Agency Banking: Not Just About Banking the Unbanked

In 2001, Brazil's Branco Bradesco and Correios entered into a joint venture to create Banco Postal, which in the space of 5 years, converted nearly 5,500 postal outlets into banking agents offering full services.

In 2007, Safaricom launched the now legendary M-PESA mobile money transfer service in Kenya, which boasts of a number of other mobile financial services, such as Zap (renamed Airtel Money), Yu Cash, Iko Pesa and Pesa Pap, to name a few.

The use of banking agents to increase the number of touch points providing financial access as well as reduce transaction costs is a key element of Mexico's financial inclusion strategy. It's the same with Kenya, which amended its Banking Act three years ago to permit small retail outlets, petrol stations and pharmacies etc. to become banking agents.

These are just a smattering of examples of non-banking players, also called agents, engaged in the delivery of banking services.

The role of Agency Banking in improving financial outreach around the world is well documented. Less known is its contribution to the redefinition of financial inclusion, from "banking the unbanked" to "the convergence of various bank and non-bank players to provide financial services to all end consumers of financial services, unbanked or otherwise."

Earlier, banking agents added value to banks by improving their distribution and lowering their transaction costs. Today, they are an important element of banks' multi channel strategy, and hence need to be seamlessly integrated with all the other touch points.

But agency banking also brings challenges. Banks have to be extra careful about the agents they hire, and ensure that they uphold the required standards of delivery and conduct. In some countries, agency banking is under the scrutiny of regulators, who are concerned about the exclusive partnerships between banks and agents creating a virtual monopoly in the market. Also, since regulations governing agency banking differ from country to country, it is not always possible for banks to deliver all basic banking functions through their agents.

The good news is that technology is giving agency banking some serious momentum. Banks are encouraging agents to jump on to the mobility devices bandwagon, so that they can improve reach and efficiency, while controlling costs. They are also integrating agents - who have operated in silos so far - with their other touch points, so that a transaction initiated by an agent can be fulfilled at a branch or on another banking channel.