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Evaluation of accessibility tofinancial services provided via bank and payment agents Abbreviated version of the report upon the results of the survey Moscow, 2011
This survey was conducted within the framework of the Project“Development of innovative regulation and supervision of bank agents toenhance accessibility to financial services” conducted by the Ministry forEconomic Development jointly with the Alliance for Financial Inclusion (AFI)to implement the provisions of Seoul Development Consensus, approvedby the Group of Twenty (G20) countries at the summit in Seoul inNovember 2010, and provide for the development of innovative financialtools. The Russian Microfinance Center (www.rmcenter.ru) acts as apartner in the project implementation.The Alliance for Financial Inclusion (AFI) is a global network of centralbanks and other financial policymaking institutions in developing countries.AFI provides its members with the tools and resources to share, develop,and implement their knowledge of financial inclusion policies proven towork. AFI connects policymakers through online and face to face channels,supported by grants and links to strategic partners, so policymakers canimplement the most appropriate financial inclusion policies for theircountry’s individual circumstances.AFI is funded by the Bill & Melinda Gates Foundation and administered bythe GIZ (German International Cooperation).If you want to learn more about the goals and objectives of AFI and theprinciples of Seoul Development Consensus go to www.afi-global.org иhttp://news.kremlin.ru/ref_notes/769 2
Policy of Russia aimed at enhancement of financialinclusion. The goals and objectives of the surveyThe policy aimed at the enhancement of financial inclusion is pursued by theGovernment of the Russian Federation (RF) within the framework of internationalobligations of Russia undertaken on 11-12 November 2010 at the G-20 Seoul Summit.In order to raise stability of economic development, create job places and bring downthe risks, the G-20 adopted the so-called Seoul Consensus which spelt out the prioritiesof the state policy with regard to a whole number of directions, including expansion ofaccessibility to financial services. The obligations of Russia in this part in conformitywith the “Seoul Consensus” include: the development of the national action plan to enhance financial inclusion; participation in the Global partnership for financial inclusion; creation of a flexible system of financing SMEs.The work in the above three areas should make a significant contribution to theimprovement of access to financial services and expansion of possibilities forhouseholds, small and medium-sized enterprises.Enhancement of financial inclusion should create a whole series of positive effects forthe Russian economy and society at large, specifically it will increase accessibility to various retail financial services with regard to territories and client groups; develop technologies of financing, including microfinance of small business; encourage and simplify the start up of entrepreneurial activity for broad strata of the population; expand the taxable base by decreasing in the share of cash settlements in favor of better controllable money flows; increase the savings activity of the population, create possibilities for savings and investments; bring down the social isolation of low-income strata of society that have no social connections and financial possibilities to improve the status thereof; decrease of the volume of informal loan markets (pawn brokerage); make a transition from the cost-based method of struggling with poverty (subsidies and charity) to programs ensuring income and access to finance to encourage self-employment and improve financial status of the most vulnerable strata of the population.; educate the population and improve the financial literacy thereof. 3
This survey offers the results of the study of accessibility to various financialservices provided via bank and payment agents, and proposals are formulated tofurther develop this model. The bank agency model is one of the priorities in thedevelopment of the system of branchless banking all over the world, which actuallydetermined the choice of the topic for the survey.The survey was conducted within the framework of a joint program aimed to developbank agency model in the Russian Federation that was carried out by the RF Ministryfor Economic Development, the Central Bank, the RF Ministry of Finance and theAlliance for Financial Inclusion (AFI). The survey does not examine the regulatory andlegal framework for the regulation of bank agency model, since a special survey isdealing with those issues.The Goal of the SurveyThe Survey sets a goal to receive aggregate information on the accessibility of financialservices provided by bank and payment agents on the basis of the data received frommajor organizations that provide financial services or act as intermediaries in thissphere, and also the consumers of such services.Definition of a bank payment agent1 A credit institution has the right to retain an organization which is not a creditinstitution, and an individual entrepreneur (hereinafter – a bank payment agent) toaccept money from individuals to be transferred to state power bodies, local self-government and budget institutions that are in the jurisdiction thereof and exercise thefunctions established by the laws of the Russian Federation, execute money liabilities ofindividuals relating to payments for goods (work, services), or credit money to theaccounts thereof (hereinafter accepting payments from individuals), perform operationswith the use of