Building a Viable Network of Agents - Training Module 2011

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  • MAIN MESSAGE: This training is divided into 8 sections, including an Introduction, Conclusion, and 5 main sections on key aspects of building an agent network. The annex contains a short presentation summarizing the main messages in 12 slides.DETAIL:The introduction covers who CGAP is, the evidence base which CGAP developed to produce its Agent Network Management Toolkit, why agents are critical in branchless banking services, and defines some key termsSection 1 looks at the business case from the agent’s perspective. This includes an exercise comparing the business drivers for 3 agents from Brazil, India and Kenya.Section 2 looks at the role of agent network managers, with a case study of a Brazilian ANM’s journey towards profitability.Section 3 looks at options to generate adequate revenue to satisfy all partners in the supply chain, and an exercise where participants will discuss a hypothetical branchless banking service.Section 4 looks at structuring an agent network, with a case study showing how the supply chain has evolved for M-PESA in Kenya.Section 5 looks at lessons from Brazil, India and Kenya for managing agents, with an exercise comparing training approaches in these and other markets.The conclusion summarizes main messages.The annex contains a 12 slide mini-deck which provides you with an option to give a short presentation on the main messages in CGAP’s Toolkit.
  • CGAP is an independent policy and research center dedicated to advancing financial access for the world's poor. It is supported by over 30 development agencies and private foundations who share a common mission to alleviate poverty. Housed at the World Bank, CGAP provides market intelligence, promotes standards, develops innovative solutions and offers advisory services to governments, microfinance providers, donors, and investors. Learn more about CGAP at http://www.cgap.org/p/site/c/aboutus/. CGAP’s Technology Program (which is co-funded by the Bill & Melinda Gates Foundation and DFID) supports the development of branchless banking around the world. We do this in a variety of ways including advising private sector actors on business models. advising regulators, and creating new knowledge capital on practical challenges confronting the sector. Find out more about CGAP’s Technology Program at http://www.cgap.org/p/site/c/tech/.
  • This training is intended for service providers and their ANMs who are conceptualizing, designing, and growing an agent network. It may also be relevant for technology firms, regulators, and others in the branchless banking supply chain. This training is based on CGAP’s Agent Network Management Toolkit, which is available for download at http://www.cgap.org/p/site/c/template.rc/1.9.49831/. The Toolkit was published in Feb. 2011 and is based on fieldwork conducted in 2009 and 2010. All figures reported are current as of the time of field work.It is assumed that users are familiar with the basics of branchless banking. An overview of the topic can be found in McKay and Pickens (2010) http://www.cgap.org/p/site/c/template.rc/1.26.14381/.
  • MAIN MESSAGE:Branchless banking is the delivery of financial services outside conventional bank branches using retail agents and technology, for example, over card-based networks or with mobile phones.
  • MAIN MESSAGE: The provider is the company that manages customer accounts. In a bank-based service, each customer has an account in a financial institution. In a nonbank-based service, such as M-PESA in Kenya or G-Cash in the Philippines, customers have an account managed on a technology platform owned and operated by a nonbank (with funds typically held in a pooled account at one or more banks).
  • MAIN MESSAGE: An agent network manager – or ANM – is any business or individual which helps a provider identify, vet, train, monitor and manage agents. It may be an in-house team, or outsourced.DETAIL:The ANM may be a discrete unit or team inside of the provider and tasked, resourced and incentivized to manage the agent network, or it may be a separate entity, such as a company which specializes in identifying, training and monitoring agents, such as Top Image (pictured) which Safaricom hired to help manage its network of M-PESA agents. Other partners may be taken on – e.g. a bank partner which agrees to exchange cash and e-float for agents is also a ANM, albeit one taking on a single network management task.
  • MAIN MESSAGE: The agent is the person that operates the cash service point where the customer does cash-in and cash-out transactions. In most implementations, agents also register new customers for the service.
  • MAIN MESSAGE:Agents are increasingly used by all types of financial institutions to distribute financial services. DETAIL:More than 100 branchless banking operations are live worldwide (see http://www.cgap.org/p/site/c/template.rc/1.9.49977/). Nearly all rely on agents to radically reduce the cost of distribution (as compared to traditional bank branches).
  • MAIN MESSAGE: Agents play a critical role in acquiring new customers, enabling them to transact, and keeping them satisfied. Agents are part of but not the whole supply chain.DETAILS: • Agents verify the identity of customers, both when clients sign up and at subsequent transactions. This not only keeps the service in compliance with know-your-customer (KYC) standards set by regulators, but it also helps guard the entire system against fraud, which may help clients view the service as safe and trustworthy. • At its core, branchless banking is about having cash when and where customers want it. Agents must keep adequate stocks of both cash and electronic value (e-float) to enable clients to transact. If they cannot do so, customers may see the service as unreliable, and the provider’s reputation can be quickly tarnished. • Agents are also quite literally the face of the service—customers turn to agents to show them how to use the service, provide an opinion about whether the service is worth trying, and troubleshoot problems when they arise. Agents can help bridge the gap between a high-tech service and low-literacy clients.
  • MAIN MESSAGE: Building a viable network of branchless banking agents is a key component of any successful branchless banking service. Having many well-motivated supply chain partners goes a long way to mitigating compliance, continuity and concentration risk (typically top concerns of banks and mobile network operators providing the service). A well-functioning agent network is also critical to whether consumers will perceive the service as accessible, trustworthy, and effective. While getting distribution right is important, achieving the end objective of massive consumer uptake also requires investment into marketing and product.DETAIL:The branchless banking industry is in a state of creative chaos. The impressive growth of a few pioneer initiatives like Safaricom’s M-PESA service in Kenya has demonstrated the potential of branchless banking. However, the majority of branchless banking initiatives worldwide have had to retool or have yet to develop a business model that sustains all the companies involved. This training looks at the role of distribution – specifically building a viable network of agents – as a critical component of successful branchless banking services. To illustrate the role of the agent network, let us think about what an end game might look like, not tomorrow or 6 months from now, but several years from today.We would have massive uptake of the branchless banking service by consumers. It would be used by many clients – millions. And they would use it intensively, conducting multiple transactions per month. The strong response from consumers drives a massive flow of transactions across the system, which in turn enables the provider to generate adequate revenue to share with its partners.And there are many partners. Branchless banking differs markedly from services like microcredit, not only for the use of technology, but for its disaggregated business model. The typical microfinance institution (MFI) is able to handle nearly all facets of the business of microcredit with staff in-house, from loan origination to repayment to delinquency management. By contrast, branchless banking can rarely be delivered by one firm working alone. At a minimum, they require a partnership with retail locations acting as agents to sign up clients, handle cash transactions and act as the face of the service to clients. Often, at least one third party will also act as an agent network manager (ANM), acquiring and managing agents for the provider. The role of the ANM could even be divided among several firms, each specializing in training, monitoring, liquidity management or other tasks. Tasks may also be split regionally between different firms. In short, many firms may participate in a branchless banking ecosystem. And all must be made satisfied with their remuneration. Massive consumer uptake makes it much easier to accomplish this, generating adequate revenue to share with partners from the ANMs down to the last mile agents.When supply chain partners are highly motivated, it becomes much more likely that 2 kinds of risk can be adequately handled. Agents and ANMs will be more willing to comply with the range of standards necessary for the service to meet regulatory requirements (e.g. following KYC rules, consumer protection laws) and maintain service quality standards (e.g. display of marketing collateral, willingness to serve branchless banking customers in a timely fashion, etc.).This all helps mitigate continuity risk. Motivated agents and ANMs are much less likely to fall afoul of minimum “up time” standards (e.g. keeping adequate supply of cash and e-float so that clients can withdraw and deposit funds, opening hours, etc.). They are also less likely to quit the business altogether, presenting the provider with a geographic gap in their service network.With a positive business case presented to ANMs and agents, providers could expect to have the option to work with many agents and ANMs, thereby splitting the business across multiple partners, even in the same geography. This further helps with continuity: if one or more agents of ANMs were to quit, others are still working and accessible to consumers in the same locale. This also helps mitigate concentration risk, where a provider is too reliant on a single partner, or similarly an ANM becomes too reliant on sourcing agents from one or a few types of partners.Having many well-motivated supply chain partners makes it comparatively easy to achieve nationwide presence, increasing the pool of consumers who have access to the service, in turn further boosting consumer uptake in a virtuous cycle. We would be remiss if we left you with the impression that success in branchless banking is primarily a task of channel engineering. Accessibility is, of course, critical. But so is awareness, driven by a sufficiently large marketing budget. And not least, what precisely is the product offered over this channel? Is it something consumers really need and will pay for? Answering these questions is out of the scope of CGAP’s Agent Management Toolkit (though we do touch on them in Chapter 3, as well as in other CGAP publications and the CGAP Technology Program blog). But we want to make the point that building a successful branchless banking service is a multi-faceted challenge, of which one is getting distribution right.
  • MAIN MESSAGE: The CGAP Toolkit is based on more than a year of research in 3 countries where branchless banking has taken off in a large way (Brazil, Kenya) or is poised to do so (India). CGAP conducted in-depth interviews with 466 agents and analyzed data on 16,000 more. CGAP also held discussions with more than two dozen agent network managers (ANMs) and providers.
  • MAIN MESSAGE: The Toolkit focuses on the experience of five successful branchless banking services in 3 countries (Brazil, India, Kenya). Between them, these 5 providers have more than 75,000 agents and nearly 60 million registered users. They use a mix of technologies, including mobile, card and even barcode scanners.DETAIL:Banco do Brasil/Telecom Service (Brazil). Banco do Brasil is the largest public bank in Brazil. It has 15,300 agents. CGAP’s data on Banco do Brasil agents come primarily from one of Banco do Brasil’s ANMs, Telecom Service. Telecom Service, in operation since 2004, manages a network of over 1,000 agents, typically small family-owned stores. The agents primarily offer bill payments to customers on a walk-in basis, using a barcode scanner. The agents also perform a limited number of transactions linked to bank accounts as well as some government-to-person payments, such as social welfare payments to poor families and pensions to retired government workers. These transactions are processed via magnetric strip cards and point-of-sale (POS) terminals.Bradesco/Banco Postal (Brazil). Bradesco is Brazil’s second largest private bank and has 24,200 agents. In 2001, Bradesco submitted the winning bid to offer banking services inside post offices throughout the country. Today, there are 6,038 Banco Postal outlets located within post offices (correios). These outlets perform a much wider variety of services than most agents in Brazil, including high levels of account opening, deposits, withdrawals, and loans. Banking transactions account for more than 90 percent of all transactions in rural post offices.EKO (India). EKO is a start-up that began as a third-party platform provider in 2008 linking the State Bank of India (SBI)—provider of the Mini Savings Account—and Airtel (largest MNO in India and provider of the distribution channel/agents). The relationship with Airtel has since changed, and EKO has now completely revamped its strategy. It is driving the entire business, including building and managing the agent network, providing technology, and marketing to clients. EKO offers clients an interest-bearing bank account (at SBI) and a money transfer product, both accessible via the customer’s mobile phone. EKO has 500 agents (primarily small merchant shops) located in the capital city of Delhi and the State of Bihar. As a start-up, EKO does not have money to invest in above-the-line advertising and relies heavily on agents to sell the service.FINO (India). Like EKO, FINO also has its roots as a technology platform provider but currently has a much broader role, including agent management. FINO has more than 10,000 agents and operates in 25 states with 14 bank partners, with 21 million registered users at the time of field research. CGAP’s research was conducted in Karnataka State. Here, FINO offers its (primarily rural) customers an SBI no-frills account (a basic saving account). Customers receive a card and are identified through biometric technology (fingerprints) via the agent’s handheld point-of-sale (POS) devices. This is the only model we seen where agents are mobile and offer a doorstep banking service to clients. FINO staff deliver and pick up cash, relieving agents of the time and expense associated with liquidity management.M-PESA (Kenya). M-PESA is the iconic mobile banking service that led to copycat businesses around the globe. Launched in March 2007 by Safaricom (an MNO), M-PESA offers clients a mobile wallet with the functionality to transfer money and pay bills. Customers can also use M-PESA to transfer money in and out of accounts at 14 banks. M-PESA at the time of field research had more than 21,000 agents managed by several hundred ANMs and 13 million registered customers (more than half the adult population of Kenya).Other providers referred to in the Toolkit include CaixaEconomica (Brazil), GCash (Philippines), Smart Money (Philippines), Tameer/Telenor (Pakistan), and WING Money (Cambodia). Two overall observations:We did not focus on the ultimate providers but rather on the entity that is most closely working on the agent management function. We were really focused on this mid-level that directly works with agents.In our examples, two – M-PESA and EKO – use mobile phone based systems. Three – Banco do Brasil, Bradesco, FINO – use POS devices.
