In this edition of MicroSave’s ‘Low Income Lives’ series, Stuart Rutherford uses data from the Hrishipara Daily Financial Diaries to study how poor people in Bangladesh buy food.
Blog
An introduction to The Helix Institute of Digital Finance
The Helix Institute of Digital Finance is the training arm of MSC. We have been training now for nearly 20 years and we have been the basis of transformation for many leading of the leading financial institutions not only in East Africa, Southern Africa but also across Asia and into Latin America. This video gives a brief overview of our history and how taking part in our cutting edge courses can transform financial service professionals and their businesses.
Agent Network Accelerator Research Survey – India Country Report 2017
The Agent Network Accelerator (ANA) is a four-year research project implemented in 11 focus countries. MicroSave and the Helix Institute of Digital Finance have managed and conducted the project. ANA is the largest research initiative in the world on branchless banking and mobile money agent networks, designed to determine their success, transformations, and scale. India has been one of the most dynamic DFS deployment ecosystems in the world, and is among the 11 African and Asian countries that participated in this research project.
We conducted the second wave of the ANA survey India in 2017. This wave of ANA builds on the findings of the first wave undertaken in 2015. Since 2015, India has witnessed a large push from the government to promote financial inclusion, while new players have emerged in the field. A nationally representatives sample of 3,048 agent interviews forms the basis of the ANA survey. We conducted these interviews across 12 states as well as four metro cities. MicroSave designed the survey to generate valuable insights on the agent network model in India and provide recommendations for developing sustainable agent networks in the country.
Myths Busted, New Evidence Generated: ANA India Wave II Study has a Lot to Tell – Stay Tuned
As we gear up to unveil the second edition of MicroSave’s acclaimed Agent Network Accelerator (ANA) programme, here is a quick look into what ANA findings have in store for readers this year. The key themes of Wave II of ANA India include: prevalence of interoperability and its effects on agent viability; questions surrounding the effectiveness of policy initiatives; the performance of women agents; and, above all, what all this means for the financially excluded population of the country.
This year, the ANA India programme will highlight a number of lessons for the development of healthy agent networks and the role of agents in financial inclusion. Since 2013, the ANA programme has analysed emerging trends in agent network management, agent deployment models, and agents’ role in financial inclusion. The insights generated from this vast amount of data has resulted in region- and country-wise comparisons and set industry benchmarks.
We conducted the first wave of ANA research in India in 2015. The study revealed that India’s agency banking model is unique 
among all ANA countries, especially in terms of the number of players, type of agent network models, and role and guidance of the government and the regulator.
In 2015, India had 89% exclusive agents who work for a single provider; and had the highest number (67%) of dedicated agents who only do agency business at their outlet. The agents in India were predominantly male (91 %). Public-sector banks accounted for 79% of all agents surveyed, with State Bank of India (SBI) having the highest market presence.
In 2015, three models of agent network management were prevalent. 18% of agents were managed by an MNO, 17% were directly managed by banks, and 65% managed by a business correspondent network manager (BCNM). A BCNM is an institution contracted by a bank to manage agents and offer banks’ services. Each of these models had been performing differently in terms of agent network structure, transaction volumes, agent profitability, and agent management. However, a lot has changed in financial services landscape since ANA Wave I.
In 2015, the Government of India launched a range of benefit programmes like Pradhan Mantri Jeevan Jyoti Beema Yojana (PMJJBY), Pradhan Mantri Suraksha Beema Yojana (PMSBY) and Atal Pension Yojana. The cash benefits under these schemes were directly transferred into the beneficiary accounts – most of which were PMJDY accounts. The Government of India launched more schemes in 2016, including the Pradhan Mantri Ujjwala Yojana and direct benefit transfers in kerosene and LPG. These measures further contributed to PMJDY account usage.
During this time, new players emerged in the market. In 2015, Reserve Bank of India (RBI) issued in-principle licenses for new banking models (11 payment banks and 10 small finance banks). In 2016 Airtel Payments Bank and three small finance banks (Capital Local Area Bank, Suryoday, and Equitas) started their operations. Most of the other payments and small finance banks have now followed suit and started their operations in 2017.
There have been significant changes in the technology-front as well, with the Government of India launching the Unified Payments Interface (UPI) in 2016, which should provide easier transaction interface for payments. The same year, the Indian government launched the Aadhaar-Enabled Payment System (AEPS). This allowed interoperable financial transactions through agents of any bank using Aadhaar-based authentication. With this system, agents could offer deposit and withdrawal facilities for customers of other banks. The Jan Dhan Yojana, Aadhaar, and mobile number (JAM) trinity has helped increase transactions at agent outlets. Aadhaar facilitates the process of biometric authentication, and Jan Dhan bank accounts and mobile phones allow direct transfers of funds into customers’ accounts.
In 2016, the Government of India announced the demonetisation of currency notes of INR 500 and INR 1,000 (worth ~USD 7.8 and ~USD 15.6 respectively). The two denominations that were scrapped accounted for more than 85% of the value of cash in circulation – this had a significant impact on the lives of the agents as well.
We designed the ANA II India study framework to understand the impact of all of these factors. The findings are expected to tell us how the agent models have evolved in the light of these important policy changes; whether agents in India now perform any better than in 2015 and how they now compare with other countries. The findings will tell how the entry of new players like payment banks have changed the market. It will reveal if there are more female agents now compared to before, and whether support systems for agents have improved.
When compared to our findings from 2015, we expect agent networks in India to be in a significantly different place. The ANA India II study will clarify the key differences and answer a myriad of questions, including: Did the introduction of UPI and AEPS improve the service quality of agents and thus encourage more transactions? Have the direct cash transfers into customer accounts under various government schemes led to an uptake of services other than cash-out at agent outlets? Have the dedication and exclusivity of agent outlets changed? and Has this improved revenues?
The Indian market is observed by other countries – especially where financial inclusion is a key agenda. We will unveil our report on 14th February, 2018. Follow the action with us on Twitter, Facebook, and LinkedIn, and through the hashtags #ANAIndia and #AgentNetworksIndia. We assure you, the findings will be interesting, informative and in some cases, even provocative.
Third-Party Agent Network Managers: The Missing Element in Indonesia’s DFS Sector
This blog is second in the series on the key findings and recommendations of the recently concluded Agent Network Accelerator (ANA) Indonesia survey. It elaborates on one of the key recommendations of the ANA survey which is to allow third parties to set up and manage agent networks. The first blog “A First Look at Indonesia’s Emerging Agent Network” summarised the key findings of the ANA survey.
Indonesian agent networks are growing fast but suffer from service-level issues.
The ANA study in Indonesia highlighted the duopolistic nature of agent networks in the country. The two largest service providers, Bank Rakyat Indonesia (BRI) and Bank Tabungan Pensiunan (BTPN), account for 80% of the digital financial services (DFS) agents’ market presence. Not surprisingly, BRI, Indonesia’s largest commercial bank, accounts for 51% of the agents in the country.
The number of agents managed nationally by individual service providers in Indonesia is astonishing. BRI operates the widest and largest network of banking offices in Indonesia with more than 10,500 offices including branches, sub-branches, cash offices and BRI units. These offices, in turn, manage a network of more than 215,000 DFS agents. Other leading service providers also manage large networks of agents – while BTPN has > 200,000 agents, Bank BNI has >60,000 agents.
These agent numbers are much higher than other networks managed by individual service providers in other more mature DFS markets such as India, Pakistan, and Bangladesh. While service providers like BRI can afford to manage such a large agent network, for most other service providers that do not already have an extensive distribution network, building or managing large agent networks is not very efficient. The cost and resource requirements to manage such large agent networks can be exhausting. Most providers, therefore, struggle to efficiently service and manage expansive agent networks. A number of critical service issues in this context have emerged.
The ANA survey highlights that despite low transaction volumes, Indonesian agent networks rank relatively low on several aspects related to branding, liquidity management, and training. As far as outlet branding is concerned, only 11% of agents in Indonesia display tariff sheets while only 45% display agent IDs. The liquidity management practices are still rudimentary and most agents (63%) must travel outside to their respective link branches to rebalance float. Unpredictable fluctuations in client demand and time taken at the rebalancing point are some of the key barriers related to liquidity management that agents experience.
The present reach of DFS agents does not extend deep into rural areas either, as 85% of them operate within a distance of 15 minutes from their nearest bank branch. The key reason for such a limited presence is the inability of the providers to manage agents that are far away from their physical distribution establishments or branch office.
Third-party ANMs have been successful in many other markets and have performed multiples roles
In other more mature DFS markets, third-party agent network managers (ANMs) have played a critical role in helping providers scale up and manage their agent networks efficiently. However, the regulators in Indonesia currently prohibit third-party ANMs for individual non-registered agents. They allow service providers to partner with registered entities that operate franchise outlets to offer DFS services, such as Alfamart and Indomaret. However, the capability of such entities to offer DFS is inadequate given their limited reach in the rural areas.
As the DFS market matures in Indonesia with providers offering more complex products and services, the service levels of agents will be critical to ensure the success of digital financial inclusion initiatives in the country.
The global success of third-party ANMs has been well-researched and documented. Their role in agent management can be as varied. ANMs range from airtime distributors, fast-moving consumer goods (FMCG) distribution agencies, transport companies, and even specialised or dedicated agent management companies. In India, ANMs have been a critical component of the success of DFS in the country. The ANA survey in India highlighted that the third-party ANMs currently recruit and manage 65% of DFS agents. Similarly Banco do Brasil, one of the largest commercial banks in Brazil, has partnered with more than 50 ANMs to manage a network of its DFS agents.
The services of ANMs have benefitted even the non-banks, including mobile network operators who already have a large network of airtime distributors. Kenya’s Safaricom independently owns and manages less than 20% of M-PESA agents, while multiple third-party ANMs manage the rest. The providers have used services of third-party ANMs in a variety of ways. These include recruiting, training and on-boarding agents, below the line (BTL) marketing support, liquidity management, monitoring, supervision, and research and strategy. In many markets in South Asia and Latin America, ANMs have also provided innovative technology solutions to the banks to facilitate DFS products and supervise agent activity. The opportunities and scope of services that ANMs can offer in the Indonesian DFS market are immense, given the current situation and future potential of agent networks in the country.
Regulatory concerns on the role of ANM are valid but can be resolved through appropriate risk mitigation protocols
MicroSave’s interactions with DFS stakeholders in Indonesia have revealed that regulators have concerns about involving an intermediary between the bank and the agents. Their key concerns are the capabilities of ANMs to ensure high-quality customer service, training to agents, customer protection, and risk management at the agent level. While these concerns are valid, best practices to manage risks arising out of such arrangements have emerged in other countries. Key among these is to make the service providers accountable for all activities performed by the third-party ANMs on their behalf. This ensures that service providers conduct proper due-diligence in selecting appropriate entities, and introduce sufficient internal monitoring and control measures to supervise the operations of the ANM.
For example, in India, the Reserve Bank of India (RBI) guidelines for banking agents allow a broad range of entities, including individuals and registered entities, to become banking agents and also allows the agents to appoint sub-agents. However, the guidelines demand that the bank be accountable for meeting the statutory requirements – know your customer (KYC), anti-money laundering (AML) and combating of financing of terrorism (CFT) – and customer protection at both the agent and sub-agent levels. Specifically, RBI makes banks accountable for ensuring transparency of commissions, customer data confidentiality at the agent or at the sub-agent level, training of agents, types of products and services offered by the agent, etc. These regulations have resulted in the emergence of specialised ANMs in India that manage the bulk of the agents for the banks. This has helped the banks to increase their outreach, especially in the remote, rural areas.
Banks in Indonesia already work with some third-party agencies to sell credit cards and manage ATMs on their behalf. In all these activities, there is clear responsibility of the parent bank in ensuring customer protection. Managing agent networks can similarly be outsourced. The key point here is to give service providers the flexibility in setting up the branchless banking business that is suitable for them. Service providers with an already wide branch presence may not see the utility of a third-party ANM, but other providers may feel the need and enabling regulations can nudge them to participate in the branchless banking programme.
The Indonesian payments market is dominated by dedicated bill payment operators called Payment Point Online Bank (PPOB). The PPOBs provide their services through thousands of agents. Given their core strengths in managing large-scale payments distribution networks, PPOBs can potentially support efforts of a service provider in developing agent network by providing following support: agent on-boarding, training, monitoring and supervision.
Conclusion
The potential of third-party ANMs is immense in a relatively young DFS market like Indonesia. ANMs can spur technological innovations in servicing agents that can improve agent viability and customer service levels. Allowing providers to partner with ANMs will encourage more providers to contribute to the financial inclusion vision set by the Indonesian government. ANMs will positively disrupt the Indonesian DFS landscape, and make it more competitive and, as a consequence, more innovative.
[1] Jabodetabek – Jakarta, Bogor, Depok, Tangerang, Bekasi (Cities under Greater Jakarta)
[2] http://keuangan.kontan.co.id/news/agen-brilink-mencapai-216755-per-november
DFS Customer Development Opportunities in Nigeria
Customer development is a fundamental requirement for any business. In digital financial services (DFS), we can view customer development as a journey that comprises customer discovery, customer captivation, and appropriating value. Customer discovery involves finding out about potential customers, and understanding whether existing solutions are able to meet their needs. Customer captivation entails continuously sustaining the interest of the customer by ensuring a positive user experience. Appropriating value focuses on adding valued products, services, and delivery channels that can deepen early market successes to generate revenue and thus profits.
So far, in customer discovery, many financial institutions replicate solutions to drive user adoption. A few financial institutions conduct initial market research to understand the pain-points among DFS users. In customer captivation, the emphasis is on heavy marketing communication – creating awareness on the existence of different solutions. There appears to be a greater focus on the success of a transaction rather than on the user experience that drives adoption and long-term use. Providers often focus on the number of customers rather than the value per customer, which requires innovation. The adjoining diagram illustrates this:
Source: Adapted from the Open APIs in Digital Financial Services 2017 report by CGAP
Providers lose out on profitability by failing to optimise the customer value proposition that drives adoption, and in their inability to support this through the creation of appropriate mission-oriented structures. Examples of these structures include setting out autonomous DFS departments, appropriate budget allocation, operating with adequate teams, among others.
Customer Development in Nigeria
In Nigeria, Deposit Money Banks focus on raising deposits from the public to fund the corporate sector but typically do not offer a full range of products and services to the mass market. Agent banking can promote greater access to convenient and accessible transactional services throughout the country. The agent channel can be used by providers to significantly increase customer captivation and revenue per customer. At present, the primary focus of the financial institutions that have adopted agent banking is on the customer discovery phase – primarily through offering the channel for Cash-In and Cash-Out. There are few value-added services that customers use. To drive revenue per customer, Deposit Money Banks must combat the perception that they are only used for the storage of funds. This would encourage their customers to use the products and services that ride on the agent channel.
Providers must ensure that services can meet the actual needs of customers, provide an optimal user experience, and use agents as a Below-the-Line marketing channel to demonstrate the range of services available. This is essential if the aggressive Above-the-Line (in most cases) and Through-the-Line (SMS blasts) marketing communications that Deposit Money Banks typically use are to be effective.
Beyond deposits, many mass market customers’ needs are served by Microfinance Banks that provide a better user experience. But agent banking combined with customer-centric product development and appropriate partnerships with fintech companies could extend the range of personalised retail services that Deposit Money Banks offer. This would allow them to compete with the Microfinance Banks.
How Might Institutions Harness Opportunities in Customer Development in Nigeria?
One of the research focus pillars in the recently published Agent Network Accelerator Research: Nigeria Country Report 2017 by the Helix Institute of Digital Finance has been customer development. The report outlines the need for providers to use research to generate compelling value propositions beyond cash deposits and cash withdrawals. We have identified use-cases within the payments space, including social transfers, such as from donors or government, person-to-business, for instance, payment of school fees, and person-to-person funds transfer. Designing use-cases around pain-points would drive customer adoption and thereby revenue per customer.
The survey finds that providers have been doing little to promote uptake and usage. Rather, innovative agents have themselves developed mechanisms to promote uptake and usage. Typically, these mechanisms are built around digitising locally accepted cash-management practices:
a) Providing Micro-loans to Customers
Agents offer passbooks to customers for record-keeping and use these records to provide loans to them. A good number of agents report that the act of filling up the passbooks themselves provides opportunities to interact with the customers, making them feel “special”. Agents value the customers’ body language and demeanour as additional information that is critical in the intuition-based assessment of customers for microloans – of course, in addition to the transactional patterns. The transaction sessions with customers also involve asking personal questions to unearth their financial needs. An agent reported that he would provide a higher value loan to a customer who was confident enough to share more about their personal business progress than one who provided guarded responses.
The takeaway for providers: This example shows how agents use their customer relationship and information available on the channel to reduce the risk of micro-lending. The options available to providers include lending to the agents for on-lending or adopting agents into micro-lending processes given that pure digital lending carries significant risks of non-recovery.
b) Digitising Esusu and Ajoo Using Roving Employees
Some agents employ roving staff to provide Esusu services and facilitate Ajoo services through the agent banking channel. From the Helix field interactions, agents report that considerable financial information is shared in the Ajoo meetings, and this could be helpful in product evolution to make solutions more meaningful to the daily lives of customers.
The takeaway for providers: Develop field-based applications to digitise the Esusu or Ajoo processes, thereby improving the agent business-case and enhancing agent loyalty, and through their actions increase the transaction volumes and deposits mobilised. Digital tools, such as tablets and smartphones that offer other intuitive interfaces could be used during these sessions to improve the interactions and ensure prompt data collection.
c) Facilitating Remote Transactions
Due to a lack of service reliability and limited access to liquidity experienced by agents, they have developed networks to aid in facilitating transactions remotely. This means that whenever a customer visits an agent who is unable to conduct transactions for any reason, another agent in the network conducts the transaction on that agent’s behalf. For example, a customer wants to deposit NGN 5,000 walks to an agent in his locality – agent A. Unfortunately, due to network issues, the service is unavailable and agent A is unable to conduct the transaction. Agent A then reaches out to agent B – who is in a different locality through a call. Agent A provides the customer’s transaction details and agent B immediately conducts the transaction on his behalf. This is also practiced whenever there are liquidity management issues, and in both cases, the agents reconcile through their network. These agent practises follow the principles of Hawala1 .
The takeaway for providers: Providers could design products that facilitate remote transactions and the reconciliation between agents in such a way as to provide transparency on the underlying transaction to conform to Anti Money Laundering/Combating the Financing of Terrorism (AML/CFT) requirements, and to ensure consumer protection. These mechanisms could enhance services delivery, especially in rural areas where access to agent rebalancing points is a challenge.
Where is the Prize?
Providers must create value for agents and customers if they are to benefit from increased transactions and deposits. Providers would be able to increase usage through digitising local use-cases and by enhancing the user experience. This is the key takeaway from M-PESA’s ‘Send money home’ campaign – it mirrors existing local financial practices. In this way, providers can maximise value per customers and ultimately be able to appropriate value, which is pivotal for DFS business sustainability.
[1]Hawala is a popular and informal value transfer system based not on the movement of cash, or on telegraph or computer network wire transfers between banks, but instead on the performance and honour of a huge network of money brokers known as “hawaladars”.