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| Photo Source: rest of world.org |
With around 8,000 bank branches, most of them in major cities, in a country of over 200 million people, formal banking services remain inaccessible to most Nigerians. One quarter of respondents in a 2018 survey by Enhancing Financial Innovation and Access (EFInA) said distance is one of the discouraging factors in patronizing conventional banking institutions.
For the past three years the survey was conducted, there has certainly been more financial inclusion for Nigerians due to the emergence and penetration of agency banking and mobile money businesses in the country.
They have improved access to financial services for the unbanked population in rural areas and for those on lower incomes in urban areas, thanks to the number of fintech startups like Paga, OPay and other telecommunications companies like MTN.
The Central Bank of Nigeria has licensed a large number of financial technology and payment services banks engaged in agency banking, mobile money, and other financial services.
Before 2018, the Nigerian government introduced a number of agency banking regulations, but the main initiative was not successful. In 2019, the Nigerian government introduced the Shared Agent Network Expansion Service (SANEF) through the Central Bank of Nigeria. Deposits money banks (DMB), NIBSS and Licensed Mobile Money Operators / Shared Agents, SANEF has recruited, trained and supported more people to become agents while providing some funding to companies to expand agent networks in neglected Nigerian cities.
Commercial banks have as well keyed into agency banking and mobile money through the expansion of retail banking to include agent networks as a means of distribution, in addition to the use of conventional bank branches.
Nevertheless, there still remain untapped opportunities in agency banking and mobile money. The market is still expanding. The Covid-19 pandemic has introduced a new normal, people prefer to patronize agency banking agents these days than going to bank branches due Covid-19 pandemic that has increased waiting and service times in the banks. Most people only visit conventional bank branches for customer related issues — complaints and documentations.
Importance of Agency Banking
Agency banking is a model that takes financial services to the unreached by deploying human agents networks or merchants, equipped with point-of-sale (POS) machines. In essence, agency banking is approaching the point where customers can conduct financial transactions without visiting banks. While most people go to bank branches or ATMs in cities like Lagos, Abuja, people in most rural areas will find an agent much closer than they would to a bank branch or ATM point. Nigeria, for example, has about four bank branches and 15 ATMs for every 100,000 adults. But it looks like there are over 400 POS devices for the same number. This relationship can be further reduced by introducing new agency banking service operators and / or expanding existing services to reach those barely reached.
People without bank accounts also sometimes use agent accounts to send and receive money.
The Profitability of Agency Banking and Mobile Money in Nigeria
Whenever an agent charges a fee for a transaction, there is a sharing agreement between the agent and the super agent who is like the boss on how the profits are shared. There is a "price war" in the agency banking space in Nigeria, with OPay and TeamApt being the most active players in this war. The percentage of fees that go down to superagents have decreased significantly, while agents get more as superagents try to keep their agents. Despite the decrease in the revenue share of the super agents, both the supper agents and their agents are making a lot of money as more Nigerians patronize agency banking agents. Presently charges are as follows:
- N100 for transactions of N5,000 and below
- N200 for every transaction above N5,000 but below N10,000
- N300 for transaction between N10,000 to N20,000
- N400 for transaction above N20,00 and below N40,000
- N500 for transaction above N40,000 to N50,000
In the meantime, some other players such as Paga and Esettlements have decided not to actively participate in the price war. Their strategy is to focus on quality of service and ensure smoother dynamics, which is important for agents to go beyond winning transactions. That’s the economics behind the service, and companies have to get it right at scale.
For financial institutions, there are more transactions and they’re able to offer more solutions at the last mile. FirstBank has the largest agent footprint of all the banks in Nigeria, and last year recorded $16.2 billion in agency banking transaction value. For agents, the fees are the major benefits, and when those agents are merchants, there’s increased foot traffic to the store of the merchant. Increasingly, with the price war going on, the profit margins of agents have been growing.