  • MAIN MESSAGE: CGAP synthesized results from this analysis in an Agent Management Toolkit, released in February 2011. The Table of Contents shows the broad range of topics covered. The Toolkit is divided into two parts. Part One looks in-depth at the economics of the supply chain, including the business case drivers for each party from the last mile agent to ANMs to providers themselves. DETAIL:We have reverse-engineered the financials of M-PESA for mid-2010 with a relatively high degree of accuracy. We use these in Chapter 3 to show how one successful branchless banking service generates revenue and distributes it across the supply chain.
  • MAIN MESSAGE: Part Two of the Toolkit focuses on managing the operational challenges of structuring an agent network at the outset and then managing its growth. Also take note of the annexes which contain a number of useful documents. This training covers all the material contained in the Toolkit, though in a slightly different sequence. The toolkit is available online for download without charge. DETAIL:Also take note of the Annexes, which are not covered in this training but which contain documents which you may find useful. Among them:Further analysis of the M-PESA financials and a guide to adapting the financial model to your own ends. The financial model is available for download at no cost from the CGAP website at http://www.cgap.org/p/site/c/template.rc/1.9.49775/ 2 questionnaires to help you analyze (a) prospective agents, in order to maximize the fit between your requirements and agent expectations, and (b) existing agents, in order to measure their satisfaction with your current service and identify areas for improvementSample documents from the 5 branchless banking services analyzed in the Toolkit, including examples of contracts, job descriptions, commissions sheets, agent selection and monitoring tools, etc.
  • MAIN MESSAGE:One of the main findings from CGAP’s fieldwork was how diverse agents are, and correspondingly the business case which makes being an agent attractive. This session of the training presents a mental framework for understanding the drivers of the business case from the agent’s perspective.DETAIL:Here we show you three agents, each of which is happy with their situation, but who are asked to do very different things, take on different costs and risks, and are paid differently:Hasita is a librarian at a rural school in India. She is an agent with a company called FINO, which is partnered with the State Bank of India. FINO has consciously tried to de-cost and de-risk the business for prospective agents. FINO puts up the capital to prefund the agent account, have their staff deliver and pick up excess cash rather than asking the agent to travel, and provide the transaction device (a POS terminal) without charge. Hasita is able to conduct transactions in the library, and also travels to customers’ homes to provide doorstep delivery, so she does not need to rent space or hire staff. She conducts an average of 34 transactions/day, earning a net profit of US$ 0.91/day, which may not sound large, but is satisfactory to Hasita. She views it as welcome additional income on top of her main job as a librarian, and in rural India a dollar is not insignificant.Joao owns a pharmacy (chemist) in a small town in the arid northeast of Brazil. He is an agent for Banco do Brasil, one of the largest public sector banks in Brazil. His store is equipped with a barcode reader and POS, enabling him to handle bill payments as well as deposits and withdrawals for Banco do Brasil customers. The transactions he does per day can be handled over his existing counter by his existing staff. However, he does need to use his own auto to drive to and from the bank (80 km round trip) to deposit cash. Although he does about the same number of transactions per day as Hasita, he receives higher pay than she, for 3 reasons: (1) as a storeowner, he probably needs to receive more to retain his attention, (2) he has the cost of driving to/from the bank, and (3) Brazil is a middle income country where prevailing wages are higher.Cynthia is a true entrepreneur. She operates 2 storefronts in the busy central business district of Nairobi. They specialize in M-PESA transactions. Although they sell some airtime, 90% of revenue comes from being an M-PESA agent. In each location she has 2 staffmembers sitting behind windows styled like bank tellers. As a result, she has staff and space costs which must be paid out of her agent revenues. Because of her prime location, she does many transactions/day in each location (152), earning her USD 8.53/day/location in profit.
  • MAIN MESSAGE: We think a useful way to frame this is as a risk-return curve, set by the remuneration received and direct costs of being an agent. On one side of the curve (left side) the costs involved are too high for the remuneration received, and prospective agents will not agree to be an agent or will quit. On the other side (right), the remuneration is adequate compared to the costs and agents will participate. DETAIL:Some of the direct costs involved for agents could be cost of capital, staff and space expenses, and the cost of liquidity management. As an agent transacts, they generally either take in more cash, or more e-float, and arrive at a point where they must rebalance. By liquidity management, we mean the cost to an agent to be able to do this rebalancing, which involves converting cash-on-hand into e-float or vice versa.
  • MAIN MESSAGE:Acting as an agent can be a very capital-intensive business. There are two dimensions to capital in the agents’ business case. The first is accumulating an adequately large amount, which itself has two components: access, and cost of capital. There are a range of options by which providers can help agents with the capital required to start the business.DETAIL:At its heart, branchless banking is a business of having cash when and where customers want it. To fulfill this, agents much be liquid, holding appropriate amounts of cash-on-hand and e-float to be able to facilitate withdrawals and deposits on-demand. A first order issue is whether agents will have enough capital for this purpose. We can further decompose this into 2 issues.First, can an agent access the amount required. In successful branchless banking services the total cash and e-float required to service customer demand can be quite large. In Kenya, the smaller shops CGAP interviewed typically hold USD 1200 in combined cash and e-float. This is 1.5x the GDP per capita of Kenya, and 10x the amount which the same merchants were holding in airtime scratch cards (USD 129). Some agents will be able to draw down inventory or redirect revenue from another business. But many agents will not have the funds themselves. Will they know anyone who is able to provide them with a large sum of capital?Second, most agents which do not have the funds from their own sources will borrow. Doing so of course has a cost. To illustrate this, we look at Hasita from India. This is an illustrative example, as FINO actually provides the capital to her in her case. But what if Hasita needed to borrow to raise the minimum capital required (USD 107), and did so by taking a MFI loan at typical MFI interest rates? The annual financing costs would equal 84 days of profit from the agent business, or about ¼ of total profits (assuming she works 6 days per week). Some very entrepreneurial people may be willing to take on being an agent on these terms, but many others may not like to take the risk, particularly if branchless banking is yet to be proven as a viable business opportunity. So, the amount of capital required, and the cost of accumulating it, can dissuade potential agents. What can providers do to deal with this.Some providers just require the agent to find the capital on their own. In successful services, we’ve seen that many agents will do so. But will they in the early days of a service before it is proven to be a success? If agents are required to put up all the capital, it is imperative to calibrate remuneration to take this into account.ANMs might assist agents, as in Afghanistan, where ANMs sometimes lend start-up capital to agents, in return for a percentage of their commissions. By making it a loan, the agent is responsible for funds if there is theft.Providers might also do the same. In Colombia, the bank AVV Villas provides a zero interest loan to its ANM, who then extends zero interest loans to agents. This arrangement has several features worth noting. By charging zero interest, the provider has de-risked some of the start-up costs from the agent’s point of view (though they are still liable for the principal). By making the loan through the ANM, the provider shares the risk of default.And finally, in some countries we have seen the provider take on responsibility for the cash themselves. They either do this because of regulatory reasons (e.g. in Brazil, monies received by an agent for a bill payment become due to the payee upon receipt, effectively making the money in the agent’s possession the bank’s liability) or because in the provider’s estimation even a loan would not be attractive to prospective agents (as in the case of FINO’s operations in rural Karnataka, where agents are generally low-income people themselves).
  • MAIN MESSAGE: The second element of capital is liquidity management. A fundamental feature of branchless banking is the need for agents to rebalance cash and e-float regularly. The cost of liquidity management is driven by the frequency of rebalancing trips and the cost per trip. Providers can help keep liquidity management costs to manageable levels by establishing a network of “agents to agents” who provide cash/e-float exchange on a convenient basis. Providers usually pay for this. DETAIL:As to frequency of rebalancing, in CGAP’s field research we found that most agents will do daily rebalancing in any moderately successful branchless banking service. There is generally an inverse relationship between the total capital the agent deploys into the business and the frequency of rebalancing – the more capital, the more transactions an agent can conduct before cash and e-float are severely imbalanced, triggering a trip to rebalance. Since accumulating large amounts of capital can be difficult and costly, most agents CGAP saw keep smaller capital amounts. The trade off is they must rebalance more frequently.As to cost per trip, a good rule of thumb is to think of this as directly proportional to the distance that must be traveled. But cost may include more than direct cost of transport to arrive at a rebalancing point. It may also include the agent’s time, and potentially lost sales if they must close their shop in order to travel.Here we present 3 examples of how providers have established “agents to agents”:In Cambodia, WING uses larger, better-established merchants to act as “master agents” to smaller, less well-resourced agents. In rural India, where large merchants and bank branches are not present, FINO pays a flat monthly fee to well-off villagers to be ready to make a large deposit in the event that FINO’s local agent required cash immediately to facilitate another customer’s withdrawal. In Kenya, Safaricom pays banks 1% of the value handled to have M-PESA agents able to come to bank branches and exchange e-float to cash (and vice versa).
  • MAIN MESSAGE: If the agent requires dedicated staff and space for the agency business, these fixed costs can greatly affect the break even point. Providers and their ANMs should advise agents on the timing of taking on new staff and space costs. In locations deemed to be very strategic, providers may consider different remuneration schemes (e.g. a fixed monthly stipend or minimum commission) which guarantee that the agent can adequately staff the location, keep extra hours, or provide an improved look and feel.DETAIL:Let’s compare two different agents (from Kenya). Vincent does 40 M-PESA transactions/day, which is a volume he can handle himself over his existing counter in his shop. As a result, he has no staff or space costs associated with the agent business. Cynthia – one of the agents we introduced at the beginning of this session – has storefronts which specialize in the M-PESA business and do many more transactions (152/location/day). In each locale she has 2 employees and pays rent. These staff and space costs are burdened directly upon the agency business for her and must be paid out of her agent revenues.When we compare them, Vincent and Cynthia actually have very similar profits/day/till – about US$4. But because he has no fixed staff and space costs, Vincent needs fewer transactions to break even. He begins making profits after the 10th transaction of the day. But Cynthia needs 87.
  • MAIN MESSAGE: While the position of the risk/return curve is initially set by direct costs and remuneration for being an agent, there are exogenous (outside) factors which also must be taken into account. These can present additional risks or costs (like robbery) or add benefits (such as increased foot traffic leading to higher sales of other goods and services). These exogenous effects make it so providers must either pay agents more (to offset exogenous costs) or possibly have an option to pay less (if exogenous benefits are substantial).DETAIL:Two main exogenous costs are security (robbery) and system reliability. By security, we mean the odds of an agent being robbed of cash-on-hand, exposed to fraud or counterfeit notes, or simply the cost of steps which agents take to protect themselves from these risks (e.g. security bars in their shop). System reliability refers to the possibility that an agent is unable to perform a transaction for a customer because the provider’s platform is unavailable (either because of problems with the platform itself, or the communication network used to carry transaction data). Probably worst of all is when an agent begins a transaction but is unable to complete it, raising questions with the customer about whether their money has been sent or now, and in the agent’s mind whether they should refund the customer. Exogenous costs have the effect of increasing the amount providers must pay agents, which we show in the graphic as moving the agent’s risk/return curve to the right.It may be difficult for prospective agents to measure exogenous costs prior to getting into the business, but they may still factor into their decision about whether to agree to be an agent. Merchants in high crime societies may even over-estimate the potential robbery risk. It would be useful for providers and their ANMs to be able to quote accurate statistics about the incidence of robbery in their networks. Prospective agents may try to gauge system reliability by their experience with your brand.There are several potential exogenous benefits as well. Also hard to measure, but potentially very real is the benefit agents may see from being allied with a strong brand. They may see this as differentiating their store from others nearby, or boosting their personal social status in the community. Foot traffic benefits could be considerable – i.e. additional sales of other goods and services by new customers coming into the store. This is often the major motivation for Brazilian agents. Exogenous benefits have the effect of decreasing the amount providers must pay agents, which we show in the graphic as moving the agent’s risk/return curve to the left.
