This note discusses emerging international approaches for regulating design and distribution of retail banking products. Such products include deposit, credit, and payment products, being the products that new financial consumers typically acquire first.
... See More + Policy makers are finding that financial consumer protection measures implemented to date, such as disclosure requirements, while still important, are insufficient to protect consumers against all key risks. Anticipating new or changing risks to consumers has also become more difficult for regulators given rapid financial sector innovation. Regulation of providers’ product design and distribution processes aims to ensure that products distributed in a market are designed to meet the needs of consumers in that market. This discussion note analyses relevant frameworks in a number of jurisdictions and highlights emerging common approaches, including in relation to requirements for governance arrangements, target market assessments, distribution arrangements and product reviews.
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At the request of the National Treasury of the Republic of South Africa, the World Bank Group (WBG) undertook a Retail Banking Diagnostic focusing on the provision of consumer transactional accounts and fixed deposits by retail banks in South Africa.
... See More + The aim of the Retail Banking Diagnostic was to identify potential deficiencies from a fair-treatment perspective in banks’ provision of such accounts and deposits, and whether and how any identified major fair-treatment deficiencies could appropriately be addressed through market conduct regulation, having regard to international good practices and the South African market context. A WBG team visited South Africa in April 2017 and undertook discussions to inform the diagnostic with regulators, a range of banks offering consumer transactional accounts and fixed deposits, relevant financial sector ombud schemes, and industry and consumer bodies. Further discussions and inquiries and desk-based research were undertaken following the visit. Except where stated otherwise, the report reflects research undertaken up to September 2017, and it does not cover developments after that time. This report sets out the findings of the diagnostic and provides recommendations for regulatory improvements and related measures for consideration by the South African authorities. Where the report recommends legal measures to address an issue, it is envisaged that these would be implemented either through fair-treatment conduct standards made by the FSCA pursuant to section 106 of the recently passed Financial Sector Regulation Act 2017 (FSR Act) or, in due course, through the Conduct of Financial Institutions Bill (COFI Bill) being developed by the National Treasury, and subordinate legislation, such as Standards, to be developed under the resulting COFI Act (referred to collectively in the report as the “COFI/FSR Laws”).
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Working Paper 129778 JUN 01, 2018
Boeddu,Gian Luciano; De Souza Neves Lopes,Ligia; Randall,DouglasDisclosed
International Finance Corporation (IFC) is working to develop solutions to close the micro, small, and medium enterprise (MSME) financing gap, collaborating with 97 financial institutions (FIs) across 20 countries in Europe and Central Asia.
... See More + As of June 2014, IFC committed a total of 3.1 billion dollars to MSME finance in the ECA region, 2.6 billion dollars for long term finance, 160.5 million dollars for funds supporting MSMEs, and 333.1 million dollars for trade finance. In fiscal year (FY) 2014 alone, IFC MSME commitments in the region were 1.0 billion dollars (up 11.7 percent from 917 million dollars in FY2013), 362 million dollars of which was attributed to long-term financing. By the end of calendar year (CY) 2013, IFC's MSME clients had 2.9 million micro loans outstanding in the ECA (up 33.1 percent from 2.2 million in CY2012), totaling 5.7 billion dollars (up 39.1 percent from 4.1 billion dollars in CY2012). Similarly, IFC's MSME clients had over 1.5 million small and medium loans outstanding by the end of CY2013 (up 14.4 percent from 1.3 million in CY2012), totaling 64.6 billion dollars in this region (up 10.8 percent from 58.3 billion dollars in CY2012).
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The greenfield model embodied a new approach to cross-border banking on the continent, designed to reach poorer market segments via newly built retail branches.
