Free Agents:

How shop owners can serve as agents enabling financial Inclusion

Financial services should be a human right, after years of being treated like a privilege, banks, mobile phone providers, and fintechs have started to provide products targeted to the unbanked populations of the world. They filled the void in banking in rural unpopulated areas of emerging markets where physical infrastructure limited the expansion of traditional financial services. One key development enabled banking to reach where it’s never been before: branchless banking agents. Agents bridge the gap between banks and the unbanked. The success of agents can be attributed to three main characteristics: credibility, accessibility, and low cost.

Credibility

Credibility is a concern for the unbanked population, who have not been exposed to financial services in the past. Why would any person place their money in a bank they have never heard of? The easy answer is they wouldn’t, or it would be extremely difficult to sell them on the idea. To show the importance of credibility in emerging markets Richard Leftly, CEO of Microensure, a micro insurance company that provides affordable insurance policies to citizens of developing countries, at the Ogilvy Telco conference stated, “The conversion rate is anywhere from 25–80%, it (the range) seems to depend upon whether there has been a recent claim in the community, if people know there has been a recent event and see the product has worked they are much more receptive to our product. In other words, once a service is deemed credible and trustworthy by a community, sales skyrocket.” In these markets having the lowest price point or a well-known brand might not be enough to sell the product, customers rely on their community and personal networks to ensure credibility.

In western society, banking has become a societal norm, with most following in the footsteps of their parents, and their parents before them. However in bankless communities, saving as money as cash is the societal norm. As a result, there are over 4 billion people who are not a part of the banking system.

Agents, usually local shop owners, can help ease people’s concerns by bringing credibility and trust that banks previously lacked in rural communities. Shop owners have been selling goods to community members for years. Trust is already there, it has already been earned. It would take time for people to trust the new company, however, when Prakash from down the road says he can help you top up, load airtime or save your money, you are much more likely to trust him, making the adoption rate quicker, cheaper, and easier.

Accessibility

Banks have little motivation to open branches in rural areas, as the cost outweighs the revenues. In order to solve these problems, banks have used agents, typically store owners, to increase accessibility. Even in the most remote places, mom and pop shops exist, enabling banks to reach the unreachable. Banks and mobile network operators often have networks of around 100,000 agents. M-PESA and bKash, the top of the mobile financial service food chain are nearing closer to 140,000 agents a piece. The shear number of agents makes a two-hour commute, a 10-minute walk, enabling millions of people to access banking services more easily.

Financially

Cost associated with agents is twofold: first the cost of staffing an agent, and second, the cost for the end-user. Financially, the agent-bank relationship, makes perfect sense. The banks get to expand their customer base, diversify their revenue streams, and increase their revenues for a fraction of the cost of a brick-and-mortar bank branch. The shop owner has another source of income, with increased foot traffic to aid with sales for other products as well.

On the consumer side, the financial services offered to the unbanked are inexpensive, even for the impoverished. For example, peer to peer money transfers start at .01 USD and go up to $1 USD depending on the amount being sent. Agent withdrawals take a percentage, usually .5% to 2% of the transaction, making agent banking viable for low income families. Banking allow savings for a future with better education, technology, and livelihoods and provides protection from disasters, war, and death.

Conclusion

Beginning with the success of M-PESA in Kenya, banks, startups, and telecoms have all come together to liberate the unbanked population. The success stories reveal the value of agents worldwide. The emerging markets did not have a western model to follow, innovation had to occur to fix this problem. The solution shows that no matter how transformative the technology, there will always be a need for the human element. In a world, where blockchain, IoT, and robotics, are dominating innovation, we still need Prakash from down the street.