  • MAIN MESSAGE: Robbery can flip a positive business case to one which is negative or much less attractive to the agent. Providers should take special steps to share some costs of security with agents, or at least require agents to put in place adequate security precautions.DETAIL:Jema is one of the highest performing agents for a Brazilian bank. She conducts 1,400 transactions daily in a location with four teller windows. She has been robbed twice in the past three years, with an average loss of US$ 8100. Although the cash lost is the bank’s, her bank does require her to bear some of the loss: 6.66% of funds stolen. While this may sound small, it equals 72 days of profit for Jema. In other words, every other year she has experienced a security event costing her more than 3 months of profits. Due to robbery risk, her bank has set a limit to the amount of cash she can keep on hand at any one time. As a result, she visits the bank every hour, sometimes 10 times a day, which is also a major source of dissatisfaction. Providers can also share cash insurance costs with agents (when the agent puts up their own capital), and in all agents they can require security improvements, including investment in physical security (bars, safes, etc) as well as rules requiring agents to vary the timing and routing of their rebalancing trips.
  • MAIN MESSAGE:Agent profitability is highly sensitive to service disruptions. This is particularly true for agents with capital, staff, and space costs dedicated to the agent business, as the agent incurs these costs whether or not revenue is being earned. Losing a few days of business may be enough to make the month unprofitable for an agent. DETAIL:One Brazilian agent visited usually brings in total commissions of US$1,162 per month against US$1,038 in expenses for a monthly profit of US$124. If she loses the ability to transact for two days in the month, her profits decline 82 percent to US$27.The inability to transact can be due to several factors. In Brazil, banks often pair a cash-on-hand limit (to limit robbery risks) with turning off agents’ POS terminals when they reach the limit. This kind of service interruption occurs often enough that it is a common agent complaint in Brazil. In other countries where agents must put up their own cash, running out of cash or float is a typical cause for lost transactions. Agents in Brazil, India, and Kenya mention unreliable mobile networks as also causing work stoppages, either because the mobile money system goes down, or the overall mobile network is unable to carry calls, text messages, and USD sessions.
  • MAIN MESSAGE: Foot traffic can be a substantial benefit to agents. It is easy to imagine that it could be a larger source of revenue than from direct commissions for handling branchless banking transactions. This, in fact, is the case for many Brazilian agents interviewed by CGAP. Providers and their ANMs should work to document foot traffic benefits and build the information into their pitch to prospective agents.DETAIL:Brazilian agents report seeing a positive effect on sales: 73 percent say they experience an increase in foot traffic in their store because of the agent business. On average, they report seeing 37 percent more customers. In a hypothetical Brazilian store that sees 100 customers per day for its grocery business (Figure 8), the owner becomes an agent and enjoys the increase in foot traffic observed in Brazil, which would mean 37 people coming in to do agent business who would not have entered the store otherwise. Not all of them will buy something; let us say one-quarter, or nine people, do buy an item. If the average profit on a sale is US$1, the merchant sees nine additional sales yielding US$9 in new profit. If the agent business is similar to João’s, profits from the agent business are US$1.96 per day. The US$9 in additional profits in the grocery business would outweigh the profits from the agent business by more than a factor of four.
  • MAIN MESSAGE: How the agent’s risk/return curve will change over time. It is important to understand how this affects the agent business case. Providers or their ANMs should be active in tracking these.DETAIL: There are 3 points in time where the agent business case may substantially change:At the outset, agents will need to see some enhanced revenue-earning potential in order to see the act of becoming an agent as worthwhile. This is basic human psychology, and reflects the fact that prospective agents will usually have other ways they can spend their time and other business opportunities. Providers often handle this by paying more generous commissions for signing-up clients in the early days. Some providers are also willing to pay agents a monthly stipend, to ensure agents are willing to provide service during the period in which transaction volume is building.As more and more consumers begin to use the branchless banking service, some agents will reach a point where the volume of transactions exceeds their ability to handle it with pre-existing staff and over their existing counter. In fact, branchless banking transactions could detract from their core business if shops become too crowded. At this point, agents will find it necessary to take on new staff and establish a special counter, both of which create fixed costs. As we showed earlier, this can change the break even point for the agent, possibly pushing them into the red.And if a branchless banking service is wildly successful, providers may see a surge of merchants wishing to be agents. If the number of agents in a network grows faster than the overall transaction volume, then demand will be fragmented across too many agents. Wgents will actually see their transactions/agent decline. This is in fact what occurred in Kenya between 2009 to 2010, when M-PESA was growing from 8 to 13 mil registered users but 10,000 to 21,000 agents. Stores interviewed by CGAP said their revenues had gone down, on average, by ¼ during the period.
  • MAIN MESSAGE: The agent business case is a multi-faceted puzzle, involving all of these drivers. But understanding which drivers matter most will differ, and is a main reason why it is critical to have a specialized ANM – either an in-house unit or outsourced to a partner – who will track the evolution of these factors.DETAIL: Not all of these factors will matter in your service, or matter to the same extent. At the time of service launch, it may be possible to find the first cohort of agents from among more well-resourced merchants who have their own sources of capital to draw on. But as the network expands, smaller merchants may need to borrow to accumulate capital to prefund their accounts and make other upfront investments (e.g. in security). Thus, cost of capital may not become an issue until later. To take another topic, in high crime societies robbery risk may be something which prospective agents are very concerned about from day 1, but in a lower crime society it may not become a problem until after the service reaches massive scale (at which time criminals may notice). To take a third issue, the benefit of foot traffic may be something that merchants will only recognize after their have become agents and seen increased numbers of customers for themselves. By contrast, the benefit of being associated with a strong brand may be something agents understand immediately.It is critical to have a specialized ANM – either an in-house unit or outsourced to a partner – who will track the evolution of these factors.
  • MAIN MESSAGE: We will now do an exercise which asks you to analyze 3 different agents and compare the business case drivers. You will then consider which type(s) of agents would work best in your market.
  • MAIN MESSAGE: The 3 agents present a spectrum of how much an agent may be asked to take on in costs and risk. DETAIL:Discussion questions the trainer might use:They run from Hasita, who operates in a very low-cost, low-risk set-up, through Joao who takes on some additional liquidity management expenses, to Cynthia who bears the full range of costs and risks. Which of the 3 agents should be paid the most per transaction?Cynthia would need to see either a high volume of transactions or a higher commission/transaction to account for these extra costs. Which of the agents would be the most committed?We can also hypothesize that Cynthia may be the most committed agent, simply because she has the most at stake in the agency business. Yet, for the same reason she is the agent most likely to quit if transaction volumes are not high. Which agent might be most suitable at the start of a branchless banking service?Either Joao or Hasita. An agent like Joao can see branchless banking as an incremental source of revenue to his main business (the pharmacy). What kind of advantages might an agent like Hasita present?An agent like Hasita may work best in very rural locations where there are fewer merchants, and transaction volumes are unlikely to be high enough to support specialized agents like Cynthia. Also, an agent like Hasita – a school librarian, a woman – may feel more comfortable for some clients.
  • MAIN MESSAGE:ANMs play a key role in helping agent networks scale quickly while providing high-quality, consistent service. There are three roles ANMs can take to support agents: agent start up, agent operations, and business strategy. DETAILS: Since agent management is such a critical piece of a successful branchless banking system and yet is so difficult to get right, most providers ask ANMs to handle some or all aspects of agent management. This allows the provider to focus on its core business and accelerate the specialized task of growing the agent network. The ANM can be a dedicated unit in-house but more often is a third party. Most ANMs will help with one or more of the following functions:Getting agents started - If agent recruitment is centralized at the provider’s headquarters, it is difficult to get the right agents in the right locations throughout the country. Using ANMs—especially those that are already located throughout the country—enables the service to be localized quickly.Managing Agents - In almost every service, ANMs play a key role in managing agent operations. Their most important role is usually helping agents rebalance their cash and float. Training and monitoring is an additional aspect of managing agent operations. Most providers prefer to use training and monitoring specialists who are objective (as opposed to ANMs who get a cut of commissions and may not wish to raise red flags on their own agents). Contribution to overall strategy - Some ANMs play an influential role in determining business strategy of the overall branchless banking service and making decisions in areas such as developing products, setting commissions, and adapting processes to ensure the business case is viable.
  • MAIN MESSAGE: M-PESA is an interesting example of how you can ‘mix and match’ the roles of ANMs. It uses 3 types of entities to help in various aspects of agent management.DETAILS: 1) M-PESA itself has 10 Area Sales Managers which play an overall role in agent management. M-PESA itself is very much the driver of the branchless banking service but uses different kinds of ANMs to help in concrete aspects of agent management.2) Top Image and other similar firms play an important role in selecting agents, training them and monitoring them regularly. Each M-PESA agent is visited at least once every two weeks. It is important that Top Image is paid a flat fee – they are not directly linked to the success or failure of any individual agent and hence can be more objective in their monitoring.3) “Superagents” are banks that have agreed to operate a special facility for agents to rebalance their cash and e-float. This takes place in existing bank branches. There are 6 participating banks and M-PESA agents can go to the branches of any of these banks to deposit or withdraw cash.4) What M-PESA calls “aggregators” are individuals or small companies that own or manage networks of agents (ranging from just a few agents to several hundred). The aggregator may “own” some of the shops (i.e., have their own employee in the location and rent or own the property directly) in addition to “aggregating” independent merchants (i.e., provide them with liquidity management services and oversee their compliance with Safaricom standards).
  • MAIN MESSAGE: How much should ANMs be paid? Just as with agents, the remuneration for ANMs must balance the costs and risks that you are asking them to take on.DETAILS: ANMs take on different responsibilities in different markets. The amount they are paid varies depending on these responsibillities.Most ANMs are paid by commission, often calculated as a percentage of all commissions earned by the agents they are managing. In some cases, ANMs earn a commission for each new agent they sign up. The commission split is usually around 80 percent for agents and 20 percent for ANMs, although it varies depending on the role the ANM is expected to play. For example, ANMs working for Roshan in Afghanistan get a 30 percent share of commissions as a base. However, when ANMs give agents start-up capital, the ANM share increases to 50 percent of commissions. Some companies that play a role in agent management—such as Top Image in Kenya—are paid a fixed fee, not a commission split. M-PESA aggregators are responsible for selecting agents and, to some extent, helping with rebalancing and monitoring. They do not contribute to business strategy or provide equipment or up-front capital to agents. In return, they receive 20 percent commission. Telecom Service in Brazil has much more responsibility. It selects agents, provides equipment, trains them, and monitors them while contributing to business strategy. The only areas where it is not involved are in providing up-front capital and rebalancing. In return for its significant role, it receives 60 percent of commissions.
  • MAIN MESSAGE: The business case varies depending on whether this is incremental business for the ANM or whether he is doing it as a stand-alone business. Mr. Sinha in India is willing to do the EKO ANM business even though current profits are a small percent of the total.DETAILS: Mr. Sinha is an EKO ANM (similar to M-PESA aggregator) in India.. EKO is a relatively new service so this story demonstrates the profit an ANM is making when managing just 35 agents. EKO expects all ANMs to build an agent network of at least 100 agents. Sinha makes US$1,133 in commissions a month from EKO. Sinha already works with more than 500 retailers distributing consumer goods. He makes US$4,300 from his distributor business and already has a functioning office with electricity, computers, etc.
  • MAIN MESSAGE:One of the factors which is most detrimental to the ANM business case is agent churn.DETAILS: If agents don’t feel the business case is worth their while, they will become inactive or drop out altogether. This is a major problem with many branchless banking services have struggled with. This hurts the business case for everyone, especially ANMs. In this example of an ANM in Brazil, just 50% of agents trained are active. This means that the active agents need to do double the number of transactions for the ANM to break-even.