... See More + The objective of benchmarking the financial performance, growth, and outreach of greenfield microfinance institutions (MFIs) in Sub-Saharan Africa was to study the impact of greenfields on the quality, breadth, and depth of financial services usage in Sub-Saharan Africa. The analysis compares four types of financial institutions: formal green fields, organic greenfields, local commercial microfinance banks (microbanks), and others, a category that includes credit unions, cooperatives, non-governmental organizations, other organic financial institutions (NBFIs), and rural banks. The data was collected from MIX market and International Finance Corporation (IFC), tested first in a model that compared greenfields to all other MFIs operating in Africa and secondly in a model that compared them only to MFIs operating in the same countries as the greenfields. The empirical results are presented in four subsections: outreach, financial performance, growth of deposits and loans, and costs and portfolio yields.
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As financial markets develop and deepen, one of the key issues for the fair, open and efficient operation of the markets is the protection of consumers rights in financial services.
... See More + Be they bank depositors or borrowers or investors in insurance policies, securities or investment or pension funds, financial consumers need the ability to accurately understand the terms and conditions of their contractsand take action if the terms of contracts have been violated. The Note is the second report in a pilot program to analyze consumer protection in financial services.The objectives of the Note are three-fold, to: (1) present a set of draft good practices for assessing consumer protection in financial services; (2) conduct a review of the existing rules and practices in Slovakia compared to the draft practices; and (3) provide recommendations on ways to improve consumer protection in financial services in Slovakia. The Technical Note was prepared at the request of the Slovak Ministry of Finance, with the valuable support of the National Bank of Slovakia and other government agencies, ministries, and non-government organizations. In the past the World Bank has also prepared governance reviews of the Slovak financial sector for banking and private pension funds. Few guidelines are available for consumer protection in financial services. Consumer protection in financial services remains a new and developing area for which no consensus has developed on the broad parameters against which a specific country might be analyzed. This Note relied on the EU Directives related to consumer protection and the reports of European financial regulatory and supervisory agencies. Other sources were also used. In the United States, the Federal Trade Commission, the Securities and Exchange Commission and other state, federal and self-regulatory agencies have developed laws, rules and guidelines to protect financial consumers. In addition, the 2003 OECD Guidelines for Protecting Consumers from Fraudulent and Deceptive Commercial Practices across Borders and the 1999 United Nations Guidelines for Consumer Protection served as useful reference points for general consumer protection not related to the financial sector. The recommendations in the Note go beyond the provisions of the EU Directives currently in force. As described in the EU Consumer Protection strategy announced in March 2007 and the April 2007 Green Paper on Retail Financial Services, European financial consumers would benefit from stronger legal and institutional protections than are currently in place. Both in Europe and elsewhere, contemporary thinking on consumer protection is rapidly evolving. The Technical Note takes into account the international discussion on financial consumer protection and evolving good practices in financial consumer protection. Thus, the Note presents recommendations that are applicable to the Slovak financial sector, but in some cases go beyond the minimum requirements set by EU legislation.
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The objective of this paper is to analyze the industry structure of banking services in Brazil in order to shed light on financial performance and its drivers at a disaggregated level.
... See More + The study illustrates how differences across market segments - which tend to be averaged out in aggregate analysis - need to be taken into account when analyzing performance and designing public policy for the banking sector. In particular, retail banking is found to be less sensitive to price competition and to exhibit considerably higher returns than corporate banking. The authors identify and discuss the factors underlying revenues, costs, and risks in each market segment, and conclude with policy implications.
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Policy Research Working Paper WPS4809 JAN 01, 2009
In this paper the authors put forth a vision in which people are able to make small deposits into their bank account through a variety of cash handling outlets right in their neighborhood.
... See More + In fact, buying and selling deposits (i.e., depositing and withdrawing money from your current account) is just another product your local store or supermarket offers you, along with toothpaste and mobile prepaid cards. This focus note presents an alternative, systemic approach to branchless banking, a version 2.0, under which there is no need for a bank to have a contractual relationship with any of the hundreds or thousands of retail outlets through which it is absorbing deposits or meeting liquidity needs of its customers. This happens within a more fragmented ecosystem where each actor is playing a more specialized role suited to its commercial comparative advantages, but where the actors, together, are able to handle transaction risks more efficiently. With the appropriate mix of technology, business process, market conduct, and consumer protection regulations, trust may not need to be vested in the retail outlet by either depositors or their banks. The end result is that banks can create retailing strategies that are much more flexible.
