Fri | Apr 28, 2017

BOJ lobbies for cross-banking services as part of agency network

Published:Friday | September 25, 2015 | 9:00 AM
Bank of Jamaica building, Nethersole Place, Kingston.

The Bank of Jamaica wants to use the banking agency model to promote cross-pollination of banking services, an objective telegraphed in a consultation paper released earlier this month.

The central bank is in the process of developing a framework for agency banking that will allow deposit-taking institutions - DTIs - to appoint a third-party company as its agent in the delivery of services.

Such agents must be "legally incorporated entities with large, wide-reaching and dispersed networks - for example, chain retailers, franchises, supermarkets, pharmacies and microfinance institutions," said the paper that BOJ has asked bankers and the public to comment on by September 30.

The agency banking model is particularly meant to reach the unbanked, and the 'under-banked', by offering services at the community level and contact points that persons normally frequent, such as grocery stores and post offices.

For that reason, the BOJ proposes not to put limits on where an agent can operate and has urged the banks not to tie their agents to exclusive contracts in order for an interconnected banking system to evolve at the agency level.

Though the central bank tends to stay away from overt market directives, its agency banking discussion paper appeared to break that protocol.

The model being developed will allow banks to develop either exclusive contracts which would tie the agent to the delivery of services to that bank's customers only; or non-exclusive partnerships, under which customers of one bank may access the services of another bank, as long as the transaction is allowed under the agency banking regulations.

BOJ says the regulations to be developed will allow banks the room to choose either arrangement.

But then it said this of the non-exclusive arrangement: "The latter position is strongly recommended. Additionally, the BOJ encourages DTIs to implement interoperable systems which facilitate interbank communication."

Jamaica's banking system comprises six commercial banks, two near banks and three building societies - all valued at $1.1 trillion by assets. Their services are delivered across a network of about 160 branches, and more than 500 automated machines.

Within the system's 11 licensees, just two retail banks offer cross-banking services: First Global Bank was the pioneer, followed two months ago by Sagicor Bank Jamaica under a $900m overhaul of its core banking and online banking platforms.

At another level - as alluded to in the BOJ paper - the DTIs are owners of a cash-based network known as MultiLink that allows limited cross-banking. Customers of any bank may withdraw cash from an ATM, no matter which bank owns the machine, albeit at a premium on the transaction fee.

BOJ hopes that the pragmatism of the MultiLink partnership can be translated and expanded at the agency level to a wider set of cash in-cash out transactions.

"Interoperability refers to the facilitation of communication between disparate systems of different service providers. This allows for customers of provider A to send money to customers of provider B. In order for this to take place, a link - directly or indirectly - must exist between DTIs platforms," the central bank said.

underutilised services

The banking agent would ostensibly be that link. Additional details promised by the central bank on the interconnection of banking services was unavailable up to press time.

Citing four-year-old World Bank data, the central bank said around 71 per cent of Jamaicans over 15 years old are banked, most of them female. However, "notwithstanding this relatively high level of penetration", BOJ said, the study also indicated that banking services are under-utilised due to lack of ease of access.

As proposed, the banks will be legally responsible for the actions of their agents and their adherence to anti-money laundering laws. The agent will have the same respon-sibility to ensure customer confidentiality as the bank that contracts it.

The proposed agency banking services include deposits and withdrawals - both cash and cheques - electronic transfer of funds, account balance enquiries, collection points for payment cards and bank statements, and conduct of know-your-customer due diligence.

The agency regulations - which are to be drafted under the Banking Services Act of 2014 (BSA) - will prohibit agents from opening accounts and granting loans on behalf of the banks.

Customers will be able to collect their salaries at banking agency windows, pay bills, pay for goods and services, transfer government benefits - for example NIS and PATH - among other transactions.

Under BOJ's proposal, agents may only deliver services for the bank or banks to which they are contracted, and will not be allowed to introduce their own financial services and products.

banks are liable

Individuals will not be permitted to offer service as a banking agent. And corporate bodies that qualify will need to demonstrate that they have the capacity for record-keeping, handling cash, and delivering professional banking services to customers.

The banks themselves must ensure that banking agency staff are fit and proper, see to their training, and will be liable for fraudulent conduct on the part of their agents. As a control measure against fraud, customer transactions will register in an account created for the agent at the contracting bank and settled against that account.

The Jamaica Bankers Association said it was drafting its response and recommendations for agency banking, but would not discuss its position on the BOJ proposals - a position that Executive Director Richard Murray said was "confidential".

The BOJ paper acknowledges that there will be costs associated with the agency network but is largely silent on where they will manifest. The central bank's position, however, is that agents may not charge customers a fee for the services they provide on behalf of DTIs.

Under the market structure to evolve, The BOJ-headquartered Supervisory Committee, that was created by the BSA to oversee the broad financial system, will authorise banking agents submitted for approval by DTIs.

Each approved agent and their locations will be publicised on the central bank's website. An agent permit may cover multiple locations.

Feedback on the BOJ's 'Consul-tation Paper on the Proposed Regulatory and Supervisory Agent Banking Framework for Jamaica' will inform the drafting of regulations for the subsector.

avia.collinder@gleanerjm.com