  • MAIN MESSAGE: In markets where branchless banking is newer, there probably won’t be any dedicated ANMs. In this case, the provider may want to consider using existing companies who are in similar businesses to use as ANMs.DETAILS: ANMs will spring up as the branchless banking markets mature and companies see an opportunity to move into this business. Eventually, there will be specialized agent management companies. However, they likely will not be there at the beginning. Here are 3 types of companies that may be used as ANMs.
  • CASE STUDY INSTRUCTIONS:Divide participants into groups for purposes of discussion. However, there is no need to further segment the groups.BACKGROUND: As the large group discussion starts, it might be useful to give some context to the background of branchless banking in Brazil:The Brazilian model is based on the widespread use of bar-coded payment coupons and bills in the economy. A large percentage of Brazilian households need to pay these coupons (boletos) or bills (convehnos) regularly, and banks are required by law to process them. Customers are eager for a simple payment channel, but are unwilling to pay for the service. Banks have been willing to pay agents to process these payments to reduce the cost of processing payments in the bank branches. This means that for almost all banks (until recently), their agent-based transaction channels have been a cost-savings initiative, rather than a net revenue generator.
  • MAIN MESSAGE:The business case for an ANM is challenging and most ANMs will need to be proactive about developing their own business case.DETAIL:The business case for an ANM is challenging - Just as with agents, ANMs’ revenue must be matched with the specific roles they perform. Many ANMs are dissatisfied with their current business models, due in large part to slow uptake of the service as well as high rates of agent turnover.Introducing higher-value added products greatly enhances the business case – In this case, Mr. Dias introduced payroll-loans to enhance the business case for both the agents and the ANMs. Introducing products that create higher volumes and/or have higher margins, will be important if not necessary to bring profitability.In this example, the ANM took the initiative to make the changes necessary for the business to turn profitable – In some contexts, the ANMs merely follow a narrow role prescribed for them by the provider. However, in this case Mr. Dias took the initiative to make the changes necessary – technology and product development – to improve his business.
  • MAIN MESSAGE: Many branchless banking services are struggling to meet a basic requirement of generating enough revenue to share with partners in the supply chain. The potential causes are multiple, but the key point for this training is that inadequate revenue leads to unhappy partners which in turn makes it considerably more difficult, if not impossible, to build an agent network which is large land adheres to service standards.DETAIL:Branchless banking services must generate sufficient revenue to support the business models of all of the companies involved in delivering the service, the service providers themselves as well as ANMs, agents, and other parties (e.g., partner banks). Yet many BB services are struggling to meet this requirement: not enough consumers are transacting actively enough to yield adequate revenue. The agent network itself may be partially at fault for consumers’ low uptake. Agents may not keep adequate liquidity, or simply may not be willing to serve branchless banking customers. But more often CGAP has seen 4 other causes: (1) poor execution of basic tasks, such as failing to establish a stable transaction platform on the back end, (2) overly cumbersome account sign-up processes (typically stemming from KYC standards), (3) inadequate marketing spend leading to low awareness of the service, or (4) poorly chosen product, by which we mean the value offered to customers does not resonate strongly with an adequately large segment or segments. Many services go to market with a combination of “send money home” (domestic remittance) paired with airtime top-up and several initial bill payment options. In effect, a service which helps consumers deal with the pains of sending money over distance.On the following slides we will show evidence of how most services are not generating adequate revenue yet, and then recommend 2 options for providers.
  • MAIN MESSAGE: M-PESA’s success in Kenya set expectations for what branchless banking might be able to achieve. When we take a closer look, we see massive revenue generated ($12 mil/mo), with nearly half (42%) shared with ANMs and agents, yielding an attractive business case for ANMs and agents. M-PESA accomplished this because of a truly massive response from consumers (at last count, 13 mil registered or more than half the adult population of Kenya).DETAIL:Here is a chart showing how revenue in M-PESA is generated (blue) and shared in the supply chain (orange). This is current as of mid-2010. M-PESA was generating US$12 mil / mo in gross revenues, more than enough for Safaricom to share almost half (42%) with supply chain partners (ANMs, agents, others such as bank partners). The generous revenue share made the M-PESA business look very attractive for agents. Small stores (which make up the vast bulk of the then-21,000 M-PESA agents, and which were the focus of CGAP’s research in Kenya) saw profits from being an agent on average 3.2 greater than from selling airtime. The typical ANM pulled in gross commissions in excess of US$ 5000/mo. All of this was possible because of the massive response from the market. Fees paid by en retailers generated the lion’s share (85%) of revenue in the system, largely from domestic remittances and, in 2010, increasingly bill payments.
  • MAIN MESSAGE: Globally, the bulk of branchless banking services are having difficulty attaining volumes anywhere near that of M-PESA. By CGAP’s analysis, 4 out of 5 branchless banking services have not reached 1 million registered customers. In other words, at least 80% of branchless banking services are probably not generating enough revenue to make their supply chain partners happy.
  • MAIN MESSAGE: If we compare M-PESA to 7 other pioneers in branchless banking, we quickly see that even other successful providers are still working toward generating substantial revenue. In this alternate scenario, agents are making just USD 2.71 / day in revenue, before any expenses. Only small merchants would find this attractive, and providers would find it hard to recruit a large, viable agent network.DETAIL: What if we “discounted” M-PESA back to something less wildly successful, but still reasonably successful? CGAP gathered data on 7 branchless banking services which are among the earliest to launch and have been in business the longest. These include some which are mobile and some card-based, some large and some start-up, with a good geographic distribution across Africa, Asia and Latin America. You can see that the average number of registered users for these 7 services is considerably less than M-PESA in Kenya (13 mil vs 5.2 mil), the average active rate is lower (70% to 53%), as is the average number of transactions/month (5.3 vs 2). However, these 7 services are still rather successful. The typical mobile money service has fewer than 1 million registered users and a much lower active rate and number of transactions/month. Yet when we run the numbers, we see there is a major drop off in gross revenue generated by M-PESA ($12 mil/month) as compared to these 7 other pioneers (US$ 1.5 mil/mo). Agent revenues decline proportionally to USD 2.71/day (based on a scaled-back agent network accounting for the lower number of registered users in this scenario – 5.2 mil – compared to M-PESA 13 mil). And this is before any expenses are taken into account. Few merchants except the very smallest would find this attractive. We also looked at this from a standpoint of contribution to the provider’s revenue. We know in the case of M-PESA in 2010 that it contributed 11% of Safaricom revenues, surpassing SMS as the #2 revenue earner (and responsible probably for 35% of new revenues). For the cohort of 7 other BB services, if we compared the gross revenue from branchless banking (US$ 1.5 mil) to what would be a typical revenue for an African mobile network operator with 5.2 million subscribers (using Wireless Intelligence data for ARPU), we see a very anemic contribution to the top line: branchless banking would contribute barely 1.5% to company revenue. Hardly interesting for the provider either. In other words, even these 7 other BB services, which are generally among the more successful branchless banking providers, are probably struggling to generate substantial revenue to keep agents and ANMs happy.
  • MAIN MESSAGE: Providers have 2 options for generating additional revenue. The economics of the supply chain improve significantly when additional products are added and use intensifies. Companies which participate in a branchless banking supply chain can also generate revenue or cost savings in their core business. CGAP’s Agent Toolkit includes an Excel-based financial model enabling users to explore what these options might look like in their own service.
  • MAIN MESSAGE: Starving agents and ANMs can trigger a downward spiral or prevent a service from ever getting off the ground in the beginning. It is important to provide adequate incentives to supply chain partners in the form of commissions for account opening and cash-handling. DETAIL:It is not uncommon for branchless banking services to see lower-than-expected uptake by clients, especially due to the unreasonable expectations set by M-PESA’s success in Kenya. This may in turn lead to a provider missing their revenue targets. Managers may be tempted to slash costs to stem short-term losses and hit profit goals. The choice of places to cut can be limited: technology costs may already be incurred or ongoing payments are set by contracts with vendors; providers are often reluctant to skimp on marketing; and it is not always easy to quickly slash staff. One of the common places providers turn to in order to cut costs is reducing commissions paid to supply chain partners for transaction processing and account opening. But if cut too far, agents and ANMs may simply decide the business case is not longer positive for them. If enough supply chain partners exit rapidly, before they can be replaced, consumers may in turn find it hard to locate agents (or agents may turn away all but the most lucrative transactions – e.g. account sign-up, or largest cash-in/out). The result can be a downward spiral which picks up momentum, with quickly declining customer usage, further weakening of revenues, and calls to close the service altogether (or a provider being presented with a fait accompli by its supply chain partners, if they exit en masse). To avoid this cycle, providers must be prepared to absorb some losses between revenue as customer uptake grows to acceptable levels, and the expense of keeping supply chain partners motivated in the meantime.
  • MAIN MESSAGE: This exercise was designed to reinforce the idea that both agents and ANMs must receive adequate remuneration for a healthy agent network to develop.
  • MAIN MESSAGE: Providers should first consider the overall structure of the agent network before focusing on details like agent commission and training.DETAILS: Often, providers who are in a hurry to build an agent network start focusing on what they think are the most urgent decisions to make to get their agent network started – such as selecting, paying and training agents. However, they should first go up or two a level to consider the overall structure of the agent network and some of these decisions will flow from that.In some ways it is like building a house. Although it is important to think about interior design and furnishings, you first thing about the structural foundation of the house.
  • MAIN MESSAGE: Providers have three options to structure an agent network. Although many services will end up with a hybrid of one or more of these structures, most will start with one predominant approach. DETAILS: Use existing retail chains. The provider enters into an agreement with a firm that owns and operates several retail locations. This may be a chain of grocery stores or petrol stations, but it can also be other chains with many outlets, such as the post office or microfinance institutions (MFIs). The ANM is the headquarters of the retail partner while the outlets act as agents. Typically, the headquarters is already dealing with issues of cash management and quality control in monitoring outlets for its existing products. Examples of this approach include Bradesco’s use of Pão de Açucar (a supermarket).Build a network from scratch from individual stores. In this approach, providers build a network of agents one by one, usually with support from one or more ANMs. The agents are independent and unaffiliated. Some ANMs end up owning some of the outlets. For example, many M-PESA aggregators manage some outlets as well as own several others. This model of building a network from scratch is used by FINO in India, WING in Cambodia and M-PESA. Leverage a wholesale distribution system. Every country has established distribution systems for selling consumer goods. Most prepaid airtime is not sold through MNO-owned and -operated retail stores, but through independent retailers found everywhere in the country. Its distributors (and distributors for many other products, such as soap and cooking oil) have relationships with many retailers who sell a range of products. These distributors can act as ANMs managing retailers (who are agents) in their network.
  • MAIN MESSAGE: We will be looking at the example of Banco Postal in Brazil to try and understand the trade-offs in different agent structures. Banco Postal is an example of the ‘Use Retal Chain’ agent structure.DETAILS: Bradesco is Brazil’s second largest private bank and has 24,200 agents. In 2001, Bradesco submitted the winning bid to offer banking services inside post offices throughout the country. Today, there are 6,038 Banco Postal outlets located within post offices (correios). These outlets perform a much wider variety of services than most agents in Brazil, including high levels of account opening, deposits, withdrawals, and loans.
  • MAIN MESSAGE: There are 3 important elements to an agent structure: Operational Readiness, Reach and Control. Operational readiness includes the systems and processes that need to be in place before a service can launch.DETAILS: There are 3 important elements to an agent structure: operational readiness, reach and control. Unfortunately, no one structure will bring maximum readiness, reach and control and the provider/ANM will need to prioritize and decide what is most important.The first element is operational readiness. This represents the systems and processes that need to be in place before a successful service can launch. This includes systems for hiring, training, and managing IT and moving cash around securely. Operational readiness has a big impact on how quickly the network can be up and running. In terms of the post office, infrastructure was already in place throughout Brazil with staff and computers in place. Some additional work needed to be done to train staff and get the system operating for banking transactions, but by and large there was a high degree of operational readiness.Leveraging existing distribution systems and especially building network from scratch will bring much lower levels of operational readiness.
