While agent banking has provided financial access to millions of people in Africa and Asia, many financial institutions are still yet to harness the power of agency to provide their customers with better financial access.
A World Bank report reveals that nearly 1.7 billion adults do not have access to a bank account. In 2014, this number was 2 billion. Several governments have begun to aggressively address financial inclusion as a means of combating this grim reality. Despite that, it’s also important to be aware that not all people find it easy to access banking services. About 59% of unbanked adults cite the lack of affordable banking services as their main reason for not opening an account.
The banking industry is undergoing a paradigm shift thanks to FinTech. The combination of smartphones and internet access has proved beneficial for the financial industry, especially for banking, as this has enabled banks to offer their services to anyone, regardless of their location.
What Is Agency Banking?
The concept of agency banking is a branchless banking system that allows banks to expand their branches and services through agents in a cost-effective manner. Various factors like product availability, risk management, financial inclusion improvements, and others have made agency banking popular.
Components Of Agency Banking
It’s crucial to first understand the participants in the agency bank ecosystem to understand its workings.
- Agent banking service provider – Their responsibility is to manage various banking agents. Their responsibilities extend to marketing, cash handling, branding, operating service, and more.
- Banks/Financial institutions – These are the hosts that accommodate both consumer and agent accounts. In other words, these are entities through which actual cash is moved.
- Banking agents – These are retailers who are authorized to perform various banking services on behalf of banks and financial institutions.
- Mobile operators – They offer the use of their networks for mobile transactions, USSD connectivity, SMS, bill payments, and many other services that occur through mobile phones.
- Consumers – These are the end-users of agency banking. Usually, these are people who don’t have bank accounts but have access to mobile phones.
Why Should Banks Consider Agency Banking?
- Reduce costs – It is a very cost-effective way for banks and financial institutions to expand their services in areas where banks are less prevalent. With agency banking, there is no need to establish a physical branch, reducing operational, infrastructure, maintenance, and other high-capital investment costs.
- Increasing customer base – Banking agents enable financial institutions to offer their services to a large section of unbanked and untapped customers. As a result, banks have seen their profits increase by many folds.
- Asset quality maintenance – Since they are familiar with their clients, banking agents usually have better relationships with them. They have a clear understanding of their repayment capability, financial stability, and other factors that may influence lending decisions.
- Build trust and awareness – Banking agents give formal banking a human touch. It is comforting for users to interact with someone they know. It’s precisely for that reason that users trust agents over formal branches.
The agency banking model enables banks, retailers, and consumers to work together seamlessly. Banks are now able to expand their services to remote areas that they had previously been unable to reach. It also benefits banking agents since they can earn additional income, as well as increase their sales with the additional walk-ins, and unbanked customers gain access to financial institutions located near them.