Regional Market Outlook Agency Banking

Market overview: Africa

  • It is observed that in Africa 80 percent of the potential market is in rural areas
  • Agency banking can aid in potentially tapping the areas, where brick and mortar branches cannot be setup
  •  It is reported that 77 percent of population is unbanked

Factors that limit access in Africa

  • High distance, low population density
  • Low income relative to cost of service
  • Low literacy rate
  • Lack of credit history
  • Narrow range of products offered

Agency banking Africa – Best practices

  • It is observed that in Africa, banks engage with local third- party agents of that locality (retail outlets, telecom providers) for a short-term contract (1–2 years) with a single agent (been in business for at least 12 months

Targeted business for agency banking in Africa

  • Super markets
  • Retail outlets/markets/motor parks
  • Distributors of Mobile network operators
  • Petrol filling stations
  • Dealers in FMCG

Agency banking services is when an individual can access banking and financial services through an agent and who has a partnership with a bank. The agent is provided with technology to provide banking services through POS system.

Agency banking (branchless banking) is a means for a traditional bank,cost effectively extend its branch network through the use of authorized agents.This enables the bank to provide low-risk services to customers in remote and rural areas that are difficult to service using traditional branches. The bank benefits through a larger customer base, boosting financial inclusion,product availability,and risk management.

Benefits of Agency Banking

  • In agency banking,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 saving accounts – without brick and motor bank branch infrastructure
  • Huge savings in time and money can be put toward developing agency banking technology and training, allowing agents to financial advisors to the community
  • New skills and up-to-date technology will enable agents to up sell the 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

Agency banking is the provision of banking services by a third-party agency to customers on behalf of a licensed regulated financial institution, such as a bank or any other deposit commercial bank.

Agent Eligibility

  • Must have been in commercial activities for at least 12 months and must be a going concern
  • The prospective agent must be a registered entity, public entity or a trust
  • An organization subject to regulation under any law will need the approval of the regulatory authority to engage in agency banking
  • A business entity that has been classified as a non-performing borrower by any financial institution in the last 12 months cannot be engaged in agency banking
  • The prospective agent is to provide appropriate infrastructure and human resources to provide the service required. The prospective agent should not have any record of criminal activities

Targeted Business for Agency banking

Most targeted business houses

  • Super markets
  • Retail outlets
  • Distributors of mobile network operators
  • Petrol filling stations
  • Dealers in FMCG
  • Other high traffic business locations like markets and motor parks

SWOT Analysis: Agency Banking

Strengths

  • Lower cost than building traditional bank branches, hiring fixed employees
  • Lower queues in bank branches
  • Agency banking supports retailer/SME banking business line
  • Commission-based costs supports scaling agency network

Weakness 

  • Lack of real control of agent behavior, cash control
  • Less chance of real interaction with customers upsell/cross sell
  • Requires a “partner management” program me/systems/people
  • Requires careful management of float collection accounts

Opportunities

  • Tendency to leave money in bank accounts, with easier access/more locations
  • Combined behavior (banking and agency location activity) can increase number of banking moments, joint activities
  • Support card usage (if using POS)

Threats

  • Partner management/CIT key to agency banking success, often requires branch support to ensure agencies are supported correctly
  • As third parties are involved, bank’s reputation is at risk if any issue arises

Agency Banking: Key Factors for Implementation

It is observed that there are several factors that need to be considered when implementing a branchless banking agency network.

  • Compliance: All agents working under the authority of a bank must comply financial with the same rules and regulations of the bank.
  • Implementation: Banks must have an implementation strategy for their agency network to ensure maximum coverage, which is rolled out in an efficient manner.
  • Business Process Integration: Banks must ensure that the services offered by their agency network are fully supported and integrated with the bank’s broader service offerings.
  • Agency Training: Banks must provide training for the members of the agency network both in the products and services offered. Adequate training is important to maintaining the banks brand image.
  • Support: Agents must be able to offer their clients a positive and consistent service. They will therefore need continual support from the bank to help them address clients needs, maintain cash flow, and provide technological support for any devices or equipment they utilize.

Market Overview: Agency Banking

It is observed that in Africa 80 percent of the potential market is in rural areas. Costs will play a great role in determining the success of the agency model. Agency banking can aid in potentially tapping the areas, where brick and mortar branches cannot be setup.In Africa, 77 percent of population is unbanked and it is noted that less than a quarter of all adults make use of bank accounts or other financial products from a formal financial institution.

Factors when looking at ways to tap into unbanked population in Africa

  • Proximity and ease of access: People in remote rural areas are not always able to travel long distances to a bank branch
  • Low barriers to entry:Low cost products and low--balance accounts, which are simple and ease to use will make it easier for the unbanked to move toward banking services
  • Basic financial education.:Banks must be prepared to educate people on the various product offered as the literacy rates are very low
  • A flexible approach to savings and repayment schedules:As people in rural areas are engaged in informal or micro business, they may not have a steady or reliable income