  • MAIN MESSAGE: The second important element to an agent network is reach – the quantity and location of outlets.DETAILS: There are at least 3 different important aspects to reach. Each provider/ANM must decide the best combination of quantity and location of outlets for their service. For example, should the outlets be located in more rural or urban areas, or both? If the product being offered is a domestic remittance product, agents will be needed on both the sending and the receiving end. Finally, the agent outlets ideally should already be serving the target customer.Banco Postal is now located in 6,000 post offices throughout the country. Since it is government infrastructure, the outlets are located in very rural areas as well as urban areas. In fact, the rural locations not only do a lot more locations than urban (10,000 per month on average versus 4,000 for urban) but they do many more banking type transactions beyond bill payments – account opening, deposits and withdrawals. Thus, Banco Postal has brought a very high level of reach to Bradesco.However, most existing retail chains will bring a more limited reach. In particular, chains such as grocery stores are most likely to be located in urban or peri-urban areas rather than rural. Also, a chain such as an MFI may have deep penetration in a particular geography but may not have nationwide presence.Both building network from scratch and leveraging existing systems can bring a very wide reach since small, ‘mom-and-pop’ stores are located everywhere. However, this reach will take much more time to build.
  • MAIN MESSAGE: The third element to consider is control. This includes both how much control the HQ of the retail chain has over outlets as well as how much control or leverage the branchless banking provider has.DETAILS: Finally, the branchless banking wants to have control – to ensure a consistent customer experience, to manage fraud, to negotiate on commissions and other issues. The first element of control is how much control the HQ has over the outlets. Is this a well-managed organization? If certain standards are set, will the HQ ensure these are met throughout the network?The second element of control is leverage that the branchless banking provider has over both the network and individual outlets. When building own network, the independent agents will have little control or negotiating power. However, existing retail chains will have much more leverage.Banco Postal has become so important for Bradesco that it is now in a powerful position. It now earns 5-10 more commission than the independent, unaffiliated agents that Bradesco itself also runs (build network from scratch). Bradesco would be in big trouble if the Banco Postal commission were given to another bank. In fact, there have been rumors that Banco Postal may seek a banking license themselves. However, Banco Postal does have high quality standards and control over its outlets. Therefore, overall the control level is at MEDIUM.In Autazes (small town in Amazon), interesting example of how these structures can become hybrids. Bradesco Bank has Banco Postal but also has BradescoExpresso outlets which they’ve built from scratch. They are purposefully encouraging more BradescoExpresso outlets in Autazes since they want to balance the control.
  • MAIN MESSAGE: Overall, using existing retail chains will bring high operational readiness (and possibly positive brand image) but lower levels of control and reach.DETAILS: We can represent the 3 trade-offs on this triangle. We can easily see here that Using Existing Retail Chains like Banco Postal brings high levels of operational readiness. Banco Postal itself brings high reach. However, in general the reach that retail chains bring is medium since they are usually limited to urban areas. Finally, the level of control is usually medium. The HQ themselves can act as ANMs and monitor their outlets, and mechanisms for this are already in place. However, the branchless banking provider will have less leverage in the relationship.The other point which using retail chains can bring is positive brand image. Especially where the branchless banking service is new or the brand is not well known, it can be very beneficial to partner with a well-known retail chain that customers already trust.Another element which providers may consider is cost. Which structure is cheapest and which is most expensive? There is not a clear trade-off here. All 3 take substantial investment. Using existing chains may be cheaper at the beginning (no need to set up systems and structures) but over time with higher levels of commission the cost will go up. On the other hand, building from scratch will be expensive at the beginning but the lower commissions over time may make it worth it.
  • MAIN MESSAGES: Each of the 3 network structures will bring different elements of operational readiness, reach and control. Using retail chains will bring the highest level of operational readiness while building networks from scratch and leveraging existing distribution systems will both bring high reach but with different trade-offs on readiness and control.DETAILS: We’ve already gone through using retail chains. Both leverage distribution systems and building network from scratch can bring high reach as small, independent merchants can be found everywhere. However, it may take a lot longer to achieve the reach, especially when building from scratch. For these two, the trade-offs lie along the other dimensions. Building a network from scratch will bring highest control of the 3 while leveraging existing distribution system brings a compromise of all 3.Which is right for you? Depends on the market, internal resources of the provider and the products. For example, if other competitors are joining the market and speed is essential, providers may want to start with using a retail chain. If time pressure is not as intense may want to take a slower route to building an agent network from scratch over which they will have ultimately more control.You don’t need to pick one and then stick with it forever. In fact, the best agent networks are flexible and will end up with a hybrid. We’ll do a case study later that looks at this.
  • CASE STUDY INSTRUCTIONS:Divide participants into 3 groups. Ask everyone to read the entire two page case study but assign each group to particularly focus on one phase of the case study. On a flip chart, you can draw a triangle with the 3 elements of readiness, reach and control. As groups report on their assigned phase, one person from each group can come to the front and draw a triangle for their particular phase.
  • MAIN MESSAGE:Safaricom did not choose one network structure and then stick with it. There has been a lot of change over the past few years and each phase has seen different trade-offs between operational readiness, reach and control.DETAILS: The case study is not designed as a blueprint of how to run a successful agent network. Safaricom actually faced many challenges and has never achieved a structure with maximum levels of readiness, reach and control. Instead, it has had to make different trade-offs in each of the phases of M-PESA’s development. Safaricom was faced with overwhelming client demand which impacted the agent network significantly. Most providers will face the opposite problem. Overall, there are two important take-aways from the M-PESA Case study of changing structure over time.Dynamic - Agent network structure is dynamic, not static. There is no one ‘right’ agent structure that will meet all the needs of the agent network at any one time. This will change over time. A provider should think through the trade-offs to decide which one to go to market with but may very well end up with a hybrid of 2 or even all 3.Responsiveness – Safaricom was responsive to the market and adapted flexibly to what was happening in the market. There is no blueprint to run a successful agent network. Instead, providers should be in close touch with agents and customers to be aware of what is happening in the market and react accordingly.
  • MAIN MESSAGE: The agenda for this section covers the more practical, operational aspects of agent management.
  • MAIN MESSAGES: Each provider must decide which are the most important qualities for their agent network. This table includes 9 qualities which many providers consider very important.DETAILS: Cash/Float - Most providers stipulate minimum amounts of cash and float balances their agents must keep on hand. Providers need to develop a method for assessing a merchant’s current level of working capital. Customer Profile - Merchants with plenty of cash reserves and highly secure premises may not serve the target client of the service. Retail stores in upscale shopping centers may not want to offer a service that might attract low-income clients. Ideally, the current customer base of the merchant should be the same as the target client of the service so the merchant can focus on converting existing customers.Age/Education/Experience - The age, education, and experience (number of years in business) of the proprietor is an indication of maturity level and ability to make appropriate decisions about the best product mix for the business.Strategic Location - The shop should be in a busy, high-traffic location—in a market, near a bus station, or at another location where people congregate. This maximizes the impact of branding and merchandising and offers the best chance of success. Proximity to banks - If agents are expected to do their own rebalancing, being near a bank branch or ATM will be a big advantage. Trust - Agents play a pivotal role in convincing prospective customers that the new service is reliable and trustworthy. As such, they must be trusted themselves. Business Activity - Ideally, a shop’s current level of business activity parallels the expected activity of a branchless banking product. One important indicator is the average time spent by each customer at the service point. If the customer is merely buying airtime or Coca-Cola, the time at the service point is probably less than a minute—leaving little time to talk to the customer about the branchless banking product. Literate Staff - Staff of the merchant play a key role in helping clients use the new product and filling out monitoring or other forms. Staff should be literate and have a good grasp of numeracy.Motivation - It is critical that the merchant be personally excited about the new product and believes in the concept. Merchants who are enlisted because they feel pressure from their distributors but have no personal interest in the product are likely to drop out quickly. This is not easy to determine, but merchants should express willingness to attend meetings and trainings to ensure the product is successfully launched.
  • MAIN MESSAGE: These equations summarize the key variables for both upfront capital and liquidity management/rebalancing.DETAILS: Up-front capital is a function of liquidity required plus one-off investments agents must make to start operating. The latter may include upgrades to physical premises to meet standards for look, feel and security that are common in Brazil and Kenya, for example. Liquidity Management is a function of how often the agent needs to rebalance and the cost per rebalancing trip. This is obviously a function of distance and will vary greatly in rural vs. urban areas.
  • MAIN MESSAGE:All agents must be consistently monitored. However, the timing and method of the monitoring can vary.DETAILS: An agent network should reliably and consistently serve customers. Although urban agents might look and feel different than rural agents, ideally they provide the same service at the same price with a similar level of customer service. A bank or other company monitoring its own outlets can easily ensure each outlet has the same furniture, interior design, and level of qualified staff. This level of control is more difficult to achieve in a network of independent agents. Successful services require strict adherence to basic standards to ensure a consistent customer experience. There are different approaches to monitoring. For example, in Kenya, each M-PESA agent is visited at least once every two weeks and goes through a 10 point checklist (see next slide). In Brazil, Telecom Service relies on technology to be able to monitor agents remotely and only visit each agent once every two months.
  • MAIN MESSAGE:The content, length and delivery of training of your agents will depend on factors like regulations, product offering and agent responsibility.DETAILS: Each of these examples demonstrate very different approaches to training based on the specific branchless banking service. FINO: FINO agents have a lot of responsibility in terms of selling a new product to customers and regularly following up and ensuring they use it. Since a lot is expected of agents, they have to be well trained and hence the training is longer and done in groups.Gcash: Gcash’s entire training curriculum was based on the fact that it was selling a remittance product and the Central Bank had very specific requirements for the training of this product.M-PESA: M-PESA agents see a lot of volume and there is a lot of demand to be an M-PESA agent. Hence, they have a very clearly structured training program and can insist on exams to ensure agents are qualified.Telecom Service: The product for Telecom Service is quite simple (bill payments) but using the POS is not. The training here is very functional and specific, based around using this POS. There is not much emphasis on selling or customer care.
  • CGAP is an independent policy and research center dedicated to advancing financial access for the world's poor. It is supported by over 30 development agencies and private foundations who share a common mission to alleviate poverty. Housed at the World Bank, CGAP provides market intelligence, promotes standards, develops innovative solutions and offers advisory services to governments, microfinance providers, donors, and investors. Learn more about CGAP at http://www.cgap.org/p/site/c/aboutus/. CGAP’s Technology Program (which is co-funded by the Bill & Melinda Gates Foundation and DFID) supports the development of branchless banking around the world. We do this in a variety of ways including advising private sector actors on business models. advising regulators, and creating new knowledge capital on practical challenges confronting the sector. Find out more about CGAP’s Technology Program at http://www.cgap.org/p/site/c/tech/.
  • MAIN MESSAGE: The CGAP Toolkit is based on more than a year of research in 3 countries where branchless banking has taken off in a large way (Brazil, Kenya) or is poised to do so (India). CGAP conducted in-depth interviews with 466 agents and analyzed data on 16,000 more. CGAP also held discussions with more than two dozen agent network managers (ANMs) and providers.
  • MAIN MESSAGE: We think a useful way to frame this is as a risk-return curve, set by the remuneration received and direct costs of being an agent. On one side of the curve (left side) the costs involved are too high for the remuneration received, and prospective agents will not agree to be an agent or will quit. On the other side (right), the remuneration is adequate compared to the costs and agents will participate.
  • MAIN MESSAGE: The agent business case is a multi-faceted puzzle, involving all of these drivers. But understanding which drivers matter most will differ, and is a main reason why it is critical to have a specialized ANM – either an in-house unit or outsourced to a partner – who will track the evolution of these factors.DETAIL: Not all of these factors will matter in your service, or matter to the same extent. At the time of service launch, it may be possible to find the first cohort of agents from among more well-resourced merchants who have their own sources of capital to draw on. But as the network expands, smaller merchants may need to borrow to accumulate capital to prefund their accounts and make other upfront investments (e.g. in security). Thus, cost of capital may not become an issue until later. To take another topic, in high crime societies robbery risk may be something which prospective agents are very concerned about from day 1, but in a lower crime society it may not become a problem until after the service reaches massive scale (at which time criminals may notice). To take a third issue, the benefit of foot traffic may be something that merchants will only recognize after their have become agents and seen increased numbers of customers for themselves. By contrast, the benefit of being associated with a strong brand may be something agents understand immediately.It is critical to have a specialized ANM – either an in-house unit or outsourced to a partner – who will track the evolution of these factors.
