A World Bank report shows that around 1.7 million adults are still unbanked, meaning they don’t have access to a bank account. This number was 2Billion in 2014. Many countries have begun to focus their efforts on financial inclusion in an effort to combat this sad reality. This article will explain what is agency banking, and how it impacts banking around the globe.
However, it is important to realize that not everyone can access banking services. Nearly 59% of adults who aren’t banked cite the difficulty of getting affordable banking services as the main reason they don’t have one. The problem is made worse by the lengthy documentation required. With the recent FinTech developments, banking will change forever.
The financial sector, particularly the banking sector, has benefited from the combination of internet and smartphone penetration. This has enabled banks to offer their services to anyone, regardless of where he is located. This is known as agency banking or branchless banking.
What is agency banking?
Agency banking is a branchless type of banking This allows banks to expand their branch network and provide services through authorized agents. Agency banking is growing in popularity for many reasons, including product availability, risk management, and improvement in financial inclusion.
The components of agency banking
You can read the following to learn more about the operation of the bank agency.It is important to understand the ecosystem of agency banks. We’ll be discussing each individual participant.
Agent banking service provider
The management of various bank agents is the responsibility of agent banking service providers. They also manage service, marketing, cash handling, and branding.
Banks and financial institutions
The hosts of both agent and consumer accounts are banks and financial institutions. These entities are the ones that actually cash flows.
Banking agents
These are the retail outlets that have been authorized to provide various banking services for banks and financial institutions. These are the people responsible for providing banking services like:
- Cash-in
- Cash-out
- Balance inquiry
- Generate mini statements
- Document collection
- Microloans
- Purchase of airtime
- Payments for bills
- Transfer P2P
Super/sub-agents
Banking agents can also create other agents and receive an additional commission for each transaction they make.
Also read: What is Banking-as-a-Service and It’s Market
Mobile operators
Mobile operators provide their network to facilitate mobile transactions and USSD connectivity. They also offer SMS, bill payment, and other services that can be done over the mobile phone.
Consumers
End-users of agency banks are consumers. These are people who do not have a bank account but have access to their mobile phones.
Let’s now take a look at the process after we have seen all participants.
How does agency banking work?
Banks need an advanced agency banking solution in order to provide services for agency banking. This will allow for seamless customer banking and smooth coordination between all components of agency banking. Here are the steps to branchless banking.
Register as a bank agent
The first stage is when the bank authorizes the retailer to become a banking agent by his respective bank or financial institution.
Make a mWallet
After the authorization process has been completed, the bank service provider creates a mWallet for the Banking agent. After the mWallet has been created, the bank agent deposits a pre-paid balance into it.
The customer opens his bank account
Customers can open a bank account simply by visiting the nearest branch with valid identification.
Cash in (deposit cash)
Customers must pay cash to the bank agent to deposit money. The bank agent transfers the money from his mWallet into the customer’s account.
Cash-out (withdraw money)
Customers can transfer money to their agent’s account by using their phone’s USSD menu. The agent then pays the same amount in cash to the customer.
A user-friendly banking solution allows the banking agent to access different banking services and perform various actions.
Benefits of agency banking for banks
Reduce costs
Banks and financial institutions can use agency banking to expand their services to areas with low bank penetration. Agency banking allows banks and financial institutions to avoid the need for a physical branch, which reduces operational, infrastructure, and maintenance costs.
The banks can save two birds by using agency banking. They can save money on the costs of setting up a new branch. On average, maintaining a physical branch is 25% more expensive than managing the network. They can also increase their profitability by attracting business to areas that were not previously explored.
Increase customer base
The help of financial agents allows banks and financial institutions to finally offer their services and products to large sections of the unbanked and untapped customer base. Bank profits increase by many folds due to this huge rise in customers.
Similar to agency banking, banks can have many agents who can bring more customers to the bank or financial institutions.
