Finacle thought paper identifies agency banking as a new frontier in financial inclusion. It highlights the important features and benefits of banks emerging with non-financial institutions in order to drive business growth.
Finacle - Agency Banking: New Frontiers In Financial Inclusion
Agency banking: new frontiers infinancial inclusionThought Paperwww.infosys.com/finacleUniversal Banking Solution | Systems Integration | Consulting | Business Process Outsourcing
Agency banking Banking today is not restricted to banking large number of cases, they gain entry into the organizations alone. Several non-banking business by partnering with other banks in a institutions from unrelated verticals like telecom win-win arrangement. Take the example of and retail are stepping into this space by Bansefi, a state-owned bank in Mexico. It has offering financial products and services like developed a network of 200 non-bank entities mobile wallets and white-labeled loan products. – also called Agencies – providing remittance services, to supplement its distribution network Despite operating in a niche, non-banking of 500 branches. In fact, most of Latin America institutions are very much in competition with has a highly developed Agency Banking channel, regular banks. Take Wal-Mart in the United which has contributed significantly not only States, for instance. Although it does not run a to the rural financial ecosystem but also to full-fledged bank, it gives other banks a run mainstream banking. for their money by providing personalized financial services at its Money Centers. What Outside of Latin America also, agency banking is significant is that Wal-Mart attracts not only has played a pivotal role in building financial unbanked customers, but also those with inclusion. And as it evolve d – benefiting from existing bank accounts. the entry of new entities as agents and the emergence of Internet and mobile technology While massive organizations like Wal-Mart have – agency banking has expanded the definition the muscle to create their own network, for of financial inclusion, as explained in the most other non-banking institutions, going following section. it alone is never an option. In fact, in a very Financial inclusion redefined Thanks to the above developments, financial nonetheless involve the exchange of money. A inclusion has now come to mean much more classic example of this is automobile finance. than just banking the unbanked. It now refers Years ago, automobile buyers had to fend for to the convergence of various bank and themselves to rustle up financing; you could say non-bank players to provide financial services that in the context of the purchase, they were at lower cost, wider reach and greater financially excluded, because they did not have convenience to all end consumers of financial easy access to funding options. services, unbanked or otherwise. Today, practically every automobile dealer has How does this agency banking-inspired second a tie-up with a bank or consumer finance avatar of financial inclusion make business institution to provide vehicle loans to their sense for banks? In one sentence: by opening automobile buyers. Most of the time, there’s a up new opportunities. representative from the bank or finance company sitting inside the showroom itself, trying to All banking consumers are also consumers wrap up the financing deal once the purchase of other products, which they procure from decision is made. This is beneficial to all parties. different channels. By partnering with an agent, The customer has easy access to funding and is banks can participate in these transactions, saved the bother and delay of securing a loan which may be non-financial in nature, but02 Thought Paper
separately; the dealer is able to close the sale retail chains, and so on. They also have theright away; and the financing partner has option of entering into different kinds ofaccess to a more or less captive market. distribution alliances with a variety of agents, from individuals to post offices to news agentsThis is just one example of the linkage to grocers to regulators even, to serve thebetween agency banking and new-definition unmet financial needs of unbanked as well asfinancial inclusion. Banks can enter into similar banked customers.partnerships with white goods dealers, largeWhy agency banking?The advantages of agency banking are multifold: banking penetration in underserved areas in the past, can now help banks tap into otherDistribution strategy segments, by becoming an integrated componentChanging customer demographics, competition of multi channel banking.and a host of economic factors have forced Cost effective modelbanks to take a relook at their distributionstrategy. Agency banking enables them to The heavy cost of servicing low value accountsextend their reach not only into areas with poor and providing physical banking infrastructurebranch penetration but also up to the doorstep to unbanked areas was a major impedimentof those who are reluctant, or otherwise unable, to financial inclusion in the past. Worse, thisto make a trip to the nearest branch. model was heavy on the pockets of poor customers, who had to spend time and moneyChannel innovation to travel long distances to the nearestChannel innovation has revolutionized the face branch. Agency banking rationalized banks’of banking around the world. Consumers’ operational expenditure, and reduced the costadoption of multiple channels has fueled their to customers, while enabling wider reach. Inexpectation of true multi-channel banking, time, agents also took up the responsibility ofwhich allows them to transition seamlessly on-boarding, managing and servicing customers,between touch points as they fulfill several, or making agency banking a lucrative option foreven a single transaction. Agency banking, an banking institutions.important channel innovation that has improvedAgency banking as we see it todayBecoming widespread Could jeopardize banks’ credibility, if not carefulMany banks and non-banking financial companiesaround the world, from Brazil to India to Regulators want to achieve financial inclusionthe Philippines, have discovered the many through a profitable, low cost delivery modeladvantages of agency banking and are that simultaneously protects consumers andincreasingly employing agents. That being said, the integrity of financial services. There mightagency banking differs widely in scope, structure be instances when banking agents fail toand operations across geographies. provide quality service or compromise customer Thought Paper 03
data. This can affect the credibility of banks, a boarding, account opening, transactions like matter of concern to both banking institutions fund transfers, bill payments, cash deposits and and their regulators. Hence, banks must take withdrawals, and even front office activities care to sign up the right agents, and regularly like enquiry handling. But this is not the case monitor their performance. in reality, due to regulations and control exercised by the authorities as well as Giving rise to monopoly fears operational snags such as the inability to maintain Another cause for concern is that this model required cash levels or adequate security. involves exclusive partnering between banks Finding opportunity in non-retail products with agents and individuals, potentially creating a monopoly like situation, leaving little room Agent services need not be limited to retail for other players. Without a mechanism to products and can include investment products, keep bank fees and charges in check, there’s a as well as services rendered to high net real threat to customer interest. Regulators are worth individuals, institutional customers and therefore searching for ways in which they can so on. In fact, in Australia, about 40% of the spread financial inclusion while encouraging mortgage distribution business is generated market competition. through agent brokers. Facing regulatory and operational hurdles Ideally, agents should be able to replicate most basic banking functions, namely customer on- Future trends Digitization points can be completed at the branch or even on channels like the mobile or ATM. Banks expect agents to use digital tools and Going forward, agency banking will no devices like tablets and Smartphones, so that longer be a “silo extension” of the branch or a they can expand the customer base as well as disparate channel. shrink costs. The digital revolution will attract and encourage more agents to participate. Changing role of branch Channel convergence As agency banking becomes even more widespread, it will reduce footfalls within As part of their multi-channel banking strategy, branches and enable them to focus on banks are looking to integrate agency banking delivering advice and premium services. so that transactions initiated at agent touch04 Thought Paper
Role of technologyAgent empowerment Holistic viewAgents, being neither employees nor customers, Agents carry out banking activities on behalfhave no access to banks’ IT solutions. But of banks and a few even have sub-agentshaving entrusted them with various banking working for them. Consider the example of aresponsibilities, it is the duty of the bank to bank agent who on-boards and servicesprovide them access. customers, but whose sub agent only handles cash deposits and withdrawals. The technologyBanks must ensure that the technology platform used by the bank should support such aenables agent empowerment and supports their structure and facilitate a holistic view of theactivities like on-boarding, account opening, entire arrangement and transactions therein.cash withdrawal and deposits, as well as their Banks should be able to track the performanceefforts to cross-sell and up-sell. Banks should of individual agents through a singlealso provide online help to facilitate real-time dashboard view.solutions to agents’ problems.ConclusionBanks must have a clear view of the powers Since agency banking enables banks to savethey would like to devolve upon their agents. significantly on the cost of setting up andRegulators can set the broad rules, but it is maintaining branches, it is only fair that theythe responsibility of individual banks to pass on some savings downstream. This leavesprovide clarity. The regulator should also be the tricky issue of how much to pass on tocoherent on the extent of banks’ liability in agents, and from them to customers, tocase their agents over-exceed their authority. be decided.Going forward, there may be need for regulationsenforcing agent accountability.References1. www.cgap.org/gm/document-1.9.42401/ 3. en.wikipedia.org/wiki/Banking_agent Updated_Notes_On_Regulating_Branchless_ 4. www.nytimes.com/2011/11/08/business/wal- Banking_Mexico.pdf mart-benefits-from-anger-over-banking-fees.2. mobilemoneyafrica.com/agency-banking- html?pagewanted=all runs-into-hurdles-in-kenya/ Sai Kumar Jayanty Lead Product Manager, Finacle, Infosys Thought Paper 05