  • MAIN MESSAGE:ANMs play a key role in helping agent networks scale quickly while providing high-quality, consistent service. There are three roles ANMs can take to support agents: agent start up, agent operations, and business strategy. DETAILS: Since agent management is such a critical piece of a successful branchless banking system and yet is so difficult to get right, most providers ask ANMs to handle some or all aspects of agent management. This allows the provider to focus on its core business and accelerate the specialized task of growing the agent network. The ANM can be a dedicated unit in-house but more often is a third party. Most ANMs will help with one or more of the following functions:Getting agents started - If agent recruitment is centralized at the provider’s headquarters, it is difficult to get the right agents in the right locations throughout the country. Using ANMs—especially those that are already located throughout the country—enables the service to be localized quickly.Managing Agents - In almost every service, ANMs play a key role in managing agent operations. Their most important role is usually helping agents rebalance their cash and float. Training and monitoring is an additional aspect of managing agent operations. Most providers prefer to use training and monitoring specialists who are objective (as opposed to ANMs who get a cut of commissions and may not wish to raise red flags on their own agents). Contribution to overall strategy - Some ANMs play an influential role in determining business strategy of the overall branchless banking service and making decisions in areas such as developing products, setting commissions, and adapting processes to ensure the business case is viable.
  • MAIN MESSAGE: M-PESA is an interesting example of how you can ‘mix and match’ the roles of ANMs. It uses 3 types of entities to help in various aspects of agent management.DETAILS: 1) M-PESA itself has 10 Area Sales Managers which play an overall role in agent management. M-PESA itself is very much the driver of the branchless banking service but uses different kinds of ANMs to help in concrete aspects of agent management.2) Top Image and other similar firms play an important role in selecting agents, training them and monitoring them regularly. Each M-PESA agent is visited at least once every two weeks. It is important that Top Image is paid a flat fee – they are not directly linked to the success or failure of any individual agent and hence can be more objective in their monitoring.3) “Superagents” are banks that have agreed to operate a special facility for agents to rebalance their cash and e-float. This takes place in existing bank branches. There are 6 participating banks and M-PESA agents can go to the branches of any of these banks to deposit or withdraw cash.4) What M-PESA calls “aggregators” are individuals or small companies that own or manage networks of agents (ranging from just a few agents to several hundred). The aggregator may “own” some of the shops (i.e., have their own employee in the location and rent or own the property directly) in addition to “aggregating” independent merchants (i.e., provide them with liquidity management services and oversee their compliance with Safaricom standards).
  • MAIN MESSAGE: Many branchless banking services are struggling to meet a basic requirement of generating enough revenue to share with partners in the supply chain. The potential causes are multiple, but the key point for this training is that inadequate revenue leads to unhappy partners which in turn makes it considerably more difficult, if not impossible, to build an agent network which is large land adheres to service standards.DETAIL:Branchless banking services must generate sufficient revenue to support the business models of all of the companies involved in delivering the service, the service providers themselves as well as ANMs, agents, and other parties (e.g., partner banks). Yet many BB services are struggling to meet this requirement: not enough consumers are transacting actively enough to yield adequate revenue. The agent network itself may be partially at fault for consumers’ low uptake. Agents may not keep adequate liquidity, or simply may not be willing to serve branchless banking customers. But more often CGAP has seen 4 other causes: (1) poor execution of basic tasks, such as failing to establish a stable transaction platform on the back end, (2) overly cumbersome account sign-up processes (typically stemming from KYC standards), (3) inadequate marketing spend leading to low awareness of the service, or (4) poorly chosen product, by which we mean the value offered to customers does not resonate strongly with an adequately large segment or segments. Many services go to market with a combination of “send money home” (domestic remittance) paired with airtime top-up and several initial bill payment options. In effect, a service which helps consumers deal with the pains of sending money over distance.On the following slides we will show evidence of how most services are not generating adequate revenue yet, and then recommend 2 options for providers.
  • MAIN MESSAGE: Starving agents and ANMs can trigger a downward spiral or prevent a service from ever getting off the ground in the beginning. It is important to provide adequate incentives to supply chain partners in the form of commissions for account opening and cash-handling. DETAIL:It is not uncommon for branchless banking services to see lower-than-expected uptake by clients, especially due to the unreasonable expectations set by M-PESA’s success in Kenya. This may in turn lead to a provider missing their revenue targets. Managers may be tempted to slash costs to stem short-term losses and hit profit goals. The choice of places to cut can be limited: technology costs may already be incurred or ongoing payments are set by contracts with vendors; providers are often reluctant to skimp on marketing; and it is not always easy to quickly slash staff. One of the common places providers turn to in order to cut costs is reducing commissions paid to supply chain partners for transaction processing and account opening. But if cut too far, agents and ANMs may simply decide the business case is not longer positive for them. If enough supply chain partners exit rapidly, before they can be replaced, consumers may in turn find it hard to locate agents (or agents may turn away all but the most lucrative transactions – e.g. account sign-up, or largest cash-in/out). The result can be a downward spiral which picks up momentum, with quickly declining customer usage, further weakening of revenues, and calls to close the service altogether (or a provider being presented with a fait accompli by its supply chain partners, if they exit en masse). To avoid this cycle, providers must be prepared to absorb some losses between revenue as customer uptake grows to acceptable levels, and the expense of keeping supply chain partners motivated in the meantime.
  • MAIN MESSAGE: Providers have three options to structure an agent network. Although many services will end up with a hybrid of one or more of these structures, most will start with one predominant approach. DETAILS: Use existing retail chains. The provider enters into an agreement with a firm that owns and operates several retail locations. This may be a chain of grocery stores or petrol stations, but it can also be other chains with many outlets, such as the post office or microfinance institutions (MFIs). The ANM is the headquarters of the retail partner while the outlets act as agents. Typically, the headquarters is already dealing with issues of cash management and quality control in monitoring outlets for its existing products. Examples of this approach include Bradesco’s use of Pão de Açucar (a supermarket).Build a network from scratch from individual stores. In this approach, providers build a network of agents one by one, usually with support from one or more ANMs. The agents are independent and unaffiliated. Some ANMs end up owning some of the outlets. For example, many M-PESA aggregators manage some outlets as well as own several others. This model of building a network from scratch is used by FINO in India, WING in Cambodia and M-PESA. Leverage a wholesale distribution system. Every country has established distribution systems for selling consumer goods. Most prepaid airtime is not sold through MNO-owned and -operated retail stores, but through independent retailers found everywhere in the country. Its distributors (and distributors for many other products, such as soap and cooking oil) have relationships with many retailers who sell a range of products. These distributors can act as ANMs managing retailers (who are agents) in their network.
  • MAIN MESSAGES: Each of the 3 network structures will bring different elements of operational readiness, reach and control. Using retail chains will bring the highest level of operational readiness while building networks from scratch and leveraging existing distribution systems will both bring high reach but with different trade-offs on readiness and control.DETAILS: We’ve already gone through using retail chains. Both leverage distribution systems and building network from scratch can bring high reach as small, independent merchants can be found everywhere. However, it may take a lot longer to achieve the reach, especially when building from scratch. For these two, the trade-offs lie along the other dimensions. Building a network from scratch will bring highest control of the 3 while leveraging existing distribution system brings a compromise of all 3.Which is right for you? Depends on the market, internal resources of the provider and the products. For example, if other competitors are joining the market and speed is essential, providers may want to start with using a retail chain. If time pressure is not as intense may want to take a slower route to building an agent network from scratch over which they will have ultimately more control.You don’t need to pick one and then stick with it forever. In fact, the best agent networks are flexible and will end up with a hybrid. We’ll do a case study later that looks at this.
  • MAIN MESSAGE: Providers and agent managers need to develop tools to select, pay and monitor agents as well as manage liquidity and reduce the impact of theft, fraud and abuse.
  • Building a Viable Network of Agents - Training Module 2011

    1. 1. BUILDING A VIABLE NETWORK OFBRANCHLESS BANKING AGENTS Training Package 2011
    2. 2. TABLE OF CONTENTSSECTION SLIDES Introduction 3-16 Agent business case (Case study of 3 agents) 17-31 Agent network managers (Brazil case study) 32-40 Supply chain revenue analysis (Revenue sharing exercise) 41-50 Structuring an agent network (M-PESA case study) 51-61 Managing agents (Exercise comparing training approaches) 62-76 Conclusion 77-80 Annex: main messages in 12 slides 81-93
    3. 3. These training materials are produced by CGAP “Advancing financial access for the world’s poor”CGAP is an independent policy and research center dedicated to advancingfinancial access for the worlds poor. It is supported by over 30 developmentagencies and private foundations who share a common mission to alleviatepoverty. Housed at the World Bank, CGAP provides market intelligence,promotes standards, develops innovative solutions and offers advisory servicesto governments, microfinance providers, donors, and investors. CGAP’s Technology Program is funded by: www.cgap.org/technology
    4. 4. How to use these training resources (1)• This Training Package is based on CGAP‟s Agent Network Management Toolkit, available at http://www.cgap.org/p/site/c/template.rc/1.9.49831/• This Training Package enables users to train their colleagues on building a network of branchless banking agents. It is not intended to be used to train agents: we recommend providers develop their own materials for this end.• The package includes 5 sections: (1) drivers of the business case for agents, (2) agent network managers (ANMs), (3) supply chain revenue analysis, (4) structuring an agent network, and (5) managing agents. Each section includes a lecture and interactive exercise.
    5. 5. How to use these training resources (2) • We recommend using the material in 1 of 3 ways: 1. Cover the 5 sections in sequence, including the interactive exercises (Duration: 5 hours) 2. Select 1 or several sections corresponding to topics of greatest interest (Duration: [1 hour per section) 3. Present an overview of the main messages using the 10 slide summary in the annex at the end of this slide deck (Duration: 30 minutes) • The comment pane for each slide provides guidance on the main message for the slide in question and additional detail useful in presenting. Presenters/trainers are advised to familiarize themselves with the Toolkit. • When using these materials, please give attribution to CGAP as the source.
    6. 6. Definition: Branchless Banking POS Branchless Banking Agent Delivery of financial services outside Phone conventional bank branches using retail agents and technology
    7. 7. Definition: Provider Company which manages customer accounts Bank Non-bank
    8. 8. Agent network manager (ANM) Any business or individual which helps a provideridentify, vet, train, monitor and manage agents
    9. 9. Definition: Agent Agent Operates the cash service point where the customer does cash-in and cash-out transactions. Typically registers new clients as well.
    10. 10. Agents are increasingly used by all types of financialinstitutions to distribute financial servicesCountry Provider Number of agentsBrazil Banco do Brasil 15,300 Bradesco 24,200 Caixa Economica 15,200India FINO 10,000Kenya M-PESA 20,500Pakistan easypaisa 10,500Philippines GCash 18,000Sources: CGAP interviews with senior management ; for Brazilian banks see Banco Central do Brasil,; FINO; M-PESA,see Daily Nation 15 Nov. 2010; for easypaisa; GCash. Current as of time of CGAP research in each market.