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In this paper the authors put forth a vision in which people are able to make small deposits into their bank account through a variety of cash handling outlets right in their neighborhood.
... See More + In fact, buying and selling deposits (i.e., depositing and withdrawing money from your current account) is just another product your local store or supermarket offers you, along with toothpaste and mobile prepaid cards. This focus note presents an alternative, systemic approach to branchless banking, a version 2.0, under which there is no need for a bank to have a contractual relationship with any of the hundreds or thousands of retail outlets through which it is absorbing deposits or meeting liquidity needs of its customers. This happens within a more fragmented ecosystem where each actor is playing a more specialized role suited to its commercial comparative advantages, but where the actors, together, are able to handle transaction risks more efficiently. With the appropriate mix of technology, business process, market conduct, and consumer protection regulations, trust may not need to be vested in the retail outlet by either depositors or their banks. The end result is that banks can create retailing strategies that are much more flexible.
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In this paper the authors put forth a vision in which people are able to make small deposits into their bank account through a variety of cash handling outlets right in their neighborhood.
... See More + In fact, buying and selling deposits (i.e., depositing and withdrawing money from your current account) is just another product your local store or supermarket offers you, along with toothpaste and mobile prepaid cards. This focus note presents an alternative, systemic approach to branchless banking, a version 2.0, under which there is no need for a bank to have a contractual relationship with any of the hundreds or thousands of retail outlets through which it is absorbing deposits or meeting liquidity needs of its customers. This happens within a more fragmented ecosystem where each actor is playing a more specialized role suited to its commercial comparative advantages, but where the actors, together, are able to handle transaction risks more efficiently. With the appropriate mix of technology, business process, market conduct, and consumer protection regulations, trust may not need to be vested in the retail outlet by either depositors or their banks. The end result is that banks can create retailing strategies that are much more flexible.
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In this paper the authors put forth a vision in which people are able to make small deposits into their bank account through a variety of cash handling outlets right in their neighborhood.
... See More + In fact, buying and selling deposits (i.e., depositing and withdrawing money from your current account) is just another product your local store or supermarket offers you, along with toothpaste and mobile prepaid cards. This focus note presents an alternative, systemic approach to branchless banking, a version 2.0, under which there is no need for a bank to have a contractual relationship with any of the hundreds or thousands of retail outlets through which it is absorbing deposits or meeting liquidity needs of its customers. This happens within a more fragmented ecosystem where each actor is playing a more specialized role suited to its commercial comparative advantages, but where the actors, together, are able to handle transaction risks more efficiently. With the appropriate mix of technology, business process, market conduct, and consumer protection regulations, trust may not need to be vested in the retail outlet by either depositors or their banks. The end result is that banks can create retailing strategies that are much more flexible.
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Protection of financial consumers is one of the objectives of the European Union (EU) in developing a single market for financial services that can be sold across borders.
... See More + The Slovak government also intends to reduce risks for consumers across its financial sector in order to meet the standards of the EU-15 countries. This Technical Note was prepared at the request of the Slovak Ministry of Finance, with the support of the National Bank of Slovakia and other government agencies, ministries, and non-government organizations. It provides a detailed analysis of the key consumer protection issues in each of the five sub-sectors — banking, commercial credit, securities, insurance, and private pensions. EU Directives related to consumer protection and the reports of European financial regulatory and supervisory agencies were used as initial guidelines, along with the sources from the United States, OECD, and UN. The World Bank’s team assembled a set of Good Practices for this Note and in some cases the recommendations for Slovakia go beyond the minimum set by EU legislation. Volume I of the Note discusses the importance of consumer protection in financial services, describes the retail financial sector in Slovakia, and presents the key findings and recommendations of the Note. Volume II provides the analysis of the five sub-sectors, the assessment of Slovakia compared to the draft Good Practices, and the key EU Directives on financial consumer protection.
