Agent Banking: Up-Scaling Outreach For Increased Profitability And Impact

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Agent Banking Up-Scaling Outreach For Increased
Profitability And Impact Presented by DIPO
FATOKUN Director, Banking and Payments System
Department Central Bank of Nigeria, Abuja at the
D-8 Workshop on Microfinance for SMEs 7th
Annual Micro, SMEs Finance Conference, held at
Transcorp Hilton, Abuja
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Outline

• Introduction
• Definitions of Agent Banking
• Principle and Logic for Agent Banking
• Countries experiences on Agent Banking
• Highlights of Nigerias Agent Banking Guidelines
• What Agent Banking Means to the various
  Stakeholders
• Permissible Activities to be carried out by the
  Agents
• Prohibited Activities of Agents
• Benefits of Agent Banking
• Challenges of Agent Banking in Nigeria
• Conclusion

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Introduction

• In the last decade, there has been an explosion
  of different forms of remote access financial
  services that is beyond banks branches. These
  have been provided through a variety of different
  channels, including mobile phones, Automatic
  Teller Machines (ATMs), Point-of-Sale (POS)
  devices and agent banking.
• In many countries, these branchless channels have
  made an important contribution to enhancing
  financial inclusion by reaching people that
  traditional branch-based structures would have
  been unable to reach.
• Studies conducted by Enhancing Financial
  Innovation and Access (EFInA), 2012, showed that
  34.9m adults in Nigeria are financially excluded.
• One of the factors that is responsible for this
  is the distance from financial services centers
  which is a direct result of the high cost of
  establishing brick and mortar branches, and
  staffing such branches. This when juxtaposed with
  low volume of business and low interest rates
  creates serious disincentive to serving remotely
  located clients

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Introduction

• Agent Banking, especially in developing
  economies are rapidly evolving and making
  tremendous impact in the economies and lives of
  its citizenry
• Financial Institutions have successfully expanded
  their outreach by engaging local agents to offer
  their services, among which are cash in/cash
  out, electronic transfers, bill payments,
  pre-approved credit lines, accounts opening,
  international remittances, government and other
  micro credit payments and other banking
  transactions that may be permissible by the
  Financial Institution and CBN
• Nigeria had begun the process as far back as 2007
  with the development of the Payments System
  Vision 2020 document, which has charted the
  course for the recent developments in the
  payments system

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Definition of Agent Banking

• What is Agent banking ?
• Agent banking (or Branchless banking) is the
  provision of financial/banking services by an
  authorized third party on behalf of the Principal
  (Financial Institution), to customers through a
  single business unit or distributed networks of
  retail or postal outlets. Banking agents can be
  pharmacies, supermarkets, post offices, kiosks,
  etc. The best suited are however, businesses that
  have built good customer relations and gathered
  experience in handling cash floats.
• Agent banking is also known as correspondent
  banking, this is a model for delivering financial
  services whereby a bank partners with a retail
  agent (or correspondent) in order to extend
  financial services in locations for which bank
  branches would be uneconomical. Agents can be
  both banking (small banks) and non-banking
  correspondents (post offices, gas stations, and
  retail shops). Agent banking is a delivery
  channel that holds high potential for closing the
  location gap.

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Principle and Logic for Agent Banking

• Despite being the most populous African nation,
  Nigeria is a mid-level player in the Sub-Saharan
  financial sector and lags behind some of its
  peers in Africa with respect to Financial
  Inclusion.
• In setting out the Financial Inclusion agenda,
  the Bank identified Agent Network for banking as
  one of the channels with great potential to
  overcome the distribution challenges and increase
  the use of financial services to the unbanked
  and the under-banked.
• To achieve this objective, the Bank issued the
  Guidelines on the Regulation of Agent Banking and
  Agent Banking Relationship in Nigeria in February
  2013.

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Principle and Logic for Agent Banking

• Leveraging mobile payments and agents' banking
  networks will allow Financial Institutions to
  focus on product innovation and diversification
• Microfinance agent banking could increase the
  linkage of rural cooperatives to microfinance
  banks as was done in various other countries.

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Countries Experiences on Agent Banking

• Agent banking is quickly becoming recognized as a
  viable strategy in many countries for extending
  formal financial services into poor and rural
  areas.
• In recent years, agent banking has been adopted
  and implemented with varying degrees of success
  by a number of developing countries, particularly
  in Latin America.
• Brazil is often recognized as a global pioneer in
  this area since it was an early adopter of the
  model and over the years has developed a mature
  network of agent banks covering more than 99 of
  the countrys municipalities.
• Other countries in Latin America have followed
  suit, including Mexico (2009), Peru (2005),
  Colombia (2006) and Brazil (2000)

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COUNTRIES EXPERIENCES ON AGENT BANKING

• In Malaysia, agent banking initiative has already
  produced promising results. Three financial
  institutions, namely Malayan Banking Berhad, RHB
  Bank Berhad and Bank Simpanan Nasional have a
  combined agent network of 4,120 agents as at
  end-December 2012, which includes post offices,
  petrol stations, retail outlets and
  telecommunication agents. Compared with branches,
  financial institutions reported that agent
  banking channels delivered cost savings in terms
  of set-up costs of more than 80, while agents
  have also benefitted from the increased customer
  flow to their business premises.