Asset quality maintenance
Because they are good friends with clients, banking agents often get to know them well. Agents can assess clients’ repayment ability, financial stability, as well as other factors that influence bank decisions regarding loan lending. Banks can keep the quality of their assets by having such important insights.
Increase trust and awareness
The informal banking system is enhanced by the human touch of bank agents. Interacting with a friend is a comfort to users. Agents are trusted more than formal branches because of this.
Clients feel secure performing all financial transactions thanks to this convenience and comfort. This trust in bank agents motivates everyone to use agency banking in their localities.
Enhanced customer experience
Agency banking offers enhanced customer service. Branchless banking has made it possible for banks to reach customers directly. Instead of waiting in long lines at the bank branches, clients can now visit the agents located near them.
Users can perform various banking operations through their agents such as withdraw/deposit money, pay bills, loan payments, and much more without any formal ID or biometrics.
Agency banking offers a simple platform to users. It provides various banking solutions for unbanked people with the use of card readers, phones, POS terminals, and other cutting-edge technologies that process real-time transactions.
Also read: Top 20 Payment Processing Companies for Small business
Different types of transactions supported
Agency banking can support different types of transactions, such as:
- Prepaid vouchers up to 50% off
- Prepaid top-ups that are not voidable
- Services for merchants
- Repayments for loans
- Balance inquiries
- Cash deposits
- Cash withdrawals
- Payments for bills
- Transfer P2P
- Utility bills
- Taxes
Fees for government
High security
Agency banking offers convenience and top-notch security. Clients can issue a magnetic card/stripe or a bank pin to enable them to use the agent’s terminal later for transactions. The security of bank pins and magnetic chips card/stripes is much better than cash management.
Top agency banking facilitates
Banks had to overcome the challenge of offering banking services in rural areas. Because it is difficult to open a bank branch in rural areas, one must have high OPEX/CAPEX. However, it is not certain that the branch will return a sufficient return on investment (ROI). This is why banks have not been able to reach rural customers. Rural users aren’t used to mobile financial services.
With agency banking, banks can now reach rural areas and provide banking services to large sections of the unbanked population. We’ll be discussing the impact of agency banks in a few countries.
1. Kenya
According to a special report by Helix digital finance on Agency Banking in Kenya Agency banking has experienced the highest growth in terms of agent shares. Equity Bank is now the second largest in terms of agent share, at 11%. Safaricom M–Pesa is losing its market share, dropping from 90% in 2013 to 79% in 2014.
Financial inclusion is a topic that was addressed by the FinAccess household survey, which was conducted in 2019 with FSD Kenya, Kenyan National Bureau of Statistics, and the Central bank of Kenya. It shows that 82.9% of adult Kenyans have access to at least one financial product.
The Kenyan market is an ideal place to start FinTech businesses. It has 150 FinTech firms offering services ranging from credit entities and remittances.
2. India
In 2006, the Government of India recognized the potential of branchless banking and started its initiative of business correspondences. These business correspondents, like banking agents, bridge the gap between the banks and the unbanked.
As of April 2017, more than 28.38 million new accounts were opened through the Pradhan Mantri Jan Dhan Yajana (PMDJY). This was a significant decision, as there is a large segment of India without any financial services.
3. Congo
Papersoft in the Democratic Republic of Congo has joined with Equity Bank Group, and EcoBank to increase financial inclusion through hyperlocal agents. FINCA has been operating network bank agents throughout the country since 2011. The agents are primarily shopkeepers and local merchants in areas without FINCA branches. Rural areas account for around 20% of these agents.
Many agents handle high volumes of transactions. A Kinshasa bank agent can affect around 100 transactions per hour. These agents play a significant role in fighting financial exclusion.
Conclusion — Agency banking
Agency banking is a seamless solution that banks, retailers, customers, and other stakeholders can use. This allows banks to offer services to remote areas that they wouldn’t otherwise be able to. It also benefits bank agents because it increases their income and allows them to take in more customers. Last but not least, unbanked customers have easy access to financial institutions near them.