    11. 11. Agents fulfill 3 important functions in a branchlessbanking service Verify client Make cash Act as face of identity available the service • Comply with KYC • Enable clients to • Educate clients standards withdrawal and about the service • Guard against deposit on • Troubleshoot fraud demand clients‟ problems
    12. 12. Healthy supply chains with many motivated participantswill help manage risks and drive massive consumer uptake Product MassiveMarketing consumer Compliance uptake risk National Adequate Agents and ANMs presence revenue to share highly motivated Continuity risk Many agents Business split across and ANMs many partners Concentration risk
    13. 13. To produce the Toolkit, CGAP analyzed agents in 3 markets BRAZIL In-depth interviews with INDIA 466 agents Delhi Data on 16,000 Bihar agents KENYA Karnataka Interviews with 24 providers and agent managers
    14. 14. Analysis focused on 5 branchless banking services Bradesco Safaricom (MNO) TELECOM SERVICE 1,000 agents 6,000 outlets State Bank of State Bank of AGENT India India MANAGERS (Top Image, superagent banks, aggregators) 21,000 agents 10,000 agents 500 agents NON BANK-BASED BANK-BASED
    15. 15. Agent Toolkit Part I:Economics of the Supply Chain 1. Agent Business Case a. Upfront Capital b. Liquidity Management c. Rigid Staff and Space Costs d. Security Risks e. System Interruptions f. Effect on Agent‟s Other Line of Business g. Adequate Revenue at Start-up h. Major Costs Related to Growth i. Fragmenting Demand Across Too Many Agents 2. Agent Network Managers a. Roles of ANMs b. ANM Business Case 3. Supply Chain Revenue Analysis a. Revenue Sources in the Supply Chain b. Enhancing Revenues in the Supply Chain
    16. 16. Agent Toolkit Part II:Building an Agent Network 4. Structuring an Agent Network a. Three Agent Network Structures b. Implications of Structure on Overall Service c. Example: M-PESA‟s Changing Structure over Time 5. Managing Agents a. Selecting Agents Available online b. Getting Agents Started http://www.cgap.org c. Paying Agents /p/site/c/template.rc/ d. Managing Liquidity 1.9.49831/ e. Ongoing Monitoring and Management f. Reducing Impact of Theft, Fraud and Abuse 6 . Annexes a. Financial Model with M-PESA Case Study b. Analyzing Agents in the Field c. Useful Documents (sample contracts, applications, monitoring instruments, job descriptions, commission structures)
    17. 17. SECTION 1:AGENT BUSINESS CASE
    18. 18. How do we make sense of vastly different agents? Hasita João Cynthia School librarian in rural Owns pharmacy in small Owns 2 agent locations Karnataka, India town 40 km outside specializing in M-PESA in Fortaleza, Brazil downtown Nairobi, Kenya Agent profits: $0.91/day Agent profits: $1.96/day Agent profits: $8.53/day Transactions: 34/day Transactions: 40/day Transactions: 152/day
    19. 19. It is useful to picture a risk/return curve for agents, set initiallyby direct costs and remuneration for acting as an agent x Won‟t participate Cost of capital Staff and DIRECTspace COST Liquidity management Will participate 0 0 x DIRECT REMUNERATION
    20. 20. Capital has 2 elements. The first is the amount required. What can providers do? access 1. Amount of capital cost of Agent Most MNO-led schemes capital ANM Afghanistan: M-Paisa ANMs Typical small shop aids often lend start-up capital, for devotes US$1200 added 50% of commissions to M-PESA capital (instead of usual 30%) Provider Colombia: AVV Villas aids provides zero interest loans to agents, with risk-sharing by Cost of Hasita‟s ANM (DDDedo) minimum capital of US$ 107 = 84 days of profit/year* Provider Brazil: client funds become funds bank‟s responsibility upon receipt at agent. Same with FINO agents (India). * Calculated at prevailing MFI interest rates. In actuality, Hasita‟s bank does not require her to put up capital.
    21. 21. The second element of agent capital is liquidity management (i.e. the cost to convert cash to e-float, e-float to cash) trips/ 2. Liquidity day What can providers do? management cost/ trip Establish - Cambodia: WING sets up network well-established stores as of “agents “master agents” of agents” - India: FINO pays well-off “super clients” to have liquidity ready to deposit -Kenya: M-PESA uses banks as “super agents”- Daily rebalancing in most high-volume services- Distance to exchange point drives costGraphic shows rebalancing transactions (orange) and cash balance (blue) of M-PESA agent, Martin.
    22. 22. Staff and space costs create different break even points Profit/day/till Transactions to breakeven 100 87 80- 40 trans/day 60 - 152 trans/day- $0 staff - $6.25 staff 40- $0 rent - $1.48 rent 20 10 4.11 4.26 0 Vincent Cynthia What can providers do?Advise Advise on the impact of taking on Consider Consider special remuneration for staff and space expenses strategic agents
    23. 23. Exogenous factors shift the risk/return curve positively ornegatively Robbery EXOGENOUS System reliability COST x Won‟t participate Allied with brand DIRECT EXOGENOUS COST BENEFIT Foot traffic Will participate 0 0 x DIRECT REMUNERATION
    24. 24. 1 robbery can collapse the business case What can providers do? Require Require security improvements Average Share Share cash robbery loss: insurance costs US$ 8100 Agent liability Set Set cash-on hand = 6.66% limits US$ 540 Equal to 72 days of profit
    25. 25. 5. Agent profitability is highly sensitive to servicedisruptions A Brazilian agent has her POS terminal down for 2 days. She loses 88% of her monthly profit 1200 1175 1162 1150 1125 - 88% 1100 1075 1065 1050 1038 1025 1000 Monthly revenue (USD) Monthly expense (USD)
    26. 26. Foot traffic benefit can be a substantial exogenous benefit 73% of Brazilian agents report 12 $11.21 increased foot traffic 10 $9.25* 8 Average foot traffic 6 4.7x increase = 37% more customers 4 $1.96 2 What can providers do? 0 Agent profits Increased sales Total profitDocument Document foot * Assumptions: ¼ of clients for agency services make additional purchase. Each traffic benefits incremental sales yields average profit of US$ 1
    27. 27. To complete the picture, we must recognize that certainfactors create “jumps” in the agent’s risk/return curve EXOGENOUS COST x Won‟t participate Fragmenting demand DIRECT EXOGENOUS COST Growth- BENEFIT related costs Minimum required to Will start participate 0 0 x DIRECT REMUNERATION
    28. 28. The agent business case presents a multi-faceted puzzle.Understanding and tracking its evolution requires a dedicated entity Robbery EXOGENOUS System reliability COST x Won‟t participate Fragmenting demand Cost of Ally with capital brand Staff EXOGENOUS and DIRECT space COST Growth- BENEFIT related costs Liquidity Foot traffic management Minimum required to Will start participate 0 0 x DIRECT REMUNERATION
    29. 29. Exercise: let’s look at 3 agents Hasita João Cynthia
    30. 30. Trainer’s guide for Session 1 Exercise - Distribute copies of the handout (embedded at right) to participants to read. - Divide participants into groups and ask them to discuss the questions within their group. Then reconvene and ask groups to report back their answers to the questions. - The trainer can use the next slide to draw attention to key takeaways.
    31. 31. How do the key features of the business case stack up? Question Hasita Joao Cynthia Provides capital? Liquidity management costs? Staff and space costs? Is security a major issue? System reliability issues? Positive exogenous benefit? Which of the 3 agents should Which type of agent would be paid the most per work best in your market? transaction? Worst?
    32. 32. SECTION 2:AGENT NETWORK MANAGERS
    33. 33. Most providers use one or more Agent NetworkManagers Identifying agents Managing Agent Contribution to and helping them get Operations overall strategy started Selecting Influence Agents pricing & Regular Monitoring product Visits design Training Agents Support in Rebalancing & Key interface Liquidity with customers Management for marketing and other functions
    34. 34. How does M-PESA use Agent Network Managers? • Develops eligibility criteria & manages recruitment process • Area Sales Managers do some direct monitoring • Runs agent call center • Defines all aspects of business strategy M-PESA Super agent Top Image Aggregators Banks • Vet applicants • Provide training • Identify potential applicants • Monitor fortnightly • Special facility for • Variable role in monitoring and rebalancing rebalancing • Has influenced business decisions like pricing and eligibility
    35. 35. ANM pay must be linked to responsibilities they aretaking on M-PESA AGGREGATOR ANM IN BRAZIL Selecting Agents ✔ ✔✔✔ Maintaining ✔✔ Equipment Training ✔ ✔✔✔ Rebalancing ✔ Monitoring ✔ ✔✔✔ Contribution to ✔✔ business strategy Share of Commissions = 20% 60%
    36. 36. ANM Business Case: Mr. Sinha from India EKO Agent Network Manager: Sinha REVENUE Number of agents 35 Accounts opened per agent 57 commission / account opened 0.54 Volume of Transactions per agent 1,322 commission/transaction 0.10% Total Revenue 1,133 EXPENSES Transportation 109 Wages 413 Total Expenses 522 MONTHLY PROFIT (US$) 611 Mr. Sinha makes $4,300 from other distributor business and $611 from EKO. If he can reach EKO‟s target of 100 agents, he will be making $1,800 and this will be his single most profitable product.
    37. 37. Agent Turnover kills the ANM Business Case Impact of Agent Inactivity on ANM Business Case in Brazil Average transactions 450 per month 400 350 300 250 200 400 150 100 200 50 0 For the ANM to break In reality, 50% of agents are not even, theoretically each agent active so those that are must do must do an average of 200 400 transactions per month for transactions per month ANM to break even
    38. 38. Who might be an ANM? Businesses already doing the following might be good agents: DISTRIBUTION MARKETING & CASH OF CONSUMER PROMOTIONS TRANSPORT GOODS • Distributors of • Companies that do • Armored cars events, distribute • Companies who FMCG, airtime and other products which have marketing materials, etc. maintain ATMs extensive reach
    39. 39. Trainer’s guide for Session 2 ExerciseTrainer’s guide for Session 1 ExerciseTRAINER NOTES:• Divide participants into groups of 3-4people and have everyoneread/discuss case study• If useful, provide brief background tobranchless banking in Brazil (seenotes below)• Use the following slide to ensure keymessages come through
    40. 40. GROUP EXERCISE:Business Case for an ANM, BancoCenter CHANGES CHALLENGES MADE BY ANM • Fraud and Theft • Large investment in • Faulty technology – for Technology agents and HQ MIS •High agent • Introduction of high turnover margin payroll loans
    41. 41. SECTION 3:SUPPLY CHAIN REVENUE ANALYSIS
    42. 42. Supply basics: everyone must be happy Revenue must be adequate Yet many struggle to meet to support all firms: this requirement: - Provider - The agent network itself - ANMs - Unstable transaction platform - Agents - Cumbersome sign-up - Others (e.g. partner banks) - Inadequate marketing spend - Poor choice of product
    43. 43. M-PESA set expectations unrealistically high for others M-PESA Monthly Revenue mid-2010 US$ 12 million in revenue/mo Safaricom shares 42% with supply chain partners Average small store earns 3.2x more from M-PESA than airtime ANMs typically earn >US$ 5000/month in commissions Customers provide 85% of revenue generated
    44. 44. Most branchless banking services see less aggressiveuptake from the market
    45. 45. What if we “discount” M-PESA to be more similar with other pioneers in branchless banking?7 services with good data: Registered Active Trans per users rate month- Banco Postal (Brazil)- FINO (India) M-PESA 13 mil 70% 5.3- GCash (Philippines) (Kenya)- M-PESA (Tanzania)- Smart Money (Philippines) 7 others 5.2 mil 53% 2- WING (Cambodia)- WIZZIT (South Africa) Typical MM <1 mil 20% 1 service M-PESA 12 Agent revenue at Contribution to discounted level revenue 7 others 1.5 $2.71 1.5% 0 5 10 15 Gross revenue per month, US$ millions
    46. 46. Providers have 2 primary options to generateadditional revenue1. Intensify transactions 2. Realize benefits to core per client business – Additional payments – MNO: churn reduction, – Additional products airtime distribution (savings, credit and – Merchants: Foot traffic insurance) – Banks: reduced cost/transaction For more, see Section 3 of CGAP‟s Toolkit: http://www.cgap.org/p/site/c/template.rc/1.9.49831/ A financial model is also available: http://www.cgap.org/p/site/c/template.rc/1.9.49775/
    47. 47. Providers facing limited revenue may be tempted tosqueeze the supply chain. This is usually a mistake. Low uptake by clients Clients unable to find transaction Limited revenue points Agents and Provider cuts ANMs unhappy commissions
    48. 48. Trainer’s Guide for Session 3 Exercise- Distribute copies of the handouts (embedded at right) to participants. It will be best if they have access to laptops for this exercise, but it is possible to do it with pen and paper as well.- Divide participants into groups. One group will be a provider launching a new mobile money service. Each of the other groups is an ANM company bidding to win a contract to set up and manage an agent network for the provider. The ANM companies must each put together a proposal, from which the provider will choose a winner.- Use the next slide for discussion, beginning with the provider, but inviting ANM companies to contribute their thoughts as well.