payment cards, act on the instruction of individuals regarding thesettlements on their bank accounts, and issue documents confirming respectiveoperations which are not related to exercising entrepreneurial activity and privatepractice by individuals. In order to accept payments from individuals a bank payment agent should conclude acontract with a credit institution on exercising activity on accepting payments fromindividuals. Pursuant to the terms of the contract the bank payment agent has the rightin his own name or in the name of the credit institution and for the account of the creditinstitution to accept payments from individuals; a bank payment agent shall be obligatedto exercise subsequent settlement with the credit institution in conformity with the1 Federal law #121-FZ of 3 June 2009 “On incorporation of amendments to certain legal acts of the RussianFederation in connection with the adoption of the Law “On the activity relating to the acceptance of payments fromindividuals exercised by payment agents”, adopted by the RF State Duma on 22 May 2009, approved by theFederation Council on 7 May 2009. 4
legislation of the Russian Federation, including the requirement on the disbursement ofcash received by the cash office of a legal entity or an individual entrepreneur. The activity of an organization which is not a credit institution, or an individualentrepreneur on accepting payments of individuals without concluding a contract onexercising activity related to accepting payments of individuals which conforms to therequirements of this article or the Federal Law “On activity relating to the acceptance ofpayments from individuals exercised by payment agents” shall be prohibited..In order to attain the goal set, the following objectives have been fulfilled: 1. The criteria of accessibility to financial services provided to the population via agents in the Russian Federation have been developed; 2. Measurements have been taken of the level of accessibility to financial services to the population via bank and payment agents in the Russian Federation; 3. The level of accessibility of financial services provided via bank and payment agents to the population in the Russian Federation depending on the region has been determined; 4. The level of accessibility to various kinds of financial services provided via bank and payment agents in the Russian Federation depending on the kind of such services has been determined; 5. The average cost of financial services provided via bank and payment agents in the Russian Federation has been calculated; 6. The average amount of fee for financial services provided via bank and payment agents in the Russian Federation has been determined. The survey consisted of two parts: the first part analyzed organizations providingfinancial services; the second part covered consumers of financial services. - The first part of the survey studied 7,822 agents in all the Federal administrativeterritories (okrugs) of Russia. The total number of points servicing the above agentsamounted to 419,021. Payment systems and credit institutions, members of theAssociation of Russian Banks participated in the survey. The sample frame representsbank payment agents in accordance with the organizational and statutory form, theregion of presence, kind of services provided, and type of the point of service. The mainmethod of the survey that was selected was the interviewing of representatives of banksand payment systems offering the services thereof via agents. The standard surveytools were used: the respondents were requested to answer questions to assess thequalitative and quantitative data relating to retained agents, as well as the data on theservices provided by agents. The data was collected as of the period between 1January 2010 and 31 December 2011. Apart from that, the following methods were used for conducting the survey: The study of secondary data (the data of the Federal Service of State Statistics, statistic data of the Bank of Russia.; 5
Interviews with the working group experts of the Joint Project of the Russian Microfinance Center, German Society for Technical Cooperation and the Alliance for financial Inclusion “Development of Innovative Regulation and Supervision of Bank Agents to Enhance Financial Inclusion”.Key conclusions of the first part of the survey: Bank and payment agents are distributed across the Federal Administrative territories (okrugs) in a more even manner (28% of all the agents are registered in the Central Federal okrug), and they are not concentrated to the same degree as credit institutions in the Central Federal Okrug (56% of all credit institutions are located in the Central okrug), which means that they provide more even access to financial services. The distribution of bank and payment agents actually conforms to the demographic distribution of the population in Federal okrugs.Distribution of the number of credit institutions, agents and the population by Federal Okrugs (inper cent) The bank payment agents’ infrastructure development is from an economic standpoint a natural and justified way for the substitution of non-profitable bank branches. At the same time, the bank payment agents’ network may be developed by banks or with the participation thereof, which does not pose a threat to the dilution of bank functions. This is a complex solution for enhancing 6
