How agency banking can empower emerging markets
Extending the reach of financial services in emerging markets is an ongoing challenge and opportunity for traditional banks. Telcos have led the relatively recent development of mobile money products with great success; achieved primarily through the use of innovative technology and agents on the ground. GMSA reports that 37 mobile money markets have ten times more registered agents than bank branches.
More than 80% of the adult population in sub-Saharan Africa’s emerging markets is unbanked. On the one hand this presents a clear opportunity for banks to expand their operations and deliver financial services to these regions. On the other, the cost of entering these remote areas and deploying a workforce, may seem prohibitive.
In countries such as Nigeria and Kenya, some organisations are testing the potential of agent banking as a means to penetrate financially underserved regions and increase the availability of their products and services. While this is not particularly widespread (yet) when compared to the amount of telcos providing mobile money in Africa, it does indicate an important shift in thinking for traditional institutions.
What is agent banking?
Simply put, agent banking (or “agency banking”) allows humans to act as ATMs. In remote areas where people don’t have access to a bank, these agents can deliver financial services using devices such as card readers, point-of-sale (POS) terminals or mobile phones to process real-time transactions. Banking services offered by agents include registering customers, taking deposits, dispensing withdrawals, funding transfers, processing payments (e.g. utility bills) and providing mobile phone airtime top-ups.
Africa’s vast non-urban territories are a challenge for banks looking to reach financially excluded regions. Agency banking is one solution that can overcome the distance quickly, and deliver services swiftly.
Who is an agent?
An agent is typically a self-employed individual who is well-known in the community for selling airtime top-up products. They have a presence in busy areas, targeting high-density shopping streets with their services, and represent multiple mobile network operators.
By adding banking services to their product portfolio, an agent can leverage their local knowledge and skills, become an important advisor to their clients and increase their business reach in the region.
The benefits of agent banking
In some countries, depending on the financial regulations, agents are allowed to sign up new customers on behalf of the bank, extending the bank’s reach further and faster. As agency banking technology advances, banks will be able to offer more services such as loans, mortgages and savings accounts – without having to invest in ‘bricks and mortar’ bank branch infrastructure. These huge savings in time and money can be put towards developing agency banking technology and training, allowing agents to become financial advisors to the community. New skills and up-to-date technology will enable agents to up-sell products within their local region and increase business for the banks.
Investing in agents, and supporting them with education and training, will empower much needed entrepreneurship in emerging markets. This is a win-win for all: agents gain the knowledge and skills to run their own business, customers benefit from access to accredited financial services providers, banks increase their market share and local economic growth is boosted.
Some stumbling blocks
Agency banking is currently not an integrated platform: one agent serves one bank and one bank only. This lack of agent interoperability means that each bank needs to invest in their own local representative to service customers in that region – or risk losing business. Given the success of the mobile operators in Africa, and taking into account that one agent can sell their customers airtime on any mobile network, it makes economic sense to apply the same model to agency banking.
Banks need to provide their agents with enough management support and training. The importance of this ongoing investment cannot be underestimated as it is vital to the bank’s growth in each region.
Another important consideration for banks is to monitor their agents’ liquidity. During special events, such as national holidays or religious occasions, agents are more likely to operate many cash-out services that need to be balanced with cash input from the banks.
Banks are developing apps to help improve the way agents distribute money, however they are still relying on legacy core banking infrastructure. This severely limits their technological ability to compete with telcos operating in the same markets. Without innovative technology, banks are unable to push out new products quickly in reaction to ever-changing market needs. Limited technology translates into limited financial products on offer, which means less business for banks.
A truly specialised agency banking service needs to understand all of these challenges and offer a solution that is easy to apply across markets. This depends on the development of an interoperable network of agents and banks, and must include a thorough on-boarding process for agents, easy configuration and distribution of financial products and services, a sophisticated calculation of the agents’ commissions, close monitoring of liquidity levels and agent performance, and ongoing training opportunities.
What the future could hold
Agency banking has the potential to empower many communities in emerging markets by providing them with access to financial services. Through the use of technology, agents will be able to sell a greater variety of specialised products and services on behalf of the bank to customers in outlying regions. Acting as “proxy banks”, these agents will become more than just a human ATM, providing individuals and small businesses with the finance they need to ignite local development and stimulate economic growth.
For the banks the benefit is clear: business growth that can win back important market share from telcos.
The potential is there for a world where people in its most remote areas are no longer geographically excluded from financial services. People will no longer need to travel great distances at great expense to get to a bank, for they will never need to go into a real bank again.
By Soumaya Hamzaoui, chief product officer, RedCloud Technologies