Agency Banking (POS) and Financial Inclusion in Nigeria

TECHDIGEST – Agency Banking is an alternative distribution strategy in which traditional retail banking use authorized agents to expand the reach of the branch network. As it makes it possible to reach more people and more locations, the agency banking strategy promotes financial inclusion.

In other words, agency banking refers to a retail outlet contracted by a financial institution to process clients’ transactions.

The owner or employee of the retail outlet (banking agent) conducts the transaction that enables clients to deposit, withdraw, transfer funds, pay their bills, and inquire about an account balance.

To provide agency banking services, the banks need to have advanced agency banking that facilitates a seamless banking experience to the customer along with establishing smooth coordination among all the components of agency banking mentioned above.

Over the past few years, the agency banking industry in Nigeria has grown by leaps, driven by a group of fintech players – including OPay and Paga – that dominate the landscape as well as commercial banks. The latter boasts extensive agent networks for last-mile delivery of financial services, especially in areas where it makes little economic sense to set up bank branches.

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Between 2010 and 2018, a flurry of regulatory activities brought in new regulations for agent banking and opened it up to dozens of companies. But despite these changes, agent banking grew slowly.

In early 2019, Iniabasi Akpan, country manager at Chinese-backed OPay, one of Nigeria’s biggest agency banking companies by transaction value, shared that very few people in the financial sector believed in the model’s viability.

But today, agency banking is a leading branch of mobile payments in Nigeria.

The legal enabler of agency banking, the Central Bank of Nigeria (CBN), has developed guidelines to provide minimum standards and requirements for the operation of agent banking and agent banking relationships.

Similarly, Nigeria’s IT sector regulator, the National Information Technology Development Agency (NITDA) is focused on promoting blockchain technology to enhance transparency, increase security, and easier traceability of financial transactions.

READ ALSO: NCC warns against software that steals users’ banking app

NITDA, through its Strategic Roadmap and Action Plan (SRAP), remains committed to promoting emerging technologies towards building a thriving IT ecosystem that can further open new opportunities across all sectors of the digital economy.

Today, at least 80 percent of Nigerian agent outlets double as retail stores and informal traders with a point-of-sale (POS) device in their possession.

Agency banking is a very cost-effective way for banks and financial institutions to extend their services in the areas that have lower penetration of banks especially, in rural areas.

With agency banking, financial institutions don’t need to set up a physical branch, thus reducing operational, infrastructure, maintenance, and other high-capital investment costs.

Through agency banking, the banks can kill two birds with one stone.

First, they can save the cost required to set up a new physical branch as maintaining a physical branch on average is 25 percent costlier than managing the network of agents.

Second, they can increase their profitability by driving business within the previously untapped areas.

With the help of banking agents, the banks and financial institutions can finally offer their services to a large section of unbanked and untapped customers. This huge surge in the number of customers increases the profits of banks in many folds.

Furthermore, with agency banking, the banks can have a large number of agents under them which can, in turn, bring more customers to the bank. Also, Banking agents are usually familiar with the clients as they have good relations with them because they are placed at open spaces or residential locations.

Agents are aware of their repayment capacity, financial stability, and many other factors that help banks to make decisions on loan lending. With such key insights, the banks can maintain their asset quality.

This innovative banking system provides users with an enhanced customer experience. Branchless banking has brought banks to the doorsteps of users.

Now, instead of traveling and waiting at the bank branch for hours, the clients can simply visit their agents who are located in their vicinity.

Users can perform various banking operations through their agents such as withdrawing/depositing funds, paying bills, loan payments, and many more without any formal ID or biometric.

Agency banking offers an easy platform for the users as it delivers various banking solutions for the unbanked populations with the use of phones, card readers, POS terminals, and many other cutting-edge technologies for processing real-time transactions.