accessibility of financial services in the regions, which is particularly urgent today in small towns and villages. In order to ensure the development of bank payment agents system and enhance financial inclusion of the consumers, it is necessary to expand the spectrum and functions of services provided to them to be comparable to those of an additional bank office or a branch of a bank. Today a very important service which is not provided in the regions is the opening of current and deposit accounts for individuals. Provision of such services requires that the client identification procedure at the moment of opening of a bank account be delegated by banks to other entities, quite possibly with the introduction of certain restrictions for such operations. The dominating number (over 97.5%) of bank and payment agents is SMEs. The low level of revenue per one agents’ point of service (RUR 5,037,24 which is approximately USD 180) allows agents to conduct such business and provide financial services with the assistance of hired labor (operator) only as an auxiliary source of income in addition to their main business (commerce, services, other). In most cases profitability of providing financial services by bank and payment agents makes it possible to conduct such business as a main source of income only with the use of self-service devices (payment terminals) (78%). The main kind of financial services provided by bank and payment agents, both with regard to the quantity, money turnover and profitability is yet the acceptance of payments for mobile communication services in favor of mobile operators (95.27% in quantitative terms and 75.82% of the money amounts of payments), that is, the smallest payments (the average amount of payment for communication services reaches RUR 94.11, about USD 3.4). Segments of payments for housing services, due to the mass-scale thereof have a great potential for growth. Repayment of loans and distribution of plastic cards via the agents is also very promising. The expansion of the payment sector and raising the average amount of payments is necessary for increasing profitability of agents. 7
Payment for housing Replenishment of Replenishment Other payments ‘electronic services of payment cards 12.35% Wallets” 0.89% 0.01% Budget 2.16% Payments (taxes, collections, State duties) Repayment of loans 0.09% 3.24% Payments for the Internet & commercial TV 5.44% Payments for Communication services 75.82% Break down of money amounts transferred by agents by kinds of operations Mainly small consumer credits (with the average amount of payment equaling RUR2,571.38 / approximately USD 92) are repaid via agents. One of the reasons accounting for it is that consumers of financial services provided by agents either do not have large loan amounts (which is evidence of their low income), or they prefer traditional ways to repay larger loans. Hence, agents most likely provide services to the least financially protected strata of the population, which is important to take into account from the social standpoint. Repayment of a loan, in its essence, is an operation similar to the replenishment of the banking account, since the transfer of funds is made to the banking account from which the loan is repaid later. In the event the spectrum of services provided by agents is expanded, the amount of RUR 2,500-3,000 (approximately USD 90-110) may be taken as a benchmark figure, as an average sum for the replenishment of a bank deposit transferred via bank payment agents. . An average amount of payment (RUR 145.06 / approximately USD 5.2), transferred by bank and payment agents (with the exception of loan repayments) remains low for a number of reasons, specifically: insufficient level of financial literacy of the population, lack of trust to new forms of payment, fear of high commission fees to be paid to agents, insufficiency of information on the part of providers regarding payment methods and poorly adapted systems of a number of providers for accounting the overpaid amount, as well as the preference by customers of traditional forms of payments; 8
Indeed, the average amount of the commission fee (3.87%) for the financial services provided by bank and payment agents is comparable to the bank commission fee (3%) (with the exception of payments for mobile communications) Average amount of commission fee taken by agents for different kinds of payments (in %). 5,00 3,01 2,97 2,00 0,44 0,50 communication Replenishment replenishment of Payment for Payment for the Other payments commercial TV Repayment of bank account Payment for of e-wallets internet and services housing loans and services Complaints of clients of agents mostly refer to errors in filling in the paymentdetails and failure to understand the specifics of services provided to them; among otherthings claims are accounted for by the low level of financial literacy of customers of theabove organizations.- The second part of the survey was conducted in the form of personal formalizedinterviews at the apartment of a respondent. The size of the sampling is 1,600 people,The sampling frame represents the adult (over 18) population of the RussianFederation; the break down is given on the basis of gender, age, level of education,type of the residential center where the respondent lives.The number of constituent subjects of the Russian Federation where the sampling wasimplemented is at least 40, the number of populated centers - at least 150; the error ofthe sampling equals 3.4%Time of the interviews: between 15 and 18 April 2011. 9