    49. 49. Discussion Guide: Exercise• Provider: tell us which proposal you have selected as the winner, and why?• Provider: were there some proposals which took very different approaches than the others? What were the strong and weak features of these?• ANM companies: what was the most difficult part of this exercise?• What lessons should we draw from this exercise?
    50. 50. SECTION 4STRUCTURING AN AGENT NETWORK
    51. 51. When thinking about agents, many providers startwith the details How much should I pay my agents? What kind of agents Does CGAP should I have training select? curriculum for agents?
    52. 52. 3 Structures for agent networks 1. Existing retail chains 2. Build network from scratch 3. Leverage existing distribution system
    53. 53. EXAMPLE:Bradesco Bank in Brazil uses postal network
    54. 54. Trade-offs in agent structure:Operational Readiness Systems and processes that need to be in place before service can launch: • Hiring/training staff • IT Post office • Cash Transport infrastructure already • Monitoring established throughout country – outlets, utilities, compu ters already in place READINESS = HIGH
    55. 55. Trade-offs in agent structure:Reach Quantity and location of outlets • Rural vs. urban • Sending/receiving corridors • Target customer • 6,000 outlets • Rural outlets can do more than 10,000 transactions a month REACH = HIGH
    56. 56. Trade-offs in agent structure:Control 1. How much control the HQ has over outlets (e.g., quality control) 2. How much control or leverage provider has • Banco Postal high over network as a whole bargaining power compared and agents with individual agents (e.g., incentivizing front- • Commissions are 5-10 line staff, power balance) higher than those of individual merchants CONTROL= MEDIUM
    57. 57. Using existing retail chains offers highreadiness, less control Very high HQ should have good control. Provider minimal Depends on control over network but outlets. usually limited to urban areas
    58. 58. Each provider needs to find structure that fitsneeds now, and in the long-term
    59. 59. Trainer’s guide for Session 4 ExerciseTRAINER NOTES:• Divide participants into groups of 3-4people and assign each group tofocus on one particular „phase‟ of M-PESA‟s growth• Use the following slide to ensure keymessages come through
    60. 60. GROUP EXERCISE:M-PESA’s changing structure over time NETWORK OPERATIONAL REACH CONTROL STRUCTURE READINESSPHASE 1 Leverage existing MEDIUM/HIGH LOW HIGH distribution system (Adequate for start-up)PHASE 2 Build own MEDIUM HIGH LOW network (and still some leveraging)PHASE 3 All 3 – mostly MEDIUM HIGH MEDIUM build own network of small stores
    61. 61. SECTION 5MANAGING AGENTS
    62. 62. 6 areas of agent management 1. Selecting Agents 2. Getting Agents Started 3. Paying Agents 4. Managing Liquidity 5. Ongoing Monitoring and Management 6. Reducing Impact of Theft, Fraud and Abuse
    63. 63. 1. Selecting:Qualities to look for in prospective agent QUALITY 1. Ability to maintain sufficient cash and float balances 2. Customer profile suitable to target clients 3. Age, education, and experience of proprietor 4. Strategic Location 5. Proximity to banks/ATMs 6. Trust of Community 7. Business Activity 8. Literate staff 9. Willingness and motivation to try new product
    64. 64. 2. Training:M-PESA agents receive 6 hours of initial training 1. M-PESA Basics 2. Anti-Money Laundering 3. Float Management 4. Store Management Till 5. Customer care
    65. 65. 3. Paying:5 decisions to make regarding agent pay 1. What is the balance between registration and transaction commissions? 2. Which transactions should agents get paid for? 3. How should commissions be calculated? 4. Should agents be allowed to set the final price? 5. How often should agents get paid?
    66. 66. 4. Managing Liquidity:Start-up Capital Agents PROVIDER OF START-UP Transaction CAPITAL Provider
    67. 67. Rebalancing cash and e-float • In Brazil, many agents have full responsibility for AGENT rebalancing, at great cost in time, money and safety. AGENT, • M-PESA agents are responsible for rebalancing, but superagents and ANMs provide support. Superagents are WITH bank branches with special facilities and queues for M-PESA SUPPORT agents. AGENT • In India, ANM FINO takes full responsibility for rebalancing. NETWORK Full-time staff are dedicated to visiting agents whenever they MANAGER need cash delivered or picked up. • In Colombia, the bank AV Villas outsources the rebalancing PROVIDER function to a security company.
    68. 68. Calculating agents’ liquidity management costs &upfront capital
    69. 69. 5. Ongoing monitoring:Methods of monitoring vary greatly Top Image staff monitor M-PESA Telecom Services monitors its agents agents by personally visiting each remotely via an MIS system and only agent once every two weeks visits once every two months
    70. 70. Keep monitoring instruments simple and consistentM-PESA Monitoring Example AVAILABILITY OF: 1. Float 1 2. Cash 1 3. SIM replacement cards 0 4. Log books 1 STANDARDS FOR: If score is 5. Assistants 1 below 7, agent is not 6. KYC 1 in compliance 7. Recording of transactions 0 and receives VISIBILITY OF: a „red flag‟ 8. Thematic advertising 1 9. Pricing poster 1 10. Agent Number 1 TOTAL 8
    71. 71. Some indicators to consider measuring LIQUIDITY M-PESA 2009 1. % of customers unable to withdraw 5% 2. % of customers unable to deposit 4% 3. Average number of rebalancing trips per day 1 4. Total Capital (cash and efloat) $1,200 actual 5. Total times previous day‟s largest 1.5 deposit/withdrawal required in cash/efloat VOLUME OF TRANSACTIONS 6. Number of transactions per day per agent 86 7. Average profit per day per agent $5.01
    72. 72. 6. Reducing theft, fraud and abuse:4 steps to reduce theft 1. Require secure premises 2. Lower cash limits 3. Use armored vehicles 4. Purchase insurance
    73. 73. Limiting the impact of fraud and abuse AREA OF RECOMMENDATIONS FRAUD/ABUSE Money Laundering • Comply with regulations and seek to influence effective, proportionate regulation Customers are • Providers can educate customers (e.g., do not defrauded disclose PIN, always wait for confirmation SMS) • Have a call center for customer complaints Agents and customers • Develop rigorous MIS to monitor transactions defraud system • Examine pricing and commission models for vulnerability for fraud Customers (thieves • Invest in rigorous agent training posing) defraud agents • Design user interface so messages from provider are distinctive and not easily imitated • Consider compensating defrauded agents
    74. 74. Trainer’s guide for Session 5 ExerciseTRAINER NOTES:• Divide participants into groups of 3-4people and have them read anddiscuss the case study• Use the following slide to ensure keymessages come through
    75. 75. Training is adapted based on factors like regulations,product offering and agent responsibility FINO GCASH M-PESA TELECOM SERVICE Regulations • Regulations originally required all agents to be trained in Manila by Central Bank Product • Savings • Remittance product • Focus on • Basic bill payments Offering and account requires special training liquidity very simple but Delivery requires some (see above) management and method of delivery financial customer care (POS) requires education and due to high training lots of follow- volumes up by agents Agent • Agent has full •Agents do not • Agent just conducts Responsibility responsibility have to sell but basic transactions – of selling do have a lot of minimal training product to responsibility required customers and (e.g., liquidity training them management) on it
    76. 76. CONCLUSION
    77. 77. Key takeaways1. The agent business case can be thought of as a risk/return curve driven by (1) direct costs and remuneration of being an agent, (2) exogenous factors and (3) drivers which kick-in at certain points in time.2. The most critical factors tend to shift over time. Provider‟s must constantly update their understanding, which is one reason that a dedicated ANM is valuable.3. Most providers will need a dedicated ANM – either in-house or outsourced – to help identify and manage agents. Some ANMs also contribute to business strategy.4. Implementations must generate – and share – sufficient revenue to support all companies in the supply chain.
    78. 78. Key takeaways5. Agent networks can be constructed from (1) large retail networks, (2) individual, unaffiliated stores, or (3) distribution chains.6. Each of these 3 structures offers trade-offs between (1) operational readiness, (2) reach, and (3) control. Providers often use a combination to obtain the optimal network configuration.7. Providers and ANMs will need to develop tools and strategies to select, train, pay and monitor agents. They also need to develop systems to manage liquidity and reduce the impact of theft, fraud and abuse.
    79. 79. Advancing financial access for the world’s poor www.cgap.org www.microfinancegateway.org
    80. 80. ANNEX: MAIN MESSAGES IN 12 SLIDES
    81. 81. This material is produced by CGAP, and based on itsAgent Network Management Toolkit “Advancing financial access for the world’s poor” CGAP’s Technology Program is funded by: www.cgap.org/technology CGAP’s Agent Toolkit is available online http://www.cgap.org/p/site/c/template.rc/1.9.49831/
    82. 82. To produce the Toolkit, CGAP analyzed agents in 3 markets BRAZIL In-depth interviews with INDIA 466 agents Delhi Data on 16,000 Bihar agents KENYA Karnataka Interviews with 24 providers and agent managers
    83. 83. It is useful to picture a risk/return curve for agents, set initially bydirect costs and remuneration for acting as an agent x Won‟t participate DIRECT COST Will participate 0 0 x DIRECT REMUNERATION
    84. 84. The agent business case presents a multi-faceted puzzle. Understanding and tracking its evolution requires a dedicated entity Robbery EXOGENOUS System reliability COST x Won‟t participate Fragmenting demand Cost of Ally with capital brand Staff EXOGENOUS and DIRECTspace COST Growth- BENEFIT related costs Liquidity Foot traffic management Minimum required to Will start participate 0 0 x DIRECT REMUNERATION
    85. 85. Most providers use one or more Agent NetworkManagers Identifying agents Managing Agent Contribution to and helping them get Operations overall strategy started Selecting Influence Agents pricing & Regular Monitoring product Visits design Training Agents Support in Rebalancing & Key interface Liquidity with customers Management for marketing and other functions
    86. 86. How does M-PESA use Agent Network Managers? • Develops eligibility criteria & manages recruitment process • Area Sales Managers do some direct monitoring • Runs agent call center • Defines all aspects of business strategy M-PESA Super agent Top Image Aggregators Banks • Vet applicants • Provide training • Identify potential applicants • Monitor fortnightly • Special facility for • Variable role in monitoring and rebalancing rebalancing • Has influenced business decisions like pricing and eligibility
    87. 87. Supply basics: everyone must be happyRevenue must be adequate Yet many struggle to meetto support all firms: this requirement:- Provider - The agent network itself- ANMs - Unstable transaction platform- Agents - Cumbersome sign-up- Others (e.g. partner banks) - Inadequate marketing spend - Poor choice of product
    88. 88. Providers facing limited revenue may be tempted tosqueeze the supply chain. This is usually a mistake. Low uptake by clients Clients unable to find transaction Limited revenue points Agents and Provider cuts ANMs unhappy commissions
    89. 89. 3 Structures for agent networks 1. Existing retail chains 2. Build network from scratch 3. Leverage existing distribution system
    90. 90. Each provider needs to find structure that fitsneeds now, and in the long-term
    91. 91. 6 areas of agent management 1. Selecting Agents 2. Getting Agents Started 3. Paying Agents 4. Managing Liquidity 5. Ongoing Monitoring and Management 6. Reducing Impact of Theft, Fraud and Abuse
    92. 92. Keep monitoring instruments simple and consistentM-PESA Monitoring Example AVAILABILITY OF: 1. Float 1 2. Cash 1 3. SIM replacement cards 0 4. Log books 1 STANDARDS FOR: If score is 5. Assistants 1 below 7, agent is not 6. KYC 1 in compliance 7. Recording of transactions 0 and receives VISIBILITY OF: a „red flag‟ 8. Thematic advertising 1 9. Pricing poster 1 10. Agent Number 1 TOTAL 8

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