Our latest research on the impact of the COVID 19 on CICO agents in Kenya provides a comprehensive overview of the challenges that CICO agents currently face and their coping strategies. The report provides recommendations for policymakers and financial service providers to support them.
The report highlights that the CICO agents face severe health risks while continuing business operations during the pandemic. It looks at the support that agents seek from financial service providers to help them increase compliance with safety measures.
Due to a rapid decline in customer footfall, reduction in operating hours, a significant fall in volume and value of transactions, and waivers on transaction tariffs, CICO agents have suffered more than 40% decline in their income generated through commissions.
With volatility in transactions and loss of income from secondary sources, CICO agents face challenges as they maintain liquidity and e-float. The report offers recommendations to financial services providers and the government for a concerted action to address these challenges.
“We are currently seeing a net increase of approximately 30% in the number of subscribers, with a mass reactivation of dormant accounts on our platform. If this trend continues, it could lead us to strengthen the customer support team, even if this does not guarantee that we will have a better turnover. We will wait [and] see,” – Founder of an Ivorian chatbot-powered payment platform.
This blog examines the impact of the COVID-19 pandemic on FinTechs, their expectations from policymakers and regulators, and the measures proposed by these critical players in the FinTech ecosystem.
FinTech start-ups in Côte d’Ivoire before the pandemic
The FinTech industry in Côte d’Ivoire faced stiff challenges even before the pandemic arrived in March, 2020. These challenges included:
An unclear regulatory framework that discouraged FinTechs to move beyond providing credit services into other activities that could accelerate financial inclusion;
High cost of licenses to practice as a FinTech company;
Heavy taxes that pushed the operational expenditures of start-ups below sustainable levels.
Impact of COVID-19 on FinTechs
With the arrival of the COVID-19 pandemic FinTechs now face the following challenges:
Organizational challenges: While the larger FinTechs are optimistic and continue to retain their pre-pandemic workforce in numbers, the smaller FinTechs, especially start-ups, have been forced to lay-off part of their staff and freeze recruitments. Some have even had to enforce pay-cuts for existing employees, including upper management.
Internal process challenges: To safeguard their teams and abide by the government’s measures for social distancing, the FinTechs are adapting their processes and tools to enable employees to work from home.
Customer engagement: This reorganization of processes has also led to greater use of digital means, especially social media, for activities such as generating leads and onboarding new customers.
“We think this prospecting method suits us best, given that we have limited means. In the future, travel for our team will be restricted to essential travel alone.” – A FinTech CEO
Product changes: Most FinTechs are transforming the physical features of their products into intuitive digital features for a seamless transition to customer engagement in a more digital world.
The lesser-known and comparatively younger FinTechs do not enjoy the high levels of popularity of the established FinTech giants of mobile telephony, such as Orange Money, MTN Mobile Finance Services, and Moov Money. Yet these smaller companies are depending on their speed, agility, and flexibility to devise and implement innovative solutions to overcome the challenges posed by the COVID-19 pandemic.
The Government of Côte d’Ivoire had set up a support fund of XOF 100 billion (approximately USD 1,700,000) for small and medium enterprises (SMEs). While the small FinTechs hope to benefit from this fund, they also seek investment from professional investors to survive and sustain their businesses. This is also driven by the fact that certain measures taken by the regulator – the central bank, BCEAO have a direct impact on the turnover of these FinTechs and that many of these companies do not often maintain cash reserves of more than 3-4 months. In 2019, the World Bank and BCEAO laid the groundwork for a review of the FinTech start-up sector by organizing a conference. While the regulator announced the emergency measures to tackle the pandemic, the results of this laudable World Bank-BCEAO initiative are yet to bear fruit.
FinTech start-ups in Côte d’Ivoire: All eyes on the government
FinTech start-ups in Côte d’Ivoire expect two types of support and guidelines from the government: those linked directly to the COVID-19 crisis and those linked more broadly to the “business-as-usual” industry activity.
The Ivoirian State announced measures related to the COVID-19 crisis at the Council of Ministers held on 15th April 2020. In the following section, we look at issues related to these measures in the context of the pandemic:
Clear, precise procedure on how to avail the support fund worth 100 billion XOF (USD 1.7M) for SMEs: The FinTech start-ups we interviewed stated that they were unclear about the criteria, stages, and timelines for obtaining SME support funds for SMEs that were announced in April.
“You know me. I am not into political affairs, so we do not believe [in this announcement]. We have registered through the online system but have no visibility on what the process is or when and how the funds will be made available.” – An Ivorian FinTech founder.
Inclusion of Ivorian FinTech start-ups in social assistance programs: Social cash transfer programs for poor households ignore the services that FinTech start-ups could provide with lower turnaround times and lower costs than larger FinTechs would. If the government includes such start-ups to implement these programs, then it will increase the visibility of the start-ups involved. It will also help the financial institution partners to improve their business efficiency along with their payments and collection methods.
