What is Agency Banking
Agency Banking is a banking model involving a business, bank or financial institution delivering permitted financial services outside their traditional places of business through third-party agents to last-mile end users.
The last mile here refers to why these businesses, banks and financial institutions would not traditionally reach. People who live in these last-mile areas-rural and semi-urban areas- often need access to financial services because traditional banks need more reach to serve them. It is important to note that Agency Banking also serves people in urban areas.
Another thing to note about Agency Banking is that these agents only deliver restricted financial services. This restriction is because last-mile banking often happens without proper Know Your Customer (KYC) checks. With constant innovations around KYC checks, institutions can provide more high-level financial services like loans and insurance through agents.
The Agency Banking model of delivering financial services has worked in Nigeria because banks and financial institutions were concentrated in urban centres, leaving many in semi-urban areas unattended.
These days, it’s an entirely different story. Now, instead of splashing huge cash on the cost of setting up brick-and-mortar branches, banks have been able to serve and reach more customers across Nigeria with the help of agents.
Look at a 2020 report from the International Monetary Fund (IMF) that revealed that commercial banks in Nigeria shut down more than 200 branches and more than 600 Automated Teller Machines (ATMs) in that year. The data suggests that banks are making more use of agents. Other factors, like the rise in digital and mobile banking solutions, have contributed to this.
Aside from banks using this model to expand their retail banking operations, fintech startups and businesses with distribution networks also use this model to offer financial services.
Factors fuelling the rise Agency Banking in Nigeria
Two factors have fuelled the rise of Agency Banking in Nigeria.
- Ease of becoming an agent
The ease of becoming an agent for a financial institution or bank has made Agency Banking very popular. The low barrier entry has seen anyone with a shop or a mobile set-up serve as an agent for a bank or mobile payments company.
Small-time traders can even become agents alongside their existing trades. With a POS, these traders can onboard with a financial institution or super agent with POS devices and deliver financial services. According to a June 2020 report by EFInA, 60% of Nigerian agent outlets operate agency businesses alongside their existing business.
These agents can also deliver financial services for more than one bank or financial institution.
- Cheap means of delivering financial services
The Agency Banking model has not benefited just the agents; banks and financial institutions save more money and time in setting up Agency Banking platforms. It’s way cheaper and more efficient to use the Agency Banking model to expand their operations than the traditional way of opening and operating branches all over the country.
Benefits of Agent Banking
As discussed earlier, Agency Banking has benefited everyone in the ecosystem. From banks to financial institutions, fintechs, businesses and the general public.
We look at some of these benefits;
- Improved financial inclusion
With Agency Banking, the typically unbanked population has now had access to essential financial services. When CBN established the framework behind Agency Banking, their goal was to improve financial inclusion, and they have done it.
The EFInAAcess to Financial Services in Nigeria study shows that more than half of Nigerian adults (51%) were using formal financial services such as banks, microfinance banks, mobile money, insurance or pension accounts. The 51% was an increase from 49% in 2018.
As we have said earlier, the Agent Banking model has been cost-effective for banks. It has been more accessible and cheaper for banks to use agents to deliver financial services to the last mile instead of setting up traditional brick-and-mortar branches to expand to more areas.
- Increased customer satisfaction
With agents delivering financial services to the last miles, more customers are getting financial services at their convenience. No long journeys and queues to the banks.
With banks, financial institutions and fintechs serving more customers, they are getting more revenues. It’s the same for individuals and businesses who set up Agency Banking businesses.
Generally, financial inclusion improves the economy. With more people getting access to credit, there are more economic activities to boost the economy. Agency Banking has given more job opportunities to Nigerians.
Agency Banking businesses
Earlier, we talked about how Agency Banking has empowered individuals and businesses and how easy it is to become an agent. Agency Banking has empowered many with jobs and continues to generate income for many Nigerians.
With just a Point-of-Sale device, people all over the country have gained employment and earned a living.
The everyday use cases of POS and mPOS businesses in Nigeria are numerous. There are a dime a dozen everywhere; in rural, semi-urban and even urban areas in Nigeria. People hardly visit banks for basic financial transactions; they get to a POS show nearby and get what they need.
POS systems help local debit cardholders withdraw money and pay for goods and services. The popular payment model of these POS businesses has brought banks to every corner store and street in Nigeria. Instead of visiting banks, people now go to these POS businesses to perform transactions.
This type of business has gained popularity partly due to the high employment rate in Nigeria. While people run this business as their primary source of income, others add it as part of their existing businesses, mainly retail.
From mainly makeshift and small stores, these businesses provide banking services, including cash deposits and withdrawals, fund transfers, bill payments, airtime recharge and other related services.
POS transactions are straightforward; The POS operator inserts the debit card into the terminal and asks the customers to enter their four-digit PIN to authorise the transaction.
The terminal completes the transaction using mobile data and prints a confirmation receipt. The receipt can either be a ‘declined’ or a ‘completed’ transaction.
These agents earn income from commissions from transactions. Cash withdrawal via a POS typically costs about N100 for every N5000 in Nigeria.
The commission does not go to the agents alone; they share it in a suitable sharing formula with their super agents and financial institutions.