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Demand and Supply Side Challenges and Potential Opportunities for Agency Banking in Uganda

Posted on by MSC

The Financial Institutions (Amendment) Act 2016, enabled agency banking in Uganda. What can financial institutions launching agency banking learn from existing data on the banking sector, from experience of mobile money, and from client expectations. The Financial Sector Deepening Programme (FSD) Uganda, commissioned MicroSave to find out.

Teams from MicroSave conducted interviews and focus group discussions with bankers, the banked and unbanked, mobile money users, mobile money agents and potential bank agents, mobile network operators and the Uganda Bankers Association.  The team studied data available on the Ugandan financial sector including the FinScope Survey 2013, the Intermedia Survey 2015, MicroSave’s Agent Network Accelerator Survey 2015 (from the Helix Institute). Respondents were from rural and urban areas in four research areas.

The case for agency banking: The FinScope 2013 survey suggests that 58% of Uganda’s adult population are potential users of mobile money; of this there are over 14 million unbanked adults. But the startling statistic is that more than 9.3 million adult Ugandans at the time of the survey lived more than one hour away from their nearest bank branch; most of these, some 8.6 million live in rural areas. Well implemented, agency banking can bring a range of banking services to Ugandans who have never had a realistic option of a bank account. Conversely for financial institutions, agency banking offers the potential to onboard, and provide services to large numbers of new customers.

Reaching out to large numbers of customers is feasible. The FinScope (2013) survey shows most transactions occurring in the banking hall are those which can be performed by agents. The leading transactions are over the counter withdrawals (13.8% of total transactions), ATM withdrawals (8.8%) and cash deposits (18%), so called cash in – cash out (CICO) transactions. Information requests (5.9%), receiving money (4.4%) make up the most frequent transactions. This transactional banking can all move to agency banking.

Ensuring a Customer Value Proposition: Focus Group Discussions with bank customers showed, why customers chose existing banking channels – the banking hall was preferred for larger amounts, it was a trusted, safe environment, it had constant liquidity. The ATM was fast, convenient and less costly, mobile banking was easily accessible. Adoption of agency banking should then focus on convenience, cost, a safe environment and liquidity.

Care needs to be taken to price transactions appropriately, banked customers were concerned that some mobile money transactions involving bank to wallet transactions, followed by cashing out were very expensive. Institutions will need to find a pricing point that appeals to customers, and still provides sufficient incentive for agents.

Customers valued bank branches as points to resolve customer care issues, as a place to access information on products and services and a point to access loans; but they felt that lengthy queues, high charges, and system downtime were issues which needed to be resolved. These observations are more problematic for agency banking. Financial institutions will need to invest heavily to provide consistent uptime, expand call centre operations, staff to support reversals and customer onboarding, and train agents to provide quality services. Banks may find it more difficult to sell non transaction based services through agents, however, pulling transactions from banking halls should make it easier for financial institutions to sell more complex products through their own outlets.

Service Offerings: Research with customers and financial institutions suggested that the initial service offerings customers will value the most will be cash in, cash out, facilitating account opening, and credit. Each of these services places specific demands on financial institutions. Managing cash in and cash out requires strategies to monitor and manage cash and float at agents alongside careful agent selection and the creation of appropriate mechanisms to rebalance cash such as intermediaries or so called super agents. According to draft regulations, bank agents cannot open accounts – responsibility for this belongs with the bank, but they can facilitate account opening. However, experience from other countries shows that this works well where there is a National Identification Card where there is a central database of client names and addresses which can be pulled digitally upon request. This is possible in neighbouring Kenya, free of charge for banks, a feature which has helped to grow financial access by making onboarding new customers as easy, simple and cost effective as possible.

The final service requested by potential customers, credit, requires unpacking. Once again agents are not positioned to offer credit services on behalf of banks, but they can, for smaller loan amounts disburse cash, they could be a collection point for information or initial applications and a repayment point for loans (through cash in transactions). The innovation that for many customers would link credit to agents, is mobile phone based instant loans, like M-PESA’s MShwari or MTNs Mocash. Through data analytics financial institutions develop algorithms through which they can provide credit lines to customers, which in turn the customers can access through bank agents.

 

Customer Preferences for Agents: Potential users surveyed showed a distinct preference for certain types of agents, preferences included petrol stations, SACCOs and grocery shops. However, financial institutions will need to carefully consider that decisions on petrol station involvement are often taken by the franchise owners (rather than the franchisees), and that access to cash in petrol stations is carefully controlled through drop boxes which staff cannot access.  SACCO performance in Uganda varies considerably, and screening criteria will need to be developed to source the best SACCOs. Grocery shops are ubiquitous, but tend to struggle more with liquidity management and rebalancing.

