E LECTRONIC B ANKING

e-banking: “This is an umbrella term for the process by which a customer may perform banking transactions electronically without visiting a brick- and-mortar institution.” (FinCen, 2000). e-banking is the use of electronic means to deliver banking services, mainly through the Internet.

F ORMS OF EBANKING Self Service (PC) Banking Internet banking Mobile Banking Telephone Banking Electronic funds transfers Point of Sale (POS) Banking Credit cards Debit cards ATMs Interactive TV

I NTERNET BANKING Also known as online banking, electronic banking, PC banking or home banking. Internet banking (or online banking) allows customers to conduct financial transactions on a secure website operated by their retail financial institution. Features of internet banking can be categorised as follows: Non-transactional Transactional

Transactional accounts allow customers to perform financial transactions, e.g. funds transfers, bill payment, purchase or sale of securities, etc. Non transactional accounts only allow clients to access information on their accounts, and communicate with the bank.

V IRTUAL BANKS Virtual banks are banks that exist entirely on the Internet (from the customer’s perspective). The offer similar services to brick-and-mortar banks, and are subject to the same banking regulations. Cost savings made on overhead like buildings and human resources are passed along to the customer.

A DVANTAGES OF ONLINE BANKING Convenience: Online banking sites never close; they're available 24 hours a day, seven days a week, and they're only a mouse click away. Ubiquity: Online accounts are accessible anywhere there is access to the Internet. Transaction speed: Online bank sites generally execute and confirm transactions at ATM processing speeds. Efficiency: A customer can access and manage all of their bank accounts managed under the same roof from one secure site. Effectiveness: Many online banking sites now offer sophisticated tools, including account aggregation, stock quotes, rate alerts and portfolio managing programs to help you manage all of your assets more effectively. Most are also compatible with money managing programs such as Quicken and Microsoft Money.

D ISADVANTAGES OF ONLINE BANKING Learning curve: Banking sites can be difficult to navigate at first. Plan to invest some time and/or read the tutorials in order to become comfortable in your virtual lobby. Bank site changes: Even the largest banks periodically upgrade their online programs, adding new features in unfamiliar places. In some cases, you may have to re- enter account information. The trust thing: For many people, the biggest hurdle to online banking is learning to trust it. Did my transaction go through? Did I push the transfer button once or twice? Best bet: always print the transaction receipt and keep it with your bank records until it shows up on your personal site and/or your bank statement.

BRANCHLESS BANKING

According to CGAP, branchless banking comprises of the following elements: Technology, e.g. mobile phones, Point of Sale systems to identify customers, and conduct transactions Third-party outlets (agents), e.g. post offices, retail outlets, telecommunication companies, etc. that facilitate certain transactions Basic services, at least withdrawals and deposits Structuring of the above so that customers can use these banking services on a regular basis

B RANCHLESS B ANKING Agents and Technologies: “Agent” means an entity that has been contracted by an institution and approved by the Central Bank to provide the services of the institution on behalf of the institution in the manner specified in this Guideline. “Agent banking business” means the business carried out by an agent on behalf of an institution as permitted under this guideline. In Kenya, agents can be limited liability companies, cooperative societies, parastatals, trusts, partnerships or individuals. Telecommunication Companies (telcos), fuel distribution companies, the post office, chain stores etc. Technologies Mobile phones, Point of sale terminals, ATMs, etc

B RANCHLESS BANKING MODELS The relationship between the bank and the agent determine the model branchless banking model adopted. Three main bank-led models have been identified; One-to-one (1-1) Model One-to-many (1-∞) Model Many-to-many (∞-∞) Model

B RANCHLESS BANKING MODELS CONTD One-to-one (1-1) Model: In this model one bank offers mobile phone banking services in collaboration with a specific agent. This model is usually implemented through specific agency agreements between the agent and the bank. It offers greater customization, good service standards, possibility of co-branding and co- marketing. However, it lacks in outreach as it is limited to the customers of that agent only.

B RANCHLESS BANKING MODELS CONTD One-to-many (1-∞) Model: In this model a bank offers banking services to customers using several agents, eg telecommunication companies. This model offers the possibility to reach to any bankable customer who has access to any of the bank’s agents. Usually, the banks bears all marketing expenses. Another serious drawback of this model is that it may require the bank to rely upon its own branch network for product distribution and cash-in cash-out services etc.

B RANCHLESS BANKING MODELS CONTD Many-to-many (∞-∞) Model: In this model many banks and many agents join hands to offer services to virtually all bankable customers. Under this system, a central transaction processing system (TPS) is necessitated, which must be controlled by a financial institution (FI); or by a subsidiary owned and controlled by an FI or a group of FIs; or by a third party service provider under proper agency agreement with a bank.

B RANCHLESS BANKING MODELS CONTD Many-to-many (∞-∞) Model contd: The TPS should be capable of; settling all transactions on real time basis, storing all proofs of transactions and providing a day end reconciliation to all member banks. All settlements must take place in specific Branchless Banking clearing accounts of all participating banks /agents/TPS provider kept with a designated bank. This model offers the maximum connectivity and hence maximum outreach and is closer to the desired situation where all banks and all agents should be able to entertain each other’s customers.

B RANCHLESS BANKING MODELS CONTD The following products/services are usually offered via branchless banking: Opening and maintaining an account. Banks may associate such account to a particular branch or to a centralized branchless banking unit. Account capabilities/limits are commensurate with the level of customer due diligence (CDD) and KYC procedures the customer has undergone. Account-to-account Fund transfer Person-to-person Fund Transfers Cash-in and Cash-out Bill Payments Merchant Payments Loan Disbursement/Repayment

Bank-led model The account management function is hosted and controlled by the bank. The bank-led model only allows customers to use agents as an extended service of the bank. Non-bank led model The account management function is almost entirely managed and controlled by the customer, with little intervention from the institution providing ‘banking’ services, ie the safekeeping of money.

C ONSTRAINTS FOR GROWTH OF E - BANKING Security: Majority of the customer shy away from E- Banking services due to security concerns. Human face: According some analysts, customers still value personalized and responsive services from their bankers. Ignorance: “on average 30% of bank customers do not even know whether their banks provide online services.” (BBC News). Computer illiteracy among majority of the population is still significantly high especially in Africa.

C ONSTRAINTS FOR GROWTH OF E - BANKING CONTD Poor and/or lack of technological infrastructure and reliable power supply. Lack of proper legislation governing e- transactions. Preference for paper money, as opposed to “virtual” cash in transactions.