Agency Banking is branchless banking by a business, bank or financial institution that delivers permitted financial services through third-party agents to the end users.
It is important to note that we said ‘permitted’ financial services because Agent Banking has only been able to deliver basic financial services so far. Work and innovations in Know Your Customer (KYC) are ongoing to ensure that institutions can provide more sophisticated financial services like loans and insurance through agents.
In communities across Nigeria, Agency Banking has provided unlimited financial services to the unbanked population. With bank branches concentrated in urban centres, many of the rural population couldn’t access financial services, hugely affecting bank penetration.
Agency Banking has been particularly targeted at people living in rural, semi-urban areas and the unbanked segments of the urban population. Now, instead of taking on the cost of setting up brick-and-mortar branches and heavy traditional banking infrastructure, banks have been able to serve and reach more people across the country with the help of agents.
Commercial banks in Nigeria have used the Agent Banking model to sign on agents driving their retail banking operations. With this strategy, banks are penetrating more regions and communities at far less cost.
Banks in Nigeria are generally moving away from their traditional mode of operations while shifting towards Agent Banking and more innovative ways of delivering their services. A 2020 report from the International Monetary Fund (IMF) revealed that commercial banks in Nigeria shut down more than 200 branches and more than 600 Automated Teller Machines (ATMs) in that year.
The report stated that these reductions were due to a drop in branches caused by the rise in digital and mobile banking solutions. Since then, there have been continued surges in other models of financial transactions like mobile/digital and Point-of-Sale (POS) usage- The most common tool agency banking agents use in Nigeria is the POS machines.
Banks are one of many types of entities that operate Agent Banking. With its spread and overwhelming use cases, other financial institutions and businesses have started running this model of financial services.