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.

1. Agency banking: new frontiers in
financial inclusion
Thought Paper
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2. 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, but
02 Thought Paper

3. separately; the dealer is able to close the sale retail chains, and so on. They also have the
right away; and the financing partner has option of entering into different kinds of
access to a more or less captive market. distribution alliances with a variety of agents,
from individuals to post offices to news agents
This is just one example of the linkage
to grocers to regulators even, to serve the
between agency banking and new-definition
unmet financial needs of unbanked as well as
financial inclusion. Banks can enter into similar
banked customers.
partnerships with white goods dealers, large
Why agency banking?
The advantages of agency banking are multifold: banking penetration in underserved areas in
the past, can now help banks tap into other
Distribution strategy segments, by becoming an integrated component
Changing customer demographics, competition of multi channel banking.
and a host of economic factors have forced
Cost effective model
banks to take a relook at their distribution
strategy. Agency banking enables them to The heavy cost of servicing low value accounts
extend their reach not only into areas with poor and providing physical banking infrastructure
branch penetration but also up to the doorstep to unbanked areas was a major impediment
of those who are reluctant, or otherwise unable, to financial inclusion in the past. Worse, this
to make a trip to the nearest branch. model was heavy on the pockets of poor
customers, who had to spend time and money
Channel innovation to travel long distances to the nearest
Channel innovation has revolutionized the face branch. Agency banking rationalized banks’
of banking around the world. Consumers’ operational expenditure, and reduced the cost
adoption of multiple channels has fueled their to customers, while enabling wider reach. In
expectation of true multi-channel banking, time, agents also took up the responsibility of
which 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 for
even a single transaction. Agency banking, an banking institutions.
important channel innovation that has improved
Agency banking as we see it today
Becoming widespread Could jeopardize banks’ credibility,
if not careful
Many banks and non-banking financial companies
around the world, from Brazil to India to Regulators want to achieve financial inclusion
the Philippines, have discovered the many through a profitable, low cost delivery model
advantages of agency banking and are that simultaneously protects consumers and
increasingly employing agents. That being said, the integrity of financial services. There might
agency banking differs widely in scope, structure be instances when banking agents fail to
and operations across geographies. provide quality service or compromise customer
Thought Paper 03

4. 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 touch
04 Thought Paper

5. Role of technology
Agent empowerment Holistic view
Agents, being neither employees nor customers, Agents carry out banking activities on behalf
have no access to banks’ IT solutions. But of banks and a few even have sub-agents
having entrusted them with various banking working for them. Consider the example of a
responsibilities, it is the duty of the bank to bank agent who on-boards and services
provide them access. customers, but whose sub agent only handles
cash deposits and withdrawals. The technology
Banks must ensure that the technology platform
used by the bank should support such a
enables agent empowerment and supports their
structure and facilitate a holistic view of the
activities 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 performance
efforts to cross-sell and up-sell. Banks should
of individual agents through a single
also provide online help to facilitate real-time
dashboard view.
solutions to agents’ problems.
Conclusion
Banks must have a clear view of the powers Since agency banking enables banks to save
they would like to devolve upon their agents. significantly on the cost of setting up and
Regulators can set the broad rules, but it is maintaining branches, it is only fair that they
the responsibility of individual banks to pass on some savings downstream. This leaves
provide clarity. The regulator should also be the tricky issue of how much to pass on to
coherent on the extent of banks’ liability in agents, and from them to customers, to
case their agents over-exceed their authority. be decided.
Going forward, there may be need for regulations
enforcing agent accountability.
References
1. 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

6. About Finacle
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and customer experience, arming them with ‘accelerated innovation’
that is key to building tomorrow’s bank.
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