“We do not necessarily expect money from the government but at least [it could] include us as local FinTech in programs like these.” – A FinTech founder
Tax relief: Several of our interviewees raised the issue of going further than the postponement of tax payments. According to them, the outright cancellation of taxes and fiscal charges for the period of confinement would be of greater benefit to them.
“Yes, there was a deferral but this remains a debt—and short-term debt at that.” – A FinTech founder.
More broadly, based on discussions with sector players, expectations linked to the normal activity of the Ivorian FinTech start-up refer to:
Figure 1: What FinTech start-ups expect from the Côte d’Ivoire government
FinTech start-ups in Côte d’Ivoire: All eyes on the regulator
Apart from the government, the regional regulator also has a key role to play. The BCEAO has taken several measures during the crisis, including the waiver of commercial commissions on digital payments and the relaxation of conditions to open mobile wallet accounts. However, a set of other expectations of the regulator, which MSC has highlighted in its forthcoming study on the mapping of FinTechs in Francophone Africa, are essential to the expansion of the Ivorian FinTech start-up sector. These expectations include: Figure 2: What FinTech start-ups expect from the regulator
Organizing the FinTech start-up industry: An imperative
Supporting the FinTech startup industry will help the Government of Côte d’Ivoire achieve at least two of its set objectives:
to include 60% of the country’s population in the realm of financial inclusion by 2024, from the current levels of 40%;
There is a need to re-organize and strengthen the FinTech start-up industry. Digital platforms such as the Hub of Digital Finance will play a pivotal role in achieving this. Such platforms will bring together various actors of the entrepreneurial ecosystem not only from Côte d’Ivoire, but also from the entire Francophone Africa region, to facilitate the development and expansion of the industry beyond the borders of the continent.
The French version of this blog is available here.
MSC conducted a research study to assess what the low- and middle-income (LMI) segments in Uganda understand about COVID-19 in terms of awareness, preventive measures being taken, gender dynamics at play in their households, and the use of digital financial services during this time. We present our findings in this report. We note that overall, the response from the government has been proactive and generally effective. The LMI segment is largely aware of the disease and knows what precautions to take to prevent further spread. However, more can be done. Hence, we have provided policy recommendations that the government can consider implementing to allow people from these segments to overcome the challenges.
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[1] 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.
[1] 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.
In the wake of the COVID-19 pandemic, the income for both rural- and urban-based agents has significantly reduced in Uganda because the transactions have significantly reduced. Customers cannot travel due to the travel restrictions and they are not transacting as much. With the advent of shared agent network, Ugandans can now easily access banking services irrespective of which agents they visit. These agents can serve customers from several institutions and are able to do more business.
In January 2016, the Ugandan Parliament approved the Financial Institutions Act (Amendment) 2016 and thus
paved the way for agency banking in Uganda. Furthermore, with the advent of shared agent network Ugandans can now easily access agency banking services irrespective of which providers’ agents they visit.
Considering the massive investment required to set up and manage agency banking structures, Ugandan Banks – under their umbrella association – the Uganda Bankers’ Association (UBA) – agreed to set up a shared agency network. The shared agent network operates on a platform jointly owned by the UBA and Eclectics International (a technology service provider) and managed by the Agent Banking Company (ABC).
As of February 2020, 13 banks[1] are on ABC’s shared agent platform. As at September 2019, there were 9,477 shared agents spread across the country. These agents facilitated an average of 2.15 million transactions monthly. Agents on the shared platform can facilitate deposits, withdrawals, utility bill payment, open accounts, do balance inquiries, provide mini statements, and handle school fees payments.
Benefits of the shared agent network
The key benefit for the participating banks that shared agent networks bring is the cost-saving. The banks have saved on the investment required to set up their individual agent networks. The costs of setting up and managing agent networks include the hardware (point-of-sale devices, smartphones, and blue tooth printers), recruitment and onboarding, and training.
customer fees of shared agent network
The shared agent network in Uganda rides on existing networks of some of the largest financial service providers (in terms of outreach in the market) and hence is able to expand the network’s presence and increase transactions. In addition, the agents benefit from simpler float management. Agents can now rebalance at any bank branch at a cost which is 30% of the regular cash withdrawal fee, regardless of whether the transaction was a withdrawal or deposit. Float re-balancing is an extra income stream that encourages the banks to open up their branches to agents of other banks.
Through the agency banking channel, banks have managed to push basic transactions out of, and thus reduce congestion at, their branches. In an interview with NBS Television in 2019, the Head of Agent Banking at Stanbic Bank, Ronald Muganzi mentioned that 85% of the basic transactions at Stanbic are now happening outside the branches. This is partly attributed to being on the shared platform.
Some of the agents who had agency banking as a secondary business mentioned that they benefit doubly from the shared agent network. Their income streams increased through earning extra commission and they have also increased sales of other products from their primary businesses.
The customers, on the other hand, are particularly happy as the shared platform makes banking pleasant and convenient. In addition, they can receive services not just from the agent of their bank, but an agent from another bank.
