Agent Banking: Is there a missing sauce in the Nigerian strategy?
Growing and extending Nigeria’s agent network has remained a challenge till today. What could be wrong?
Distribution of digital financial services (DFS) to customers, especially in rural and remote areas, is the purvey of agents. Agents at the last mile bridge the gap between providers and consumers, not only in a practical sense as transaction facilitators, but through their human touch.
In our discussions around the Nigerian model, the distribution strategy, particularly, how our agent network should be built and extended, is critical. Building and managing a sustainable agent network is not easy and certainly not cheap. According to CGAP, the largest expense digital financial service providers worldwide incur is distribution.
In our December 2017 International DFS Conference, the estimated number of agents required to effectively serve the nation was pegged at about 180,000. Obviously, this is a far cry from the less than 30,000 agents currently in operation.
Effective delivery of DFS, especially to financially excluded populations, depends on the reach and quality of agent networks — our primary distribution vehicle. Consequently, the quality of an agent network is its value proposition, i.e. the products/services that agent delivers to the consumer. According to the Helix Institute, this value proposition is the foundation upon which all strategic operations around agent networks are built.
The value proposition of our agent network is determined by the network’s size, growth rate, geographical placement, and the level of training and support that agents receive. Needless to say, growing the value proposition for our agent network requires significant capital. On the other hand, acquiring capital to grow the number of agents is a hard task because their value proposition, and hence their profitability, is still minute.
Classic chicken and egg scenario.
So how did our benchmark nations, Kenya, Ghana, Bangladesh and India, tackle this problem? Perhaps we can glean some useful insights:
KENYA
It is easier for telcos and banks to launch and maintain an agent network due to several factors — brand strength and recognition, capital and an existing customer base. It is much more difficult for an independent mobile money provider.
This is, in part, responsible for the success of M-Pesa in Kenya. M-Pesa which is a product of the dominant telco in the country, Safaricom, was able to piggyback on its already existing airtime distribution network. This meant that, upon the release and subsequent increase in uptake of M-Pesa, Safaricom was able to aggressively recruit more agents in response to the market, a strategy that worked out for them splendidly. The dominance of Safaricom has allowed it to keep the most exclusive agent network in the region, with 96% of agents serving only one provider. Hence, exclusivity, while it allows providers to secure their market position (or dominance, where applicable), it hampers agent profitability.
Another key factor influencing agent network growth is the diversity of additional services agents are allowed to offer customers aside money transfer and remittances e.g. bill payments, bank deposits and micro-insurance.
INDIA
The growth of India’s agent network is quite interesting.
While in most countries, agent network growth and DFS have been driven by profit, the growth of DFS in India has essentially been the result of government mandates.
The Indian government has consistently pushed for increased financial access through various schemes. For example, in 2011, the government created the Swabhimaan scheme to catalyse account opening. According to The Helix Institute, the scheme aimed to bring financial access to to all villages with a population of 2,000 or more by March 2012, (with a target to reach a total of 74,000 villages primarily through DFS enabled transaction agents). In 2014, the government’s financial inclusion mandate expanded to an additional 50,000 agent locations through the PMJDY programme. As of August 2015, 177 million accounts had been opened under the scheme. And we all know about the (in)famous demonetization scheme of 2015 and its subsequent chain reaction which resulted in significant uptake of DFS….
GHANA
Ghana is a unique market with a regulatory focus on interoperability and interesting dynamics as regards bank-MNO partnerships. According to a report by the Bank of Ghana, in 2015 there were 79,747 registered agents in the country while about 56,200 of them were active. This puts the ratio of agents to potential customers at roughly 1:300 (due to Ghana’s relatively small adult population).
How was this achieved? For one, interoperability is mandatory. Secondly, agent exclusivity is prohibited by the Bank of Ghana, meaning agents are free to have contracts with multiple financial institutions and e-money issuers. Thirdly, due to the nature of the market in Ghana where MNOs are allowed to directly offer mobile money services, the MNOs are taking very different approaches to building their agent network. For example, MTN built a completely independent network of cash-in/cash out agents, separate from their network of airtime distributors while other MNOs are leveraging their own existing airtime agents and distributors.
In short, the environment favors agents while mobile money providers offer the necessary support to their respective agents.
BANGLADESH
Bangladesh is said to have one of the most vibrant agent networks in the world. According to the Helix Institute Agent Accelerator Report/Survey 2016, this has been traced to several factors. One, DFS providers continually offer superior liquidity and agent network management services which has significantly improved agent profitability over the years. Secondly, the introduction of shared agent networks, which serve more than one provider. These shared networks enabled licensed providers that did not have strategic and operational resources to build and manage their own agent network efficiently to be able to buy access to existing channels via these shared agent network providers. Participating banks also increased the range of touch points available to their clients, while reducing the need to invest in building their own agent networks. Finally, though the market is in nascent stages, these shared agent network managers are performing well on operational metrics such as training and service downtime.
CONCLUSION
What can we glean from all these? At the moment, we seem to have the correct enabling policies for agent growth. While MMOs are encouraged to build out agent networks, the Super-Agency guidelines supports independent agents. Within these guidelines, the CBN also discourages agent exclusivity in favor of a shared network. So then why are we not seeing agent network growth? Why are the financial inclusion numbers still stagnant? How do we grow from the 30,000 to 180,000?
First, the funding for the buildout is essential. For example, if the agent acquisition cost is estimated at N25,000, an initial cash outlay of about N3.75 billion is required. This is not just for the buildout of the network but also the maintenance and sustainability of the agents that include technical support and training. The ability of agents to conduct business requires some startup capital that serves as their wallet balance. Is there any startup capital funding support to get agents started? An example of this is the Lagos State Employment Trust Fund (LSETF) relationship with Paga that provides agents in Lagos State credit funds. Can some of the funding for the Government Enterprise and Empowerment Program (GEEP) managed by the Bank of Industry (BoI) be disbursed to agents? The next issue is that of agent liquidity where the agents need to rebalance their wallet accounts with cash deposits and withdrawals. Can the deposit money banks (DMB) or cash management companies like Bankers Warehouse support this activity? These propositions are not exactly solutions, but ideas that could help address some of the industry bottlenecks in our own Nigeria model.
