Building Nigeria’s Agent Network Requires Significant Funding, But Where Will it Come From?

According to CGAP, building and managing a sustainable agent network is neither easy or cheap. In fact, the largest expense digital financial service providers worldwide incur is distribution.

When this is weighed beside the profitability of mobile money and other digital financial services operations in Nigeria, it paints a dire picture.

In our December 2017 International Financial Inclusion Conference, the estimated number of agents required to effectively serve the nation was pegged at about 180,000. At the moment, we have less than 30,000 agents currently in operation. Which means, we need to roll out at least 150,000 agents within the next few months/years. But rolling out new agents, as well as training, and managing them is expensive, not to mention the liquidity requirements if the agent is to remain in business.

Let’s say it costs about N25,000 (a conservative estimate) to recruit (acquire) one agent. Then to make up the shortfall, of 150,000 agents, we will need about NGN 3.75 billion (circa US$ 10.4 million).

Which leads us to the important question: Where is this money going to come from? Who has this kind of funding? Or perhaps the better question would be, who has this kind of money and has the investment appetite? Mobile money is quite unlike bitcoin trading — it is not a cash-out-in-one-year kind of business. Rather, it demands patient capital, and hence, patient and long-term investors.

Depending on the DFS value chain arrangements, the active actors — from e-money issuer to agent and telecom channel provider — all share the transaction fees. This transaction fee (aka interchange as it is called), is usually shared in however many ways required and thus quite miniscule, a situation further compounded when transaction volumes are low. So let’s say for example, an agent earns N5 for each airtime transaction (and we use airtime as this is one of the more popular use cases), how many airtime sales will that agent need to complete to earn N50, N200, N500, N1000? The maths paints the true picture of the volumes required for each transaction type to ensure the business case makes sense. Furthermore, if the business case does not make sense, the investment opportunity is dead on arrival!

So the real question is, where is the money to grow this agent network going to come from?

Saviours from within…

The first and obvious answer is the DFS providers themselves. Since the inception of mobile money, operators have gradually been building agent networks. This has led to a moat/blue ocean kind of situation, where providers are somewhat unwilling to share agents, which is understandable. Notwithstanding these efforts, scale is what is required. Hence the odd 30,000 agents here and there are a significant shortfall to serve a nation like ours.

Due to the backdrop of issues hindering the scaling of agent networks in Nigeria, the CBN launched the Super-Agent guidelines and has since issued licenses. The goal of these Super Agents is to grow the shared agent networks, increase agent banking penetration, and ultimately increase the access to and use of financial services (financial inclusion). So far, four licensors have emerged — IFIS, Innovectives, Glo and Inlaks. The impact of these Super Agents is yet to be determined and remains under observation.

Meanwhile, to achieve the goal of 80 percent inclusion by 2020, the need to establish pervasive agent networks in rural areas remains urgent. To achieve this scale, the big elephant in the room remains how do we build out the agent network? Before we proffer any solutions, again let’s take a leaf from the benchmark markets we have been understudying.

In Kenya, how was M-Pesa funded? After its creation, M-Pesa was funded by Vodafone and UK’s Department for International Development (DFID). This seed investment was used to build out the technology and scale the service via nurturing and training the agent network, many of which were ‘mom and pop’ stores more used to selling goods than receiving and handling cash from their customers. At the end of the first year the service had achieved 1.2 million customers. It was a hurricane from there on out.

bKash, the largest mobile money operator in Bangladesh with over 18 million customers started as a joint venture between BRAC Bank and Money in Motion, while International Finance Corporation and the Bill & Melinda Gates Foundation later came on as investors. The venture partners provided the financial resource base for the startup to scale its services, increase product awareness in rural and underserved regions and build out the agent network. As at 2016, bKash had over 100,000 agents and counting.

Saviours from beyond…

Today, the African startup space has evolved significantly. New DFS companies are in the fintech space while Africa-focused venture capitalists are emerging.

According to a report by Disrupt Africa, fintech businesses hold a lot of attraction for investors, venture capitalists and angel investors; raising almost US$65 million in 2017. In fact, investor confidence over the past few years has increased in the sector as we saw, between 2015 and 2017, African fintech startups, jointly raised more than $100 million.

It is safe to assume that Nigeria has the capacity to attract FDI. The question now is, having identified a need, how do we attract the funds specifically to grow the agent network?

One solution lies in any of the aforementioned Super Agents (or all of them) as they could be beneficiaries of investor capital, so long as the business is bankable.

We could also explore the idea of an establishment with multiple stakeholders such as NIBBS (which was set up by the banks), S/Could NIBSS function in an operational capacity to grow and manage the agent network like they already do with our national central switch and other payment systems? Shared ownership means shared resources and shared risk, even though the organization would have its own autonomy in terms of day to day operations. Such an organization would also be properly positioned to attract the necessary investor capital.

Conclusion

At the end of the day, the fact remains building out and maintaining agent networks requires significant funds. And unless we are able to devise a sustainable means of securing this funding, ubiquitous digital financial services via mobile or other channels will remain a pipe dream.