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One of the key challenges banks in developing countries face today is limited coverage, especially in remote areas. Bank branches are largely concentrated in towns and cities, while there is still a large percentage of the population living in rural areas.
Although the necessity to visit physical branches has diminished over time due to mobile banking, a considerable segment of the population continues to value the convenience and personal touch provided by bank agents. This is precisely where Agency Banking plays a crucial role in bridging the gap, offering accessible and personalized banking services even in the most distant locales.
Agency Banking around the world has been on an upward trajectory over the last decade. In GSMA’s report, State of the Industry Report on Mobile Money 2022, it is highlighted that the value digitized through mobile money agent networks witnessed an 18% growth in 2021, totaling $261 billion or over $715 million daily. The report also points out that the largest networks experienced an average growth of 26% from 2020 to 2021, defying the pandemic odds that affected other banking sectors.
In Kenya, for instance, transaction volumes through bank agents have increased from $29.9 million in 2012 to $158 million in 2022. Institutions like Equity Bank have been at the forefront of this change, with a network of 53,151 agents across the country.
Similarly, Ecobank in Nigeria has deployed over 50,000 agents in Nigeria, contributing to the 600,000+ agents across the country operating under the Shared Agent Network Expansion Facilities (SANEF) partnership with banks. Such partnerships are expected to enable banks to share costs and investments that will accelerate agency or agency banking in Africa.
Through these agents, banks have been able to transform small shops into big banks for locals, allowing them to conveniently access banking services within their proximity.
The Concept of Agency Banking
Agency Banking, also known as agent banking, is an innovative model enabling traditional Financial Service Providers (FSPs) to broaden their network by extending banking services through authorized agents. These agents are typically local enterprises such as grocery stores, post offices, small shops, or even individual entrepreneurs.
These agents serve as crucial links between banks and customers. FSPs equip them with essential training and advanced technology, ensuring secure transaction processing. This empowerment allows them to provide a suite of fundamental banking services akin to those available at traditional branches.
Key services facilitated through agency banking encompass cash deposits, withdrawals, loan repayments, funds transfers, remittances, bill payments, and even the initiation of new accounts. This model significantly enhances banking accessibility, particularly in areas where traditional branches are sparse.
Agency Banking Players
For an agency banking framework to be established, there are five key players that must come together:
- Financial Service Providers (FSPs) or Banks: Banks, while equipped with resources to support a broader customer base, often lack a mechanism to connect with the underserved consumers in remote areas. They therefore invest in agency banking to meet them at their daily spots – shopping centers. FSPs also host both agent and consumer accounts and define the privileges that both parties enjoy through the service.
- Authorized Agents: These local entities act as the face of the bank in the remote or underserved areas. Based on their terms with the parent bank, agents may also recruit other agents under them to generate additional commission for every transaction they make.
- Customers: The primary target of agency banking is individuals who either lack bank accounts or have limited access to traditional bank branches. Some of those without bank accounts have failed to acquire them due to inaccessibility, while those with bank accounts often require one-on-one services with the bank, which may not be adequately addressed through mobile banking alone.
- Regulatory Authorities: Government oversight plays a crucial role in ensuring that agency banking operations adhere to financial regulations. Regulatory bodies protect consumers, maintain the stability of the financial sector, and uphold the security and integrity of financial transactions.
- Technology Providers: Technology companies supply the hardware and software solutions necessary for secure and efficient agency banking transactions. Their innovations enable the seamless flow of information between agents and FSPs, contributing to the success of agency banking initiatives.
Benefits of Agency Banking for Banks and Financial Institutions
Expanding Access for the Underbanked and Underserved
Across the 54 countries comprising the African continent, there were 763 commercial banks as of 2022, many of which operate multiple branches across their areas of operation. However, despite this presence, financial inclusion remains low, with 57% of the population lacking a formal bank account.
One of the primary reasons for this disparity is the fragmented nature of the African market and the dispersion of the population. Branch penetration is low and whenever available, customers have to travel long distances and queue for long hours even for basic services like cash deposits and account opening.
Fortunately, financial institutions across the continent have taken note of these bottlenecks and are actively exploring diverse solutions, such as agency banking, to bring essential banking services closer to people’s doorsteps.
Building Long-term Awareness
Establishing agency banking strategically enhances “brand recall” and creates a lasting connection with customers so that your bank remains top-of-mind when their financial needs arise.
On the same note, bringing services closer to customers shows concern about their challenges and the commitment to solve them. This enhances loyalty and makes them your brand advocates.
Customer loyalty also comes from a point of trust. The bank agents are well-known individuals in the areas they operate, so customers are confident and comfortable that their data and finances are with a trusted local person they know.
Optimizing Cost Efficiency
Agency banking empowers financial institutions to extend their reach and service offerings without the hefty capital investment and operational complexities associated with establishing new branches or ATM networks.
Expanding to underserved segments not only broadens your customer base but also strategically positions your organization for competitive pricing by capitalizing on the cost efficiencies gained through economies of scale. An International Finance Corporation (IFC) report found that transactions through agent networks are 25% cheaper than branch teller transactions.
Agents enable financial service providers to compete strategically, facilitating the cross-selling of value-added services and the efficient distribution of priorities between their own operations and agent units.
