When you visit an agent outlet in Kenya, you often see a number of point-of-sales devices being used by the agent. When you enquire about it, she would mention that each of these devices belong to a different bank. Using this maze of devices, she serves a number of customers from different banks that visit her. In the midst of the COVID-19 pandemic, agents are coping with reduced business and extra costs due to the curfews, social distancing and hygiene, and reduced hours of bank opening. However, one must ponder upon how complicated it must be for her to manage transactions with each of these banks, maintain float to service the customers from different banks, and keep a stock of how much she is making from these transactions.
Building and managing a robust agent network is one of the most difficult tasks for digital financial service providers. Managing distribution through a network of agents across the different areas in a country is an expensive affair. Considering the complexities of building and managing sustainable agent networks, providers have started to collaborate to share resources on agent network management. An innovative business model that reduces the cost of managing agent networks and enhancing reach for providers is the shared agent network.
A shared agent network is an approach that allows several financial service providers to share agency banking infrastructure and technology to serve the customers. A customer of one bank can thus use an agent established by another bank or financial institution.
A shared agent network enables banks to ride on shared infrastructure to expand services to a wider geography and a larger set of customers. It helps rationalize the costs associated with establishing agents across vast operational areas. It also helps to realize the investments from setting up an agency, recruiting and training agents, and managing the agent network. These investments enhance financial inclusion on account of spread and penetration of digital financial services.
Image 1: An informal shared agent outlet in Machakos, Kenya. Photo courtesy: Christopher Blackburn
There are two different forms of shared agent networks:
- Formal shared agent networks as exhibited in Uganda (Agent Banking Company – ABC), Nigeria (Shared Agent Network Expansion Facilities – SANEF) and India (Eko India Financial Services): These are agent networks that are set up to serve several providers through a common network manager.
- Informal shared agent networks as exhibited in Kenya and Pakistan: These are really just agents aggregating and offering services from a variety of providers. Clients either have to transact through one of several providers they have accounts with as is the case in Kenya. Clients can select one from many providers who they do not have to have accounts with in order to transact – as is the case in Pakistan.
Informal shared agent networks came about through organic growth of agent distribution points in ecosystems where agents are by design not expected to provide services of only one provider. Markets such as Kenya and Pakistan have had a relatively longer history of providing an enabling environment for agents to avail services from different financial service providers in a competitive manner.
Individual agents in an informal shared agent network may however lack some of the advantages provided to the formal shared agents, key among them is the ability to manage several interoperable float accounts. Despite lack of such capacity, informal shared agent networks have flourished in early adopting markets of agent banking. In Kenya, for example, some agents provide services of up to 11 financial service providers, with separate devices, record keeping, and float management.
Formal shared agent networks are being adopted in markets where agent banking is steadily picking up through agent network management of several financial service providers offerings by third parties. These third parties are either privately owned or promoted by industry associations. Such institutions are considered to have the professional capacity to manage and expand distribution networks on behalf of FSPs while saving management costs. There has been significant success of this model in some markets where these third parties began by managing agent networks of a single institution and gradually adding the number of institutions that they serve. Eko in India has partnerships with multiple banks where each agent outlet offers services from several banks. Formal shared agent networks sponsored by industry associations like SANEF in Nigeria and ABC in Uganda are yet to realize as much comparative success.
The Central Bank of Nigeria (Banking and Payments Systems Directorate) through the Bankers’ Committee and in collaboration with all banks, mobile money operators, and super agents in Nigeria launched Shared Agent Network Expansion Facility in 2018 that has an ambitious goal of reaching out to 50 million Nigerians by 2020 through a network of 500,000 agents. These targets have been further divided across the geopolitical zones to have equitable growth of the agent network. To enable this network, CBN has earmarked soft loans quantum to be disbursed to the providers selected basis their experience, staff strength, spread etc.
Shared agent networks help providers to reduce the cost of platform management and maintenance, agent training and monitoring, as well as improved liquidity management – particularly in fully interoperable environments. Formal shared agent networks however need considerable concerted effort to expand the network and equitably manage the interests of all service providers. While some markets have embraced shared agent networks, regulators in other markets prefer to hold only regulated financial institutions as accountable for agent performance, and hence are not amenable to the idea of shared agents.
We believe that as digital financial services mature, providers should compete on product rather than channel. Some providers argue that opening up the entire agent network may bring certain disadvantages such as customers not receiving proper and professional service. An approach for providers to create the differentiation amongst the agents would be focus on two differentiated levels of agents, a sales agent and a service agent. The few exclusive sales agents may focus on product sales, account opening, customer on-boarding, and large-value transactions. These would then be complemented by large numbers of shared service agents servicing a range of providers by conducting small cash in or cash out transactions.
 Interoperability of float accounts is the practice of managing float from different FSPs using a common platform thus enabling an agent to service all FSP customers using a single liquidity pool.