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Project outcome is rated highly satisfactory The sustainability of the loan's short-term objectives is highly likely, while securing long-term objectives regarding access to credit is less certain.
... See More + Overall sustainability of the policy reforms is, therefore, rated likely. Both World Bank and Borrower performances are assessed as satisfactory. Lessons learned include the following: Set limited objectives-it is more realistic to support a program of reforms with a number of sequential operations that can be approved based on the success of the previous ones. Banking restructuring operations should disburse against the completed resolution of specific banks' cases, not against the promise of future actions which may not materialize. Ensure that the main implementing agency is the main recipient of the Bank resources. Bank support should come only after a political consensus in favor of restructuring banks and facing past losses has been achieved. Tools of evaluation may need to be better adapted to suit sequential operations within a broader program. Prior attempts to "contain" the banking crisis were excessively focused on "accounting solutions" (i.e., exchange of bad loans for government paper) with no cash flow impact. The "least cash solution" was not the "least cost solution" and several banks, full of government paper, had to be interervened since their cash flow continued to deteriorate.
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Implementation Completion and Results Report 23337 DEC 21, 2001
The paper provides an analysis and history of retail banking in Hungary, concentrating on the 1990s. Over the last decade, Hungary has experienced more foreign bank entry than any country in world, starting with foreign greenfield operations and then followed by the privatization of four of its largest banks to strategic foreign owners.
... See More + Currently about two thirds of all banking assets in Hungary are foreign owned; the only major bank without a foreign owner is Orsz�s Takar��t��Kereskedelmi Bank (OTP). In this paper, the authors identify the important role played by foreign greenfield operations in intermediation within the household sector, especially from 1997. The paper provides evidence that, once foreign investors take control of formerly state-owned banks, strategic foreign investors move aggressively into retail banking. The analysis of OTP's behavior indicates that domestically controlled banks with local expertise may have a significant role to play in retail banking in small, open transition (or emerging) economies.
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Until 1980 Turkey's financial system was shaped to support state-oriented development. After the 1960s the financial system, dominated by commercial banks, became an instrument of planned industrialization.
... See More + Turkey had an uncompetitive financial market and an inefficient banking system. Controlled interest rates, directed credit, high reserve requirements and other restrictions on financial intermediation, and restricted entry of new banks -plus the exit of many banks between 1960 and 1980- created a concentrated market dominated by banks owned by industrial groups with oversized branch networks and high overhead costs. Turkey since 1980 has seen a trend toward liberalization of its financial market. Reforms eliminated interest rate controls, eased the entry of new financial institutions, and allowed new types of instruments. Regulatory barriers were relaxed, attracting many banks (both Turkish and foreign) into the system, and Turkey's banking system became integrated with world markets. The author examines how reform has changed the system, focusing on Turkey's commercial retail banking market. He finds that: (1) Although reform reduced concentration in the industry, leading banks are still able to coordinate their pricing decisions overtly. High profitability appears to have resulted from the banks uncompetitive pricing rather their efficiency. Deregulation and liberalization should be continued and strengthened. (2) The entry of small-scale firms alone is not enough to increase competition, so new banks should probably not be expected to alter the market structure. (3) To promote competition will require addressing barriers to both entry and mobility. The main barrier to mobility seems to be the size of the large banks, which exerts a significant negative effect on competition. (4) Interbank rivalry among the leading banks cannot be facilitated without creating new banks of a certain size with a reasonable number of branches. Breaking up public banks (which hold 30 percent of sectional assets, excluding the Agricultural Bank and three development banks) could help create 15 to 20 new banks with 40 to 50 branches. This would reduce concentration and improve mobility in retail banking. (5) Breaking up public banks before privatization would probably also improve their governance structures and efficiency. (6) Promoting the entry of nonbanks and local banks would also increase the number of institutions competing for deposits. Turkey lacks a healthy variety of credit institutions and should consider developing a mortgage market and creating institutions for housing finance.
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Policy Research Working Paper WPS1839 NOV 30, 1997
