Agency Banking: How Banks and FS Providers can Thrive

| min read
agency banking

In Africa, agency services are more commonplace than traditional channels, such as ATMs. Experts Dr. Benjamin Wellstein and Lukas Lauven outline the right agency channel strategy for financial services providers to grow and best differentiate their product offering from the competition.

Over the past decade, an abundance of agency offerings in banking have emerged across Africa from players such as Fawry in Egypt and Zoona in Zambia. These providers have followed the expansion of mobile money services and have been attributed a pivotal role in driving financial inclusion. Not only do agents act as tellers, taking deposits and cashing out funds, but also facilitate transfers and bill payments for people without mobile money accounts. Their outreach is unrivalled. According to recent data by GSMA, there are 340 money agents per 100,000 people in Africa but only six ATMs.

With countless firms dedicated to agency banking in Sub-Saharan Africa, it is something that financial service providers can no longer ignore. Recently, many institutions started offering their clients services through agency banking, such as depositing and withdrawing funds and initiating transfers. With the help of agency services in banking, financial service companies can extend their outreach beyond traditional branch and online channels. They can reach customers previously too costly to serve.

Whereas traditional channels, such as branches, are exclusive to the bank, agents oftentimes serve as outlets for multiple providers. Most countries even mandate non-exclusivity of agents, i.e., the number of providers agents work with cannot be restricted. This prevents providers from creating their own private networks of agents, ensuring that agents can become outposts for all major financial service firms.

Ultimately, agents allow financial service providers to better serve more clients. In their strategy, providers need to address two very different types of customers: the person requesting a service from an agent, and the agent themselves. In this article we discuss the right agency channel strategy for financial service providers. Furthermore, we detail how financial service companies can leverage agency banking to differentiate their offerings.

Agency channel strategy

Due to the (potential) outreach and the relatively low cost to serve, financial service providers are well advised to clarify the role of agency banking in their channel strategy. They especially need to define how agency banking ties into existing channels – such as phone banking, online applications, ATMs, and branches. Points to be clarified include: whether agents simply serve existing customers or should attract new clients, whether they serve the whole range of retail products or are confined to a specific selection.

Over time, we have collected three critical points financial service companies need to account for in their channel strategy:

1. The difference to tech-driven channels, such as phone banking

Customer interaction with banking agents differs significantly from their dealings with ATMs or mobile banking, and there is a cultural edge to it. A large West African bank reported significant increase in agency banking transactions, while ATM interactions were slashed. When studying this customer behavior more closely, managers found most customers preferred human interaction over machine usage, as it provides less potential for malfunction.

Financial service providers can leverage this higher level of trust. If leveraged correctly, banks may increase direct customer interaction through banking agents. Whereas customers often ignore advertisement on ATM screens and within apps, they are rather convinced by agents’ sales pitches. In short, human interaction and individual messages persuade clients rather than standardized commercials.

2. Banks’ limited control over agents

However, financial service companies have limited control over the interaction and experience agents provide. While ATMs and apps can be programmed and branch staff can be trained, agent network providers hardly profit from training their agents to serve customers of a specific bank particularly well. After all, these agents attend to customers from multiple institutes.

Financial service providers can influence only some parameters, namely, by designing processes and work-flows agents need to complete when attending to clients. Agents may be prompted to ask whether clients are interested in additional banking products when depositing cash or making a transfer.

3. Intense competition with other providers using the same network

Eventually, financial service companies need to acknowledge the intense competition in agency banking. The same agent lets customers transfer funds through a range of banks and operators and settle their bills via multiple service providers. Customers may not even care which underlying service their agent chooses – but banks should.

Contrary to popular opinion, financial service providers do not need to outspend their competitors or even run a loss-making agency business. Rather, they should implement intelligent rewards which incentivize agents to act in a certain way and are mutually beneficial to both provider and agents. Instead of offering higher fees to agents in the hope for more transactions, providers can negotiate bonus payments when agents reach specific goals – such as on-boarding a certain number of new clients or selling a dedicated number of products. Such offers align the interests of both parties and help providers increase their turnover.

Optimize the product offer

Formulating a successful product strategy in agency banking relies on two critical components: a product portfolio differentiated from competition, and a dedicated positioning of services. Two levers are especially relevant to differentiate offering from competitors:

1. The scope of offered services

In our projects we often advise companies to diversify their offerings in order to create pull-effects: attracting customers because they get something that is not offered by the competition.

Given the fundamentally different nature of agency banking, however, agents work for many institutions simultaneously and customers cannot always differentiate which underlying service an agent uses for their request. Over time, we have observed multiple intelligent serve expansion approaches relying on third-party integration. An opening strategy, making products and services from other suppliers available through your own offer, can yield high value for customers.

2. The quality of delivered services

A second lever to successful product strategy is service quality. Although financial service companies lack full control over agent networks, they have two domains to ensure high quality customer experience: network infrastructure and customer service solutions. Failed transactions and unstable connections between agents and banking systems are serious annoyances to customers and may deter them from using agency banking again. Teaming up with agent network operators to ensure stable connections between agents and core systems of providers is key to minimize technical glitches.

Customers often find little support when feeling ill-advised or mistreated by agents. Other than in a branch, they cannot simply turn to a manager and voice their concerns. Few financial services providers offer tools to log complaints or are hesitant to investigate these. Yet technology created promising solutions and therefore investment opportunities for providers. Chatbots can easily filter genuine complaints and select serious cases for manual investigation, reporting disputes can be as seamless as sending a text message.

Clear positioning is also important

Besides creating a differentiated offer, financial service providers should ensure a clear positioning of their products (i.e., the fastest, most reliable, most available, etc.). They achieve this not only through openly communicating their value proposition, but also by adjusting it to the specific use-cases that customers request.

Providers need to understand in detail how customers use agency banking and which services are deemed most useful. Modern technology simplifies detailed research to gain insights even during COVID. Once response data show significant patterns on usage behavior, products can be adjusted, and communication aligned with consumer habits.

Key Takeaways

All in all, financial services providers find a range of levers to craft and optimize their approach to agency banking. Providers should acknowledge the different nature of agency services in banking. They can facilitate agency banking to differentiate their offerings, making their offerings accessible to a large segment of the market.

If you have any questions about how to create an optimal agency channel strategy for your business, then feel free to reach out to our experts!

Contact us

Our experts are always happy to discuss your issue. Reach out, and we’ll connect you with a member of our team.