Additionally, embracing digitization and reducing reliance on paper-based processes not only trims operational costs but also mitigates fraud and cash-handling risks.
Boosting Customer Acquisition and Retention Efforts
IFC conducted a series of surveys on LAPO, a Nigerian Microfinance Bank, to assess the effectiveness of their agency banking framework. The study revealed a significant correlation between customer onboarding at agent locations and sustained banking engagement among individuals who previously lacked bank accounts.
Over a span of three years, the microfinance institution garnered more than $3 million in savings and successfully onboarded over 50,000 new customers through their agents. Notably, 24% of the microfinance’s growth could be attributed to the contributions of agents, and an impressive 55% of customers reported improved financial management, leading to continued utilization of agency banking services.
Innovating for Strategic Differentiation
Agency banking presents a strategic opportunity for financial institutions to align with current market trends. It enables a bank to bring its services closer to customers, addressing the increasing demand for convenience and personalization. By adopting this strategy, a financial institution can distinguish itself from competitors heavily reliant on traditional branches, enhancing its relevance and expanding its market presence.
It also unlocks access to previously untapped customer segments, reinforcing strategic differentiation. Through data and customer behavior insights collected by the agencies, the institution can develop new products and services aimed at driving satisfaction and resilience in an already competitive landscape.
Agency Banking Impact on Customers
Convenient Financial Services
Agency banking eliminates the need for long trips to distant bank branches, saving time and transportation costs. At the agent points, customers enjoy quick cash conversion through deposits or withdrawals, especially beneficial for those who rely on physical cash. Agents also offer extended service hours, accommodating customers’ busy schedules. Their personalized assistance and responsiveness to customer inquiries foster strong relationships. This results in a simplified, hassle-free banking experience, enhancing satisfaction and encouraging greater engagement with banking services, which collectively promotes financial inclusion.
Elevating financial literacy
In developing countries, most of the population often experiences low levels of financial literacy, as revealed by the Standard & Poor (S&P) Global Financial Literacy Survey’s findings. For instance, South Africa, Tanzania, Kenya, and Nigeria reported relatively low financial literacy rates of 42%, 40%, 38%, and 26%, respectively. These figures starkly contrast with the higher rates observed in more developed European countries, ranging between 65% and 75%.
However, introducing agency banking in remote areas helps shift the curve. By bringing banking services closer to these underserved communities, agency banking offers consumers the opportunity to directly explore different banking offerings. Consistent transactions with their agents give them practical experience in banking processes such as deposits, withdrawals, and transfers. Also, agents can act as their financial advisors based on their needs and available banking solutions, which incrementally improves their financial perspectives.
Local Economic Growth
Through agency banking, financial institutions create opportunities for customers to access a wide spectrum of financial services such as loans, savings, payments, and quick deposits, which helps stimulate the economy. These financial tools help both budding and seasoned entrepreneurs to invest in their businesses, expand operations, and create job opportunities within their communities.
Additionally, enhanced financial literacy equips consumers with the knowledge and skills needed to grow their financial assets, invest wisely, and participate more actively in economic growth and development, ultimately leading to better financial outcomes for both individuals and their communities.
Building Agency Banking Supported by Codebase Technologies
The success of agency banking relies on the right software technology and infrastructure. Agents need access to secure banking systems and mobile devices or point-of-sale (POS) terminals to facilitate transactions.
Based on the FSP’s level of growth, Codebase Technologies offers a comprehensive Agency Banking solution on Digibanc to run the agency banking business that can be integrated into existing platforms. The solution can be illustrated as shown below:
The Agency Banking as a Service comes with a set of ready pre-integrated APIs to 3rd party systems for services like account creation, payment processing, lending, bill payments and more. This has the benefit of lowering development costs. The entire platform is also hosted in the cloud, which reduces the cost and time required to set up an entire banking infrastructure.
The FSPs adopting the Agency Banking as a Service model start by deciding which financial services they want to offer through their agents. Then they invest in building brand visibility and presence by recruiting agents in the areas where agents operate, resulting in an increase in customer acquisition.
Once growth is achieved, Codebase Technologies’ out-of-the-box agency solution can be implemented, allowing the FSP to create bespoke services to align with specific customer needs and branding, in line with their overall growth and business strategy. This allows for a more tailored and unique customer experience.
FSPs can establish a commanding market position by applying the above simple logic and action plan to providing financial services through agents.
The Way Forward
As is evident, Agency Banking in Africa is growing exponentially and that is for a reason. Financial institutions have tried and tested the model and have seen how effective it is in reaching the underserved populations at the grassroots level.
Whether you are a bank, microfinance institution, SACCO, credit union, mobile money operator, or any other Non-Banking Financial Institution (NBFI), agency banking has the potential to benefit both your institution and customers. It’s a win-win for both parties.
However, the technology infrastructure you run on can either make or break your service delivery. Reach out to us if you would like to learn how our Digibanc technology stack and expertise can support your vision.
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- africa
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Paul Nilsen, Managing Director AFRICA
Strategic business leader who has scaled local and international platforms managing teams and creating sustainable recurring revenue streams. Building long-lasting relationships and business processes, accessing technical expertise, sales skills, and consultative abilities.