The key conclusions of the second part of the survey: The use of “traditional” channels for making payments, such as bank branches and the Post of Russia offices, are dominating among the RF population. Please, say how you usually make payments (payments for housing and utility services, telephone, fines, repayment of loans, etc.) In % to all the respondents (N=624) Methods of payment % “Traditional” Via the cash desk in a bank branch 68 Via the post of Russia 33 Via ATM 35 Via payment terminals (Elexnet, Kiwi, etc) 35 “Transitional” At the office of mobile communication provider via the operator 15 At the cash desk in a store 8 With a bank card via the Internet 3 From the mobile telephone account 2 “Innovative” With e-money (Web money, Yandex-money, etc. 1 Via personal Internet account of the Internet-bank system 1 Via Mobile banking <1 Other 4 Difficult to say <1Note: “Web-money” and “Yandex.Money” is the Russian equivalent of “PayPal”. These are the Russian e-money systems. The next channel for the execution of payments is payment terminals, which fall into the category of “transitional” payment channels. In all types of residential centers at least three thirds of the population is using these channels. By “transitional” channels we understand payments made out of the bank office, but on condition that payments are made at the time of visiting the point for placing funds on the account or receiving cash. Major barriers for the use of payment terminals are lack of trust and knowledge. Branchless banking (no visit to a bank or agent’s office is made) relates to a limited number and kind of payments An active Internet user means a user of “innovative” channels to receive financial services. 10
Over the past 12 months have you paid for goods or services using one of the following ways? In % to the total number of recipients All Russia Internet Panel Kind of financial services (n=1600) (n-3134) Payment with a bank card for goods, services via the Internet 3 50 Payment with e-money (Webmoney, Yandex-money, etc) 1 43 Payment from the mobile telephone account 2 33 Payment via the personal account of Internet banking 1 22 system Payment via Mobile banking <1% 10 Low level of financial literacy, “conservative” mind-set of the people Most people in Russia (69%) do not keep any records of their household income and expenses Only one third of the population (30%) compares the terms of different companies prior to purchasing a financial service. Only 35% of the population sign contracts after thoroughly studying them. Only a quarter of the Russian population is able to see a financial pyramid (26%). In the event of a conflict with a financial institution relating to the services that have been provided, only 12% are sure that the dispute will be resolved quickly and fairly, while 25% have a 50/50 attitude towards the possible outcome of the dispute resolution. 11
Indicators of accessibility of financial services provided viabank and payment agents in the Russian FederationThe survey studied the aspects of accessibility of financial services provided via bankand payment agents on the basis of quantitative, qualitative, geographical and priceindicators, and also from the standpoint of kinds of the services used. Below there is adetailed description of the indicators that were used. Indicators I. InfrastructureThe total number of agentsNumber of points providing financial servicesOrganizational and statutory forms of agents. II. Clients and servicesNumber of users of different services: Payments – by type Money transfers (remittances) Repayment of loans Issuance of loans Replenishment of a bank account Payments in favor of insurance companies OtherAn average amount of paymentBreak down of payment amounts by type III. Geographic coverageThe number of agents and points of service by regions IV. PriceCost of agent’s services for the clientsCost of various kinds of services for clients – by typeCost of services by regionsData on the changes in the cost of services V. Quality of servicesNumber of claims from clientsNumber of non-received paymentsOther problems relating to provision of services via agentsIt should be noted that the above indicators are the first attempt of an integral approachto measuring accessibility of financial services provided via bank and payment agents, a 12
specific category of providers of financial services. In future it is necessary to develop anational methodology for measuring financial inclusion, on the basis of which monitoringof the current status of financial inclusion will be conducted and the progress inenhancement of accessibility of financial services will be evaluated..The indicators system should conform to the UN Fundamental Principles of OfficialStatistics and meet international standards with regard to integrity, accessibility,reliability, timeliness and comparability. The Russian system of indicators of financialinclusion should be also harmonized with a set of indicators of internationalorganizations. At the same time, it should be independent and wholesome, in order toensure fair decision-making in the field of economic policy. It is necessary to ensuremonitoring in several directions: accessibility with regard to financial products, territorialand infrastructural accessibility, and monitoring of aggregate indicators of financialinclusion which allows comparison at the international level. At the same time, the wholemonitoring system should include indicators of financial literacy and protection of therights of consumers of financial services.In order to harmonize indicators, it is necessary to fall upon methodologicalrecommendations and consulting assistance of international institutions aimed to assistthe enhancement of financial inclusion. Such institutions are the Alliance for FinancialInclusion (AFI), Consultative Group to Assist the Poor (CGAP), International FinanceCorporation (IFC). Together with G-20 the above development institutions form theGlobal Partnership for Financial Inclusion (GPFI). Thus, such indicators will beperfected in future along with the publication of respective recommendations by theabove international structures. 13