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Countries Experiences on Agent Banking

• In Kenya, agent banking is continuously improving
  and growing, and as it grows, the level of
  financial inclusion is also growing
  proportionately.
• Other countries around the world have also
  utilized the agent banking model to expand
  financial services, including Pakistan,
  Philippines, Venezuela, South Africa, Uganda,
  India, etc.

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Countries Experiences on Agent Banking

Country Year Agent banking was launched Year Regulation was introduced No of Agents currently functioning
Brazil 2000 2000 151,958
Colombia 2007 2006 9,843
Mexico 2010 2009 9,303
Kenya 2010 2010 8,809
Peru 2008 2005 6,028
Nigeria 2013 2013 gt4,000???
Source Central Bank of Brazil, MIDAS, SBS, CNBV,
2010
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Countries Experiences on Agent Banking

• Studies have shown that increasing the area
  covered by agents within the country has had the
  effects of increasing the reach of the financial
  services to the people, thus raising the levels
  of financial inclusion.

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Highlights of the Nigerias Agent Banking
Guidelines

• The Guidelines for the Regulation of Agent
  Banking and Agent Banking relationships in
  Nigeria outlines the minimum expectations to be
  observed by FIs that intend to undertake agent
  banking. Broadly, the Guidelines aim to
  facilitate the implementation of agent banking in
  un-served/under-served areas, in a reliable, safe
  and sustainable manner whilst safeguarding
  consumer interest and confidentiality.
• The Guidelines operate on the premise that
  Financial Institutions (FIs) retain the ultimate
  responsibility and accountability of all agents
  banking activities

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Highlights of the Nigerias Agent Banking
Guidelines

• Other aspects of the document include
• Application and Approval Requirements
  Documentary requirements, Agent Structure,
  Information requirements for agent structure,
  Renewal of engagement and Monitoring of Agent
  Banking relationships (Further clarification
  issued to remove the need for approvals)
• Minimum Requirements of Agent Banking Contract
  Amongst other things it states the FIs full
  liability with respect to customers, obligation
  of the FI and the agent, services the agent can
  conduct on the principals behalf, fees charges
  to be stated in the contract, etc
• Establishment of agent Banking relationship
  Agent eligibility
• Assessment of Agents Suitability assessment of
  an agent, Moral and professional suitability of a
  prospective agent, Agent due diligence
• Key Roles Responsibilities of the Financial
  Institution Management of agent banking
  business, Permissible activities, Prohibited
  activities, Operational and Transactional Limits

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Highlights of the Nigerias Agent Banking
Guidelines

• Rules on exclusivity of agents No exclusivity of
  agent banking contracts between the FIs and
  agents
• Supervision of agents FIs shall put in place
  prudential and operational risk measures for
  monitoring the activities of agents
• Settlement of transactions and the technology
  requirement Real time transactions, Minimum IT
  requirements for the operation of agent banking,
  Data and Network Security Requirements
• Money Laundering Put in place customer due
  diligence (daily and transaction limits, minimum
  IT security requirements, authentication of each
  customers transaction), Anti-Money Laundering
  and Combating the Financing of Terrorism
  (AML/CFT) requirements,
• Consumer protection measures Ensure appropriate
  consumer protection systems against risks of
  fraud, loss of privacy and loss of service

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What Agent Banking means for key stakeholders

• Banking agents help financial institutions to
  divert existing customers from crowded branches,
  providing a complementary and more convenient
  channel.
• Financial institutions, can utilize agents to
  reach an additional customer segment or
  geography. Reaching poor customer in rural areas
  is often prohibitively expensive for financial
  institutions, since transaction numbers and
  volumes do not cover the cost of a branch.
• In such environments banking agents that take
  advantage of an existing retail infrastructure
  and lower set up and running cost, can play a
  vital role in offering many low-income people
  their first-time access to a range of financial
  services. Also, low-income customers often feel
  more comfortable banking in their immediate
  environment than walking into a FIs branch

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Permissible Activities of agents

• Cash deposit and withdrawal.
• Bills payment (utilities, taxes, tenement rates,
  subscription etc.).
• Payment of salaries.
• Funds transfer services (local money value
  transfer).
• Balance enquiry.
• Generation and issuance of mini statement.
• Collection and submission of account opening and
  other related documentation.
• Agent mobile payments/banking services
• Cash disbursement and cash repayment of loans.
• Cash payment of retirement benefits.
• Cheque book request and collection
• Collection of bank mail/correspondence for
  customers.
• Any other activity as the CBN may from time to
  time prescribe.
• It shall be the responsibility of the FI to
  determine, based on agent risk assessment, which
  services a particular agent may provide.

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PROHIBITED ACTIVITIES BY AGENTS

• An agent shall not
• i. Operate or carry out any transaction when
  there is communication failure with the FI.
• ii. Carry out a transaction where a receipt or
  acknowledgement cannot be generated.
• iii. Charge the customer any fee.
• iv. Give any guarantee.
• v. Offer banking services on its own accord.

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PROHIBITED ACTIVITIES OF AGENTS

• VI. Continue with the agency business when it
  has a proven criminal record involving
• fraud, dishonesty, integrity or any other
  financial impropriety.
• vii. Provide, render or hold itself out to be
  providing or rendering any banking service which
• is not specifically permitted in the contract.
• viii. Open accounts, grant loans or carry out any
  appraisal function for purposes of opening
• an account or granting of a loan or any other
  facility except as may be permitted by any
• other written law to which the agent is subject.
• ix. Undertake cheque deposit and encashment of
  cheques.
• x. Transact in foreign currency.
• xi. Provide cash advances.
• xii. Be run or managed by an FIs employee or its
  associate.
• xiii. Sub-contract another entity to carry out
  agent banking on its behalf except where there
• is a super-agent structure in place.
• xiv. FI may in the contract document specify
  other activities, which the agent is prohibited
• from undertaking.

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Benefits of Agent Banking to Stakeholders

• Benefits to a customer
• Cheapest means of accessing financial services
  with lower transaction cost
• Service closer to his immediate environment
• Longer opening hours
• Shorter lines than in branches
• More accessible for less educated, the very poor
  and less privileged who might feel intimidated in
  traditional bank branches
• Benefits of greater economic development to
  isolated communities
• Benefits to the Agent/ Agent Network Provider
• Increased sales from additional foot-traffic
• Differentiation from other businesses the agent
  might normally operate
• Reputation from affiliation with well-known
  financial institution
• Additional revenue from commissions and incentives

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Benefits of Agent Banking to Stakeholders

• Benefits to the Financial Institution
• Increased customer base and market share
• Increased coverage with low-cost solution in
  areas with potentially less number and volume of
  transactions
• Increased revenue from additional investment,
  interest, and fee income, Improved indirect
  branch productivity by reducing congestion
• Benefits to Mobile Money Operators(MMO)
• Provides standards and guides for engaging Agent
  Network providers for the provision of mobile
  money offerings
• Non-exclusivity of agent network provides a
  shared platform for customer take-up
• Provides more geographic spread for the scheme

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Benefits of Agent Banking to Stakeholders

• Benefits to the Government
• Facilitates financial inclusion
• Provides a tool for government to utilize for
  government to person and person to government
  payments (disbursements, microcredits/repayments,
  subsidies, tax/levies etc.)
• Facilitation of domestic remittances
• Opportunities
• For the private sector and individuals to invest
  in and drive uptake for agent banking by signing
  up as agents with the expectation of generating
  revenues from transaction charges and other
  benefits that the Financial Institution will
  provide
• For Innovations As has been with other similar
  jurisdictions, mHealth, mAgriculture,
  micro-insurance, micro-savings, will arise and
  these will have a positive impact on the economy.
  These innovations provide opportunities for
  businesses to customize their products offerings
  to suit the changing times

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Success Factors for Agent Banking

• The Key Success Factors For Agent Banking rest
  heavily with the agents at the customer frontline
• Credibility The agent has to be a trusted brand,
  or member of the community
• Proximity Agent networks have to be easily
  accessible by the customer
• Consistency Offer similar customer experience
  regardless of location
• Security As the main interface with the
  customer, agents have to ensure compliance not
  only with KYC as required by CBN regulator but
  with all fraud prevention processes.
  As such agents will be responsible to ensure that
  their counter staff have the appropriate
  levels of training
• Simplicity Agents are the main human interface
  it is their responsibility to explain the
  service, guide the user, and make the
  service simple and accessible
• Liquidity Customer experience is critical to the
  success of this ventureit is imperative that
  customers have immediate access to their cash.
  Agents will have to ensure minimum liquidity
  levels

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Success Factors for Agent Banking

• Financial Institutions (FIs) are no longer
  required to apply for an approval before
  deploying Agent Banking.
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• FIs are however required to submit returns on
  their Agent Banking activities as part of their
  statutory returns to the CBN.
• The stage has now been set for FIs to commence
  agent banking and agent banking relationships.

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Challenges

• With every new system, there are bound to be
  challenges. Some of the major obstacles are
  mentioned below. However, it is worthy to note
  that CBN with the other stakeholders are working
  towards surmounting the challenges
• Epileptic Power Supply
• Poor Telecommunication Connectivity
• Need for enhanced Customer Awareness, etc.
• WHAT ARE WE DOING?

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Conclusion

• Successful Agent Banking all over the world have
  demonstrated that an effective agent network is
  paramount to the success of financial inclusion.
• Despite the fact that its not a one-size fits
  all approach, agent network development and
  structures have certain critical aspects in
  common, not least of all is a clear and well
  understood selection recruitment process,
  consistent agent monitoring and practical
  liquidity management procedures.
• As we begin this journey, It is worth noting that
  the afore mentioned will be the drivers for the
  increase in agent activity in Nigeria. This will
  be followed by the growth in the number of
  agents, increased activity of agents, increase in
  average number of transactions per agent and the
  requisite growth in financial inclusion and
  profit margins for the agents and their principals

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Thank You
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