Serving unbanked or under-served populations is a challenge for many retail banks globally, despite the fact that financial inclusion is a high priority for many governments. For most banks, maintaining a traditional branch in a rural area is inherently cost-ineffective. In addition to tellers, banks have to station managers or other employees who specialize in areas such as mortgages, loans and securities – often to realize that footfall is far too low to support the branch, given that most customers have to travel extensively to reach it.
The challenge has been exacerbated by the COVID-19 pandemic and the resulting physical distancing common in many countries. Banks are urgently searching for distribution channels that work in this context. Digital channels have been one obvious answer, but they don’t work for everyone. Some banks are looking again at the idea of “agent banking”—a model in which a bank distributes products and services through agents or banking correspondents, typically a mom-and-pop-store, retail shop, post office, or mobile network operator.
In this model, rather than a branch teller, it is the owner or an employee of the shop who conducts the transaction, whether it be a deposit, withdrawal, or transfer money. They can also include services such as account opening, bill payment, or the purchase of air time. One advantage of agency banking is that banks do not have to invest in a traditional branch that is unlikely to attract enough customers—but it also helps banks reach unbanked or underserved customers who reside away from urban hubs. In Southeast Asia, these numbers can be sizable. For example, in Indonesia, the penetration of traditional banking services in non-urban areas is only 30%, whilst in Myanmar it is less than 10%.
Agent banking offers customers the assurance of physical interaction with their “bankers,” combined with the convenience of digital technology. However, a number of challenges have inhibited the growth of the agent banking channel:
If banks can find solutions to these challenges (and we suggest a few below), agent banking could become increasingly important for a number of reasons:
Agent stores can operate longer hours, with less traffic. In some markets, agents are classified as an essential service (due to the provision of daily necessities for communities), allowing them to stay open even during lockdowns. For example, EKO, a leading agent banking operator in India, for example, has seen a boost in usage, as bank’s branch hours are shortened and queues grow longer.
Customer behaviors are changing. While the unbanked and underserved segment will continue to be served by agents, there may also be an increase in the bank’s regular customers who choose to visit agents due to the convenience, proximity and shorter queuing times.
Agents can address a wider range of demands. Agents can offer more ancillary services than banks—think mobile airtime top-ups or buying data packages—making them a more likely destination for those who have to travel longer distances to get their errands done. Banks considering setting up an agency network can focus on three pillars: getting the basics right, expanding the pie, and ecosystem partnership.
The journey to launching an agent channel—as with any channel transformation—should be taken sequentially. Banks which has existing agent banking network should start by understanding the current gaps and ensure agent activation and liquidity fulfillment keep up with service needs. Once this is covered, banks can consider extending the product and service offering. Further along, banks should continue to invest in digital and analytics to support agent banking business, and find ecosystem partners with whom they can create joint use-cases to enhance the agent value proposition.
The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Asian Banking & Finance. The author was not remunerated for this article.
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Malcolm Gomes is a partner at McKinsey & Company based in Bangalore. Prateek Bhargava and Raj Binani are associate partners based respectively in Bangkok and Kuala Lumpur, and Tengfei Ma is an engagement manager based in Singapore.