Potential users choices for which agents to use were being driven by trust (security), liquidity, opening hours, convenience and space; the factors driving SACCO inclusion were considered to be liquidity and convenience. Potential user preferences for agents included the agent being fluent in the local language plus English, and to have safe, secure, permanent premises. Focus group discussions indicated a preference for SMS receipts amongst non-banked and a preference for a physical receipt amongst the banked.

Factors Promoting Agency Banking: The factors promoting agency banking differ according to the group – banked users appreciate the convenience likely to be experienced by agency banking, whilst non-banked users are looking for less costly services. Banked users noted reductions in risk from carrying cash long distances, and reducing the cost of transport to the bank.

Will Agency Banking Increase Movement Between Institutions? The sample size is too small to conclusively answer the question of whether the introduction of agency banking will increase movement between financial institutions. Research suggested the factors which might keep people with an institution included the challenges of opening another account, the fear of untested services, and the existing history (and trust) that had been built with an institution. However, agency banking, combined with easier onboarding due to the National Identity Card offers the potential for customers to easily switch between institutions or to hold multiple accounts. The financial education which may accompany the launch of agency banking, combined with peer to peer learning, may further decrease friction and encourage competition between financial institutions.

The Concerns of Potential Customers: Potential customers were most concerned about fraud, and illiquidity, followed by network instability and the lack of electricity. These concerns have been noted in other survey’s such as the Intermedia Survey (2015) and MicroSave’s Agent Network Accelerator Survey (2016) from the Helix Institute. In fact Uganda has the highest incidence of mobile money fraud reported by agents out of ten countries in which MicroSave has conducted extensive surveys. This points to the importance for Uganda’s financial institutions in developing risk management frameworks, and risk mitigation strategies. The very fact that banks are often perceived to be safer than mobile network operators may offer banks an advantage in agency banking over their mobile money counterparts.

Likely Characteristics of Successful Bank Agents: The Agent Network Accelerator Survey indicates whilst most agents have less than a year’s experience in mobile money, the most successful mobile money agents are more established in their businesses. The research suggested that mobile money agents were less likely to have audited books of account and to pay tax on their business than more mature businesses; factors which will need to be considered during agent selection.

Understanding the Expectations of Agents: The biggest motivators for potential agents were commission income, the potential to cross sell other services to agency banking customers, and to create employment. At the same time, potential agents have expectations of banks, the most frequent expectation was for training, the second was for commission income, the third for sensitisation of end users, and to provide the necessary tools of the trade. Other slightly less requested asks included supervision, working capital loans, and liquidity management support. Financial institutions introducing agency banking will need to develop a package to meet these expectations. Most mobile money agents felt that banks would have tighter compliance requirements than mobile money operators, but felt that they would be able to meet them.

Factors for Success from an Agent Perspective: Whether mobile money agents, or established businesses, the most common success factor given by respondents was a high public awareness campaign, the second a good network signal. The established mobile money agents showed their perceptions of fraud, by also listing currency detectors, and video cameras.

Motivations for Banks: The most common motivations for banks considering agency banking is client acquisition and increasing activity on customer accounts. Additional motivations included decreasing cost to income ratios through better utilisation of bank assets, and to decrease congestion in banking halls, and finally to decrease the cost of deposits. All banks believe that numbers of accounts will increase, some think this will be a rapid change, others more gradual, the majority of the respondent banks feel that dormancy will decrease, and that new product development focusing on the channel will be important. The anticipation is that the launch offerings will be similar, including cash in cash out, balance enquiries, bill payment, facilitating account opening, loan repayments and loan disbursements. Thereafter innovations around credit are anticipated.

Enabling Customer Recourse: Agency banking by nature utilises networks of third parties whether agents, merchants, system vendors, super-agents, aggregators, and other financial institutions. This network of relationships and reliance upon third parties creates many points at which transactions can fail; in addition to the mistakes made by customers, and deliberate fraud. These circumstances call for advanced customer service recourse. Sector respondents identified a range of options for customer recourse, including agency banking supervisors in branches, call centres – with numbers displayed in merchants. However, respondents identified empowering agents, enabling them to be a first point of contact as an important resource, to do this, careful selection and training of agents is required, alongside supervision and refresher training. Toll free call centres are also important to facilitate recourse for all customers

Agency Banking at the Frontier

Posted on by MSC

The demand and supply side survey report for agency banking developed by Financial Sector Deepening Uganda (FSDU) in partnership with MicroSave was launched recently in Kampala, Uganda. The presentation by David Cracknell, Global Technical Director MicroSave highlighted the opportunities that lie within agent banking, but at the same time cautioned banks on the challenges of the model. It gave an industry insight to enable the different sector players plan for the new wave of interventions that will enable them make money but also increase financial services across the country.

