This means the new government regulations will be a rare win-win situation for banks and consumers alike.

*MarketLine Advantage, an Informa Company


Branchless banking is a distribution channel strategy used for delivering financial services without relying on bank branches. While the strategy may complement an existing bank branch network for giving customers a broader range of channels through which they can access financial services, branchless banking can also be used as a separate channel strategy that entirely forgoes bank branches. According to a 2011 survey, 62% of respondents said the Internet is their preferred banking method. Only 20% selected branch banking – a sharp decline compared with 2007 when 40% of respondents preferred to bank at a branch.[1])

Examples of branchless banking technologies are the Internet, automated teller machines (ATMs), POS devices, EFTPOS devices and mobile phones. Each of these technologies serve to deliver a set of banking services and are part of distribution channels that may be used either separately or in conjunction to form the overall distribution channel strategy.

For example, Cooperative Bank of Kenya uses the Internet, ATMs, POS devices, EFTPOS devices, and mobile phones as technologies to deliver its banking services through a combination of distribution channels including stationary bank branches, mobile bank branches, ATMs, bank agents, Online banking, and mobile banking. All of these are distribution channels, yet only the last four are branchless distribution channels and form part of Equity Banks’s branchless banking strategy (Equity Bank refers to its branchless banking channels as alternate delivery channels[2]).

First Direct in the United Kingdom are an early pioneer of this class of service. Launched by the then-Midland Bank (now part of HSBC) in 1989, first direct’s accounts are operated solely via the Internet, post, or (principally) telephone, and they do not themselves operate any retail branches (although HSBC branches can be used to make deposits) while at the same time offering a full range of banking services. Smile are a similar venture, again operating solely via the Internet and telephone.

Branchless banking technologies and distribution channels should be distinguished from each other as the two may overlap, which can be confusing: ATMs and mobile phones can be technologies and distribution channels, while POS and EFTPOS devices are only technologies but not distribution channels—rather, the latter two technologies are placed at points of sale through other distribution channels such as agents, which are usually retail outlets that allow their customers to pay for purchases by using their debit or credit cards. For an overview of distribution channels and technologies used in branchless banking and how they differ, see Porteous (2008, p. 4).[3]

A success story is Pakistan’s first branchless banking solution, Easypaisa, launched jointly by Telenor Pakistan and Tameer Microfinance Bank in October 2009 after Tameer Microfinance Bank received the license from the State Bank of Pakistan in 2008. Committed to providing financial inclusion to the people of Pakistan, easypaisa shops are present at over 22,000 outlets in more than 750 cities and towns in the country. Nearly 4 million unique users use easypaisa services every month for basic financial services like Utility Bill Payments, Money Transfer and Mobile Accounts. Around 117 million transactions worth over Rs. 261 billion have been carried out through Easypaisa since launch.