To Achieve True Financial Inclusion, Let’s Prioritise Building an Extensive and Sustainable CICO Network

The benefits of an increasingly digitised economy, powered by a robust payments infrastructure have been the themes of several articles and research incursions.

However, the journey to digitisation is a long and arduous one, especially in an emerging market like Nigeria whose payments infrastructure, though sophisticated, lacks the desired reach.

For economies on the cashless journey, building out a reliable and extensive cash in-cash out network is the first, perhaps most important step, in extending financial services to the unbanked.

Cash in-cash out, CICO as it is frequently called, is a service provided at financial service points where customers can convert e-money into cash and vice versa.

CICO is a fundamental element of every financial services ecosystem and has existed in one form or the other since the emergence of formal banking. The most popular CICO point being the banking halls, and now ATMs, have supported ecosystem activity for the past century.

However, the sustainability of an extensive bank branch or ATM network in the rural and remote parts of the country has put a significant strain on financial services distribution. Hence the need to seek out cheaper yet efficient alternatives. And this is where agent networks come in.

CICO, which is the primary service provided by agents, is an intermediate infrastructure that will take us into the truly inclusive and mostly cashless society we envision. It’s not the end goal itself but rather, it is a critical pittstop on the road to a financially included society.

A valid question then would be, since we are envisioning a cashless economy where digital payments thrive, why prioritise CICO at all? Shouldn’t we simply make the jump to digital wallets, cards and so on?

Well, for one, cash is obviously not going anywhere anytime soon. Even in countries with the most advanced payments infrastructure and high penetration of digital financial services (DFS), people still use cash in some form or the other.

In Nigeria, cash is still the leading payment method therefore it is unwise to simply pull the plug on it. At the current stage of the Nigerian payments ecosystem, digital payment systems act as alternatives to cash.

As The Brooking Institute astutely puts it, “Without full backward compatibility with cash, digital payment systems could not take root.” The CICO infrastructure is what facilitates this backward compatibility.

In the quest for financial inclusion and digitization of payments, a large agent network is required in the early years of the DFS ecosystem in order to ensure consumers are onboarded and providers are able to keep them within the system.

Without the agent network, the financial inclusion objectives are incomplete. Aside being relatively cheaper, agents also have the inbuilt advantage of putting a face to the financial services. Human touch points, as they are popularly called, are the secret ingredient of financial inclusion campaigns due to their ability to serve as financial service points while filling other gaps, and in a sustainable manner. For instance, agents provide financial services such as account opening, demonstrate and support DFS through customer education and most importantly, put a face to the service.

In the bid to move the citizenry away from cash-centric methods of sending money and making payments, we have to be sure the alternatives on offer are, at least, as good and efficient as cash! Cash is prevalent because it is universally understood, globally accepted and free to use. The proposition of digital money — safer, cheaper in the long term and easier to receive and send money to family and loved ones — is yet to gain widespread consumer acceptance.

However, for new users, the value propositions of digital money are walled behind a steep learning curve. Hence the need for agents to provide CICO along with the adjunct services mentioned earlier.

The body of evidence in countries with mobile money successes demonstrates that mobile money growth correlates with the agent network size.

Nevertheless, building out an agent network is not that simple. Since 2009, when the first mobile money operator came on the scene, till now, Nigeria’s agent network of about 50,000 agents, still remains inadequate. This is unsurprising if you consider the underlying conditions.

CICO economics are brutal. In a country with a nascent DFS ecosystem, it is quite hard for agents to break even. Among the multiple challenges agents face, the relatively low throughput of transactions going through the country’s mobile money landscape is one of them. Since the volume is not there, activity remains low and profit is elusive.

Another challenge is liquidity shortfalls. This means the agent either needs to visit a formal FSP often (in order to be able to perform cash out services) or needs another business to complement the agency business and serve as a source of liquidity for it.

Then we come to intermittent infrastructure hiccups such as power failure, equipment failure, network failure… it’s a long list that doesn’t paint a pretty picture.

Then there’s the issue of regulated fees and charges. The CBN prescribes the fees for all financial transactions, irrespective of location and other ancillary costs associated with liquidity management, storefront operations, and so on.

In the bid to build out the agent network which will provide CICO, it is becoming clearer that there exists a knowledge gap within the ecosystem. Stakeholders and policy makers require an evidence base to inform their decision making. For example, we need to know the viability of CICO activity based on the current model obtainable within the ecosystem. We also need to explore the impact of regulations on the agent network: how have the laws and guidelines affected agent activity? And so on.

The clock keeps ticking and we’re running out of time. Meanwhile, more than 60 million people remain without the financial services they need to improve their lives and make the transition out of poverty.

In what ways can we improve Nigeria’s agent network?