Understanding the financial behaviour of the mass market: The key to financial inclusion

Posted on by MSC

23This study is an extension of the work that MicroSave has been doing over the years on understanding how different types of people practice money management. It draws from industry literature on the subject, such as the financial diaries in Bangladesh, Kenya, Mexico, and Zambia.

Three steps to keeping bank agents happy

Posted on by MSC

Banks eyeing agency banking rollouts in Africa can learn from Kenya, a once purely mobile network operator (MNO) market that saw a rapid expansion of agency banking. Half a decade since the Equity rollout, The Helix Institute conducted a study to understand attitudes, perceptions, and behaviours around agency banking, using our signature Market Insights for Innovations Design (MI4ID) approach. We interviewed industry experts, agent network managers, bank support staff, bank and MNO agents in Nairobi and the surrounding areas. This blog recommends three ways that banks can ensure their agents are happy and actively engaged in the agency business: investing in float, educating customers, and proactively managing liquidity.

1. Craft a strong agent value proposition and highlight earnings potential

Banks hoping to succeed in MNO-dominated markets must craft their agent value proposition to keep agents satisfied with revenues, and committed to investing in float. This entails carefully selecting products agent will offer and designing commission structures based on anticipated demand. To communicate their value proposition, banks should focus on the business model, rewards, and earnings potential rather than indirect benefits of agency.

Our research reveals that in Kenya, where banks have recruited existing MNO agents to also offer banking services, many agents are dissatisfied with banking transaction volumes. Because of their long-standing relationships with MNOs, agents instinctively compare bank customer traffic to that of the dominant M-PESA. Latest Helix data shows that agents do indeed perform fewer daily transactions for banks, a median of 25 versus 46 for MNOs.

At the same time, agents put more effort into conducting transactions for the bank, as these transactions are larger in size[1] and thus require more investment or frequent rebalancing. As a result of comparatively low transaction volumes and high effort, bank agents are unhappy with their agency income, even though in late 2014 median earnings of MNO and bank agents were identical.[2] This highlights the need for the banks to reframe the comparisons from transactions to agency incomes.

Industry experts and bank agent network managers tout the reputational benefits of providing bank services to the community. However, surprisingly, when asked about the benefits of being a bank agent, reputation was cited exclusively by till operators (employees) who are paid a fixed salary. Agency business owners in Nairobi and surrounding areas, on the other hand, focus exclusively on monetary returns on their investment and increased footfall in their shops.

In sum, banks should design a strong agent proposition and keep the “pitch” honest. They should focus on the business case for becoming a bank agent rather than intangible social benefits, particularly in metro and peri-urban areas. To combat negative perceptions of bank agency business relative to MNO, banks could provide income statements and offer alternative reference points (e.g. other bank agents).

2. Provide high quality services to ensure positive agent experience with your bank

Agents and industry experts have a shared perception that bank agents are more sophisticated than their MNO counterparts. They are also deemed to have special partner relationships with their client banks. As such, banks are expected to provide high quality services to their agents, including in-depth specialised training, support for managing liquidity, and additional benefits like preferential credit lines.

Agents interviewed for the study generally appreciated the training they received from banks. But they had high and often unfulfilled expectations about other support services. For example, bank agents lamented the lack of access to credit. Despite the potential to build agents’ credit history from regular transactional data, banks may not be adequately leveraging this opportunity.

Agents also complained about challenges of managing liquidity, particularly after hours when demand for agent services peaks. To date, not all banks offer dedicated counters. Long waits at the bank not only negatively impact agents’ parallel businesses but also disappoint agents, who expect reciprocity from their bank partner. If agents need liquidity to transact on behalf of the bank, the least it can do is to facilitate their rebalancing.

To boost agent satisfaction, banks need to be up front about the relationship with their agents. Even if preferential access to credit is not feasible, banks should support their agents’ liquidity management and offer dedicated rebalancing counters, on-demand float delivery, overdraft float facilities, particularly after hours and on weekends.

3. Enhance systems and streamline processes to facilitate agency business execution

When conducting business becomes a nuisance, the agent will turn dormant. Banks must enhance their systems to provide optimal stability and accessibility. They should also ensure processes for agent transaction reversal and complaints resolution are quick and painless.

Half a decade after the first agency banking rollout, many bank agents continue to face system downtime. In 2014, Kenya’s bank agents were more likely to experience downtime frequently and for longer periods of time than MNO agents.[3] They were five times less likely to receive a prior warning[4] and therefore their capital was more likely to get “stuck” in the system.

Bank agents also complain about overly formalised transaction reversal procedures, requiring multiple trips to the bank (not accessible on weekends), extensive paperwork, and multiple days to resolve.[5] Larger size bank transactions translate into larger sums of money “tied up” during wait times, be it due to system downtime or pending transaction reversals.

Agents are frustrated to see their working capital idling. Recurring issues with unstable systems or lengthy resolution processes erode trust and dissuade agents from investing in float for the problematic provider. Further, the negative word of mouth can discourage potential agents as well as the current and potential users of financial services.

Banks must ensure system reliability prior to the launch and put in place processes for resolving complaints that are as efficient as possible. If paperwork and delays are required by the regulator, agents must be briefed during initial training to avoid discontent.

[1] 27% of MNO vs. 42% of bank transactions exceed Ksh.5,000 or roughly US$50.

[2] While bank agent commissions on cash-ins are generally lower than corresponding MNO commissions, bank agents are also making money on transactions that MNO agents do not perform such as balance inquiries, bill payments and money transfers.

[3] Ever experienced downtime: 52% Bank vs. 44% MNOs; experienced downtime 5 times per month for bank 1 time per month for MNOs; downtime average duration 14 hours for bank vs. 9 hours per month for MNOs.

[4] 17% of bank agents received downtime warning vs. 84% of MNO agents.

[5] Some of these may be mandated by the regulator and thus unavoidable.

Special thanks to Apphia Ndungu and Mutua Mulanga of FSD Kenya for their valuable contributions to this study. 

Is Soil Health Card the Magic Pill for Agricultural Woes?

Posted on by MSC

One of the most common reasons for declining agricultural productivity is deteriorating soil quality due to over-use of chemical fertilisers which are easily available at subsidised rates. The Government of India introduced Soil Health Cards (SHC) for farmers in 2016 under the National Mission for Sustainable Agriculture to promote judicious use of fertilisers amongst the farming community.

Designing User-Friendly USSD Interface for Digital Financial Services

Posted on by MSC

According to Finscope 2014, it is estimated that 33% of Malawians have access to formal financial services. For any non-urban individual in Malawi, travelling to the nearest bank takes an average of more than an hour and a quarter. By contrast, 50% of adult Malawians have access to a mobile phone, 20% are aware about mobile money, and 4% actually use mobile money account. The high rate of access to mobile phones provides an immense opportunity to Digital Financial Service (DFS) providers to offer a diverse range of formal financial services to unbanked Malawians.

For any customer segment, there can be multiple criteria for availing financial services. While some of the criteria, such as product features, channel accessibility, network connectivity, and usage charges have a certain role in the uptake of DFS, the User Interface (UI) plays a more important role than is envisaged by DFS providers. UI plays an integral part in enhancing customer experience and facilitating regular usage of mobile money wallets.

Globally, DFS providers offer their products and services on different access channels such as Unstructured Supplementary Service Data (USSD), SIM toolkit (STK), Interactive Voice Response (IVR), mobile applications and the internet. In the current scenario, USSD (in addition to mobile applications) is one of the most convenient and best available options for reaching the mass market in a cost-effective way. Preference for any channel, however, varies across geographies depending on key factors such as literacy level of users, service offerings, availability of and accessibility to alternative service providers, and ease of use, among others.

When mobile money was launched in Malawi, customers could access their account only through an STK menu. In 2013, however, a leading mobile money provider started offering its services over USSD as well. MicroSave’s market research, funded by UNCDF’s Mobile Money for the Poor (MM4P) programme, highlights that contrary to the popular perception, most users in Malawi have a higher preference for the USSD access channel when compared to STK.

This note focuses on key user insights explaining the preference for USSD, which should remain the core focus area for providers while designing the interface of their access channel.

Key Findings

During the course of our study and also working with other providers in Malawi, we noted that self-use of mobile money accounts was common across the country, especially among young people and the working class, more prominently among men. Although agent assisted transactions / over-the-counter (OTC) services in Malawi are commonplace, our research shows that it is not as prevalent as in countries such as Uganda (30%) and Zambia (67%). Most users have learnt how to use mobile money on their own. This, to a large extent, can possibly be attributed to USSD channel’s intuitive UI, familiarity with easy-to-interpret menu content and simple navigation through menus. Apart from the UI, there are two more compelling factors which drive the preference for USSD channel among customers:

  1. Past behaviour of users accessing a service on phone, such as self-airtime top-up using USSD channel, results in rapid uptake of mobile money usage;
  2. Robust technology provides positive experience to mobile money users.

It should be noted that unbundled menus are a design feature, and may not actually be an advantage specific to USSD. An unbundled menu may have negative implications as well. For instance, novice and occasional users may find it challenging to navigate to the required option as the probability of a session time-out increases with a more detailed menu.

1. Extension of Status Quo Behaviour

Unlike countries like India, where agents electronically top-up airtime for customers, airtime scratch cards seem to be the most preferred mode of self-top up among Malawi’s growing base of mobile subscribers.

These prepaid users, both semi-literate and illiterate, are not only numerate; but are also familiar with the USSD channel which they frequently use for airtime top-up (i.e., they top-up airtime by entering the scratch card number using a USSD short code such as *XXX*1234 1234 1234#). Starting mobile money USSD sessions and entering numeric responses are not new for these users, but rather an extension of their conventional practice for airtime top-ups. Eventually, these users become confident of accessing their mobile money accounts over the USSD channel.

2. Quick Access to Sessions and Fast Response Time

USSD is simple and easy to use. The user dials a short code *XXX#, presses the call button on the mobile phone and starts interacting with the platform. USSD provides fast access to mobile money menus.

USSD is session based and the system’s response time between an action point and the user’s response is usually fast. In addition, depending on the provider, users have less time during USSD sessions, compared to STK or other UIs, to input their responses and prevent a session drop-out. This, of course, acts as a major deterrent for novice users. Experienced users, however, are familiar with the channel and complete their transactions quickly while using USSD menus. The users also do not need to wait for any text message confirming their transaction status as such communication is received immediately through flash messages.

3. Easy to Recognise Network Downtime

USSD establishes a real-time connection with servers at the back-end and allows true session-based communication. Compared to STK, where users become conscious of network failure at a much later stage after entering responses, USSD users become quickly aware of session drop-outs and hence, can re-initiate the USSD session much earlier than the STK platform.

4. User Friendly Design, Detailed Menu, and Easy Navigation

In multiple blogs, MicroSave has categorised USSD menus as bundled and unbundled. A bundled menu has limited options in the main menu and requires further navigation to explore sub-menu options. The unbundled menu however, is more detailed with a list of various options in the main menu itself. The research found that this detailed menu is commonly preferred by mobile money users in Malawi. The inclination towards USSD is primarily due to the availability of detailed menus and the preferred use-cases being placed at the beginning of the main menu such as money transfer and airtime purchase. This enables users to easily locate their preferred options and complete their transaction without navigating through multiple menus. Furthermore, users find the menu content to be simple, uniform and easy to interpret.

This helps users to complete most transactions with just four to five ‘clicks’ (See figure 1). Eventually, most users complete their transactions within a minute of initiating the USSD sessions.

It should be noted that unbundled menus are a design feature, and may not actually be an advantage specific to USSD. An unbundled menu may have negative implications as well. For instance, novice and occasional users may find it challenging to navigate to the required option as the probability of a session time-out increases with a more detailed menu.

5. Easy and Consistent Menus for Bill Payments

Access to electricity is limited to a few Malawians only but it is used extensively wherever available. Paying electricity bills at dedicated bill payment centres, however, is time-taking due to limited availability and inaccessibility. For these users, mostly based in urban/semi-urban locations, paying electricity bills using mobile money service offers much convenience. The fact that there is an option of paying utility bills without prohibitive service charges has also encouraged customers to use their mobile money accounts for such services.

Additionally, users find it easier to navigate other bill payment menus as they find similar sub-menus while paying for television subscriptions and other payments. For instance, to make a bill payment, a user has to select the type of bill payment, select the payee, enter the amount, customer ID and the MPIN as depicted in figure 2.

Conclusion

Overall, the research finds that most customers are aware of the convenience associated with mobile money services. This primarily includes storing money to avoid cash holding risk, transferring money on their own, the convenience of airtime top-up and paying utility bills anytime and anywhere, among others. Simplified USSD interface and convenience to use mobile money services are the major factors leading to higher uptake and regular usage of mobile money, reduced dependence on agents for transactions and increased self-usage of mobile money accounts by customers.

So, when most mobile money operators in Malawi continue to invest in furthering their operations, particularly in rural geographies, they should bear in mind that nothing beats the convenience and simplicity of use offered by mobile money as well as realise the importance of user interface in enabling a positive user experience. Fortunately, USSD interface scores high on both these key elements. It may not be incorrect to mention that a positive user experience is likely to define the uptake and success of mobile money in Malawi