According to a report by the World Bank, around 1.7 billion adults in the world remain unbanked as they don’t have a bank account.
Back in 2014, this number was 2 billion.
To fight this grim reality the governments of many countries have started to aggressively focus on financial inclusion.
Agency banking is a type of branchless banking that allows the traditional banks to extend their network of branches and services in a cost-efficient manner through authorized agents.
Agency banking is gaining popularity due to various reasons like product availability, risk management, improvement in financial inclusion, and many more.
What is agency banking?
Agency banking is a type of branchless banking that allows the traditional banks to extend their network of branches and services in a cost-efficient manner through authorized agents.
Agency banking is gaining popularity due to various reasons like product availability, risk management, improvement in financial inclusion, and many more.
Read Also: Fund Your Payalat Wallet With Bank Transfer
Components of agency banking
To understand the working of the agency banking, it’s important to first understand the participants of the agency bank ecosystem. Here we’ll discuss each participant one by one.
Agent banking service provider
Agent banking service providers are responsible for managing various banking agents. They are also responsible for operating service, marketing, cash handling, branding, and many more.
Banks/Financial institutions
Banks and financial institutions are the hosts that comprise both consumer and agent accounts. These are entities through which the actual cash flow takes place.
Banking agents
These are the retailers that are authorized to perform various banking services on behalf of the banks and financial institutions.
They are responsible for banking services such as:
- Cash-in
- Cash-out
- Balance inquiry
- Generate mini statements
- Collection of document
- Microloans
- Airtime purchase
- Bill payments
- P2P transfer
Super/sub-agents
Banking agents can also form other agents under them and get an additional commission for every transaction that they make.
Mobile operators
Mobile operators offer their network to facilitate mobile transactions, USSD connectivity, SMS, bill payments, and many other processes that take place over the mobile phone.
Consumers
Consumers are the ones who are the end-users of agency banking.
These are generally those people who don’t have a bank account but have access to mobile phones.
Now that we have seen all the participants, let’s have a look at how it works.
How to start an agent banking business
To set up agent banking services, the prospective agent must first have an existing business that is up and running. Then you decide on the bank to partner with.
The regulatory framework for agent banking in Nigeria allows an entity to be an agent for as many banks as the entity can comfortably serve.
Having decided on the bank to work with, you approach the bank and get details of their requirements for the appointment of banking agents.
The bank assesses the applicant based on its internal criteria as well as the general guidelines set up by the regulatory authority; in this case the CBN.
The Bank then applies to the CBN for approval. Individual agents are not permitted to apply directly to CBN for approval.
The bank will usually submit a list of its proposed agents for consideration and on approval by the CBN, enter into an agency agreement with the respective agents.
The Bank thereafter supplies the agent with the needed equipment for the operation of the agency banking relationship.
This will include POS terminals, relevant software where necessary, other gadgets, and other things the agent will need to carry out his duties.
The agent opens a bank account for the purpose of the agency relationship, buys floats from the bank, and start rendering light banking services to the bank’s customers using its own premises and human resources.
There are three levels of agency relationships that exist in agent banking, namely: super agent, sole agent, and sub-agent.
The super-agent is an agent who is allowed to have other agents (sub-agents) in a network.
The super-agent can also be independently licensed by the Central Bank of Nigeria to conduct certain banking services within the limits of the prescribed regulatory framework.
To be licensed as a super agent, the operator is required to have a minimum capital of N50 million and a minimum of 50 sub-agents in its network.
The company is required to obtain a letter of reference from a financial institution.
MTN Nigeria, through a subsidiary company, Yellow Digital Financial Services, recently obtained a super agent license to offer super-agent banking services.
With her MOMO agent network program, MTN hopes to register 500,000 agents spread across the 36 states of the federation and the FCT rendering money transfer and bill payment services.
There have been other super agents operating before MTN MOMO entered the scene.
Sub-Agents work under a super agent.
A sole agent, on the other hand, is one who has a direct agency relationship with a chosen bank but does not have the power to recruit sub-agents.
In discharging his responsibility, the agent bank must adhere to important banking guidelines such as the anti-money laundering laws and the Know Your Customer KYC rules.
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