With an adult population of 84.7million in Nigeria, of which only 30% of them are banked, and with more than 88.3 million mobile phone subscriptions as at December 2010, there is great potential for agent banking and other remote access financial service that will increase financial inclusion. In addition to this, increasing financial inclusion is high on the agenda of the regulator being the CBN (CBN, 2012). There is therefore, great potential for agent banking in Nigeria to increase access to finance.
As a continuation of our explanations of the strategies being adopted by CBN to increase financial inclusiveness of adult Nigerians and increase the number of Nigerians included in formal financial service to 80% and 70% respectively by 2020. We will be looking at the business opportunity in Agency banking sometimes referred to as Agent Banking or Home banking.
Investopedia, defined Agent banking as the process whereby a bank acts in some capacity on behalf of another bank.
The Apex bank defines Agent bank as the provision of financial service to customers by a 3rd party (Agent) on behalf of a licensed deposit Financial Institution (FI) and/or Mobile Money Operators (MMO). An agent is an entity that is engaged by a financial institution to provide specific financial services on its behalf using the agent’s premises.
The CBN has categorized agents into 3 simple categories
1. Super Agent – one who has other agent in a location directly under him.
2. A Sub Agent – an agent that is registered under a Super Agent.
3. Sole Agent – a stand alone agent
An agent bank relies on technology such as Card reading Point Of Sales (POS) terminals for real time transaction processing.
Functions of an Agent Bank.
1. Collect cash deposit from customers of both their principal FI and other banks
2. Pay cash on behalf of customers of their principal FI and other banks.
3. Make cash transfers to customers of their FI and other banks
4. Make cash transfer from customers of their principal FI and other banks.
5. Make bill payments and purchase airtime on behalf customers of their principal FI and other banks.
6. Act as correspondence and pick up point for customers of their principal FI.
There are existing bank customers in remote areas who already use banking services and those that are yet to use any form of formal banking services (unbanked). The agency banking strategy is meant to bring banking close to them through the use of agents to provide branchless bank services in their neighborhood thereby reducing travel time and expenses
The agents are under the direct supervision of the FIs that appoints them. The FIs has the power to set limits on their transactions, approve all allowable charges for them and also delist them when they are seen to be involved in illicit activities. The banks are also obliged to deploy appropriate technologies for the agent use.
Other role of the Financial Institutions includes:
1. Ensure that agent location is viable and profitable.
2. Provision of adequate Liquidity and Security Risk Management.
3. Adequate branding and awareness creation to ensure the agent success.
4. Provide effective planning and communication.
5. Provide life and property insurance for Agent.
6. Develop innovative products that will drive the adoption and sustainability of agency banking.
7. Provide competitive pricing mechanism.
Information Required by Financial Institutions for Agent Structure:
1. Name of Agent
2. Location of activity
3. Terms of engagement with Financial Institutions. Itemizing activities the agent is currently engaged in and all proposed responsibilities.
4. Signed declaration by agent.
5. Banks are expected to carry out due diligent on prospective agent
1. Must have been in commercial activities for at least 12 months and must be a going concern.
2. The prospective agent must be a registered entity, public entity or a trust
3. A non profit making establishment cannot be engaged in agency banking
4. An organization subject to regulation under any law will need the approval of the regulatory authority to engage in agency banking.
5. 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.
6. The prospective agent is to provide appropriate infrastructure and human resources to provide the service required.
7. The prospective agent should not have any record of criminal activities.
Some banks are already adopting agency banking as a channel for conducting financial transactions to attract existing customers as well as acquire new customers in semi urban/rural areas where banking activities are not available. Other reasons banks are adopting Agent Banking strategy includes:
1. Reduction in the cost of ATM services to their customer. Remote on Us (RoU) ATM cost has been a major concern for most old generation banks especially one that pioneered ATM service in Nigeria. The bank spent over #4billion in 2014 in settling other banks on who’s ATMs their customers cards are used. The figure reduced to #3billion in 2015 as a result of CBN policies.
2. Support for CBN financial inclusion strategy
3. Substitute for loss making branches or low profitability locations or support for virgin and unbanked locations.
Bank targets for agency banking are businesses that physical cash handling is already part of their business, these type of business can easily accommodate Agent Banking within their existing space as no additional equipment is required. Some level of literacy is also expected from the would be Agent. Targeted businesses are, but not limited to:
2. Retails outlets
3. Distributors of mobile network operators products
4. Petrol filling stations that has a supermarket or sales room
5. Dealers in FMCG
6. Other high traffic business locations like markets and motor parks
Indications For Viability/Profitability Of An Agent – Questions
Where is the agent located? What is the physical address and structure? What is the demographic profile of the population within the area? What social & economic facilities do they have in the area? What is the spread of banking services within the area? How secure is the retail outlet? How long has the existing or potential agent been operational in that location?
What types of retail outlets operate in the area? What types of outlets provide best fit? What are the hours and days of operations? What kinds of transactions are conducted and how frequently? What is the daily total revenue of the retail outlet?
Size: How many employees? What is the role of each employee?.