Alexander Okafor works with Financial Inclusion Services an arm of Firstbank Ltd.

What is an Agent Banking?

Agent banking is a means of providing certain financial services to customers through the use of agents who usually are not banks but are appointed by financial institutions to carry out that business on their behalf. The underlying reason is to provide financial services to as many people as possible. Agent banking is one of the strategic tools being utilized by the Federal government through the Central Bank of Nigeria (CBN) to reduce financial exclusion. This strategy has proven to be effective as more people from remote areas who previously cannot access financial services or travel long distances are being served in their communities local today.

The Advent of Agent Banking.

In 2013 the CBN released Guidelines for Agent Banking and Agent Banking Relationships, this regulation officially marked the beginning of Agent banking business in Nigeria. Before now a lot of merchants with Point Of Sale (POS) Terminals were observed to engage in illegal banking business like funds transfer and cash withdrawal. Most Banks then did not see the opportunities it presented to quickly scale their reach. Hence, between 2013 and 2017 the growth of the Agent Network was very slow. However, in 2018 a leading bank took the plunge and deployed resources to the building of Agent Banking business. This gamble paid off by the end of 2019 there was already over 40,000 Agent locations spread across the 774 Local Government Areas in Nigeria. With over 80% active rate.

Current Update

Most of the banks in Nigeria has woken up to the potential of the Agent banking business and committing huge resources to growing their agent network base either by poaching the existing Agents or citing an entirely new Agent beside the existing Agents. However, one thing remains outstanding, the trust so far received and the trepidation of not having available support from the new entrants.

The gains of Agent Banking both to the Financial Institution and the Agent

It is no longer news that agent locations are like a bank branch, they offer the basic financial services people require (Funds Transfer and Cash Withdrawal). A bank with 400 branches and 30,000 Agent locations, in essence has 30,400 locations. This creates an opportunity for;

·        Brand recognition

·        Increase speed of customer acquisition

·        Reduce the citing of traditional bank branch

·        Reduce overhead cost

·        Increased Non-Interest Income

·        Remain crucial to the Federal Government Financial Inclusion Strategy.

·        Provide indirect employment to the masses.

For the Agent.

·        Additional revenue stream

·        Opportunity for business growth and expansion

·        Good credit rating

·        Build trust in his/her host community

·        Provide employment.

The Agent Banking spread.

Currently, there are well over 100,000 Agent locations across the length and breadth of Nigeria and growing. The market is huge the opportunities are there to herness. Banks and other financial services providers-the Fintech’s are making serious in roads in this area. This year 2020 will see a lot of activities in the agent Banking space. Existing Agents are going to be poached (This is happening already), New Agent locations will spring up aggressively across the country.

By and large these will be the common differentiator;

·        The quality of service and support to Agents out there.

·        How are they served?

·        How quickly do are issues resolved?

·        Liquidity (how quickly can they refill their accounts)

 

Challenges | Risk

While the income for the Bank and the Agent is huge, there are some challenges being faced by both parties. Some of which are;

·        Lack of corporation within the banks in terms of issue resolution.

·        Network challenges leading to loss of business opportunities.

·        The frame work for a clear chargeback is yet to be defined and agreed by all.

·        Knowledge gap on the part of Agents. The need for continuous training.

·        Dubious customers defrauding Agents.

·        Agents being exposed to attacks by bandits and kidnappers.

·        Police harassments.

The future of brick and mortar

In the past, to grow revenue means that you must continue to open new branches. Sometimes you can choose to have multiple branches in a street just to ensure that you capture the market size. Sadly, this will not hold anymore. More and more banks are waking up to this sad realty considering the avalanche of self service available to customers. Those Banks who will remain relevant are the one who can quickly innovate and determine where the tide goes. Agent banking provides opportunity for Banks to grow their branch network in an exponential way as well as revenue while keeping down cost.

The more efficient Banks in 2020 will commit more resources to building Agent network than funding oppressional inefficiencies.