Agent banking is beginning to gain currency in Nigeria, yet not so many people know about it. If you have an existing small business that brings in cash on a daily basis, you can diversify your revenue streams by becoming a bank agent.
Who is an Agent Bank
A person or entity who, not being an employee of a bank, delivers banking services on behalf of a bank on an agreed commission using own premises and resources, is described as an agent bank
Imagine you were returning from a family visit on a public holiday. Suddenly you had a problem with your car. The fan belt has suddenly gone bad and needed to be replaced if you are to continue on the journey. A little distance in front of you is what looked like a spare parts store. You are lucky, the store keeper not only has a suitable belt for your type of car, he could also fix it.
But alas, apart from the three debit cards of different banks in your wallet, you have no cash. You are told that the nearest ATM machine is some kilometers away into the next town. You are stalked and sweating because the sun is setting fast.
The store boy remembers Iya Goke some meters away. He tells you to walk down, take the immediate turn to the right and walk two street more, you would see an open shop by the left. