According to a study conducted by McKinsey, nearly 2.5 billion adults are financially unserved and the vast majority of this group lives in Africa, Asia, Latin America, and the Middle East. In order to capture this share of the market, more and more financial service providers are rolling out mobile first solutions to maximize access to this segment of the population. At the same time, bank branches and ATMs tend to be located in urban areas and not reaching unbanked people in rural areas. This creates an important barrier, because access to financial products typically requires KYC processes to occur … at a bank branch.
So how did some of the mobile payment solutions offered by the non-traditional players like MNOs become so successful? Next to the fact that these providers already have the customer install base in the underserved segment of the market, their success in rolling out financial services can be attributed to the simple fact that customers can enroll via a local agent. By providing local access to banking services through an agency network, financial service providers can create a unique opportunity to increase their market share, in particular in rural areas where a significant portion of the unbanked population tends to live. At the same time it offers a significant cost reduction, eliminating the need to establish physical presence and lowering the cost of handling low value transactions.
Subscribing to financial services has traditionally been a face-to-face, in-branch process. It usually requires potential customers to present documentation to prove their identity and financial history. Current mobile devices such as smartphones or tablets are equipped with cameras and can often perform biometric authentication, and therefore they offer a viable alternative for this in-branch KYC process. Using mobile devices equipped with cameras, the bank’s agents are able to perform enrollment on site, capturing an image of the customers and their documents.
Where agent banking can be seen as a way for banks or microfinance institutions to expand their footprint, it also has some clear benefits for customers. By bringing banking to the customer, these customers can enjoy better and safer access to financial products. But there is also a strong incentive for agents to be part of these initiatives. Their services are rewarded with commissions and offering these additional services can help these agents grow their own business.
The benefits of agency banking should not only be considered in the context of emerging markets. In developed regions, banks are also suffering to on-board clients who opt for mobile only. As long as enrollment still requires potential clients to visit a branch, banks offering a mobile only brand will still miss out on acquiring new clients. And it does not stop at the tech savvy people who want to use fully digitized banking services. As the group of elderly people grows, it also means that banks should consider other options to service this segment of the market besides the traditional banking channels. And why not by bringing banking to the people instead of having them go to the bank’s branch? Whether it is intended to foster financial inclusion in emerging markets or to create more convenient access to banking services in developed markets, agent banking offers banks another distribution channel that will attract new clients and reinforce their brands.