Challenges facing the shared agent network
In an ideal scenario, on a shared agent platform, an agent should have just one point-of-sales device. However, since some banks have not yet signed onto the platform, there are still multiple devices from different providers deployed at the agent points. Nonetheless, given the complexities of managing the shared agent network device as well as devices of banks that are not on the shared network, some agents have decided to have only one device and their choice is determined by the most responsive bank.
We found that several agents, despite being on a shared agent platform, still hold more than one point-of-sales device as even the banks on the shared platform continue to supply them with their own machines. This could be attributed to the fight amongst banks for visibility amongst the agents and to let their customers avoid extra charges incurred from transacting through another bank’s agent.
During busy transactional banking seasons such as at the beginning of the school term, the system may go off-line or slow down significantly due to increased demand. In such instances, customers have to use other options available to them to transact. Some agents mention that they are hesitant to operate with just one machine on a shared platform on account of unreliable network and downtimes.
Some of the financial service providers feel that they lack control over pricing. They feel that the bigger banks on the platform influence pricing and they have no option but to follow. To understand this problem, consider the scenario explained below.
Figure 1: Illustration of the distribution of customer fees between stakeholders of the shared agent network
Inferences from the above illustration are;
In the shared agency network, the issuer bank (bank hosting customer account) pays 70% of the transaction fees collected from the customer to the acquirer bank (bank owning agent point)
Of the 70% of the transaction fees earned, the acquirer pays a small percentage to the agent as commissions and keeps the remaining to meet the costs such as paper rolls, branding materials, as well as their profit margin
The issuer on the other hand, whose customer did the transaction, gets 30% of the transaction fee. From this 30%, it pays half to ABC. Consequently, the issuer receives 15% of the transaction fee.
As we can see from the description, the acquirer bank enjoys the largest share from the transaction fee. It is worth noting that the transaction fee that will be charged is decided by the issuer bank, who owns the customer. Thus, the smaller banks feel that such pricing approach favors that are often the acquirers due to their relatively larger agent networks. The decision on this percentage split was deliberate to favor acquirer banks in order to encourage bigger banks with larger existing agent networks to join the platform.
All financial products offered on the platform must be approved by ABC. Some of the financial service providers feel that the implementation of innovative ideas on the platform is limited by this requirement.
Lessons learned
The shared agent network in Uganda is still fairly young and the experiences of the FSPs and customers are still evolving. The stakeholders are addressing the challenges encountered as they come along. A few lessons learned so far include:
Banks need to have uniform approaches to pricing. A bank that does not charge, or charges significantly lower, fees when its customers use its own agents, and charge higher for its customers to use agents of other banks will discourage the use of the shared agent platform. In such a scenario, the reconciliation for agents becomes much more complicated as they manage more than one single float account for the same bank.
Pricing of a shared agent network is a complicated matter that should be carefully handled to provide financial services responsibly. Often providers complain of the uniform pricing structure as they have different cost structures. Thus, pricing is a delicate balance between what is reasonable to customers and what adequately compensates the banks and agents.
Unless the banks feel that they own the model, there would be lower enthusiasm with which the shared agent network is embraced. In the case of Uganda, through the UBA, there is a perception that the banks collectively own the model, which motivates them to ensure that it succeeds.
Excellent customer service is key to the success of a shared agent network. The agents have to be well recruited and trained. The banks are required to recruit agents that meet the set standards prescribed by the BoU. The agents are expected to be courteous and professional as well as follow the laid-out procedures to ensure consumer protection. Some of the measures put in place include refusal of the agents to conduct offline transactions, PIN authentication by both agent and customer for transaction approval, amongst others.
There is a high likelihood of fraud being perpetrated on the platform due to the extension of several institutions’ and their customers’ information to third parties (agents). Prudent measures to strengthen data privacy through redaction of customer information that remains with agents is critical to preventing fraud.
According to the Finscope survey, 2018, only 58% of the Ugandan adult population own a bank account. This shows that there is a huge potential for growth. The ability of the agents and financial service providers on the shared platform to market the various accounts sold by the banks will be critical to ensuring that every Ugandan adult has a functional bank account. Overall, even though the COVID-19 pandemic has slowed down the progress being made due to the lockdowns instituted to manage the spread of the virus, agent banking in Uganda is headed in the right direction. ABC is in the process of revising its standard business rules that will govern all the banks on the platform. These revisions aim to harmonize and standardize the user experience, review the pricing regime as well as revamp the scheme rules to better manage the role of banks and agents in offering ubiquitous financial services in a responsible manner.
[1] Stanbic, Absa, Bank of Africa, Diamond Trust Bank, DFCU, Housing Finance, Post Bank, Opportunity Bank, Centenary Bank, Tropical Bank, Finance Trust Bank, United Bank of Africa and Exim Bank
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Figure 1: What FinTech start-ups expect from the Côte d’Ivoire government
Figure 2: What FinTech start-ups expect from the regulator
paved the way for agency banking in Uganda. Furthermore, with the advent of shared agent network Ugandans can now easily access agency banking services irrespective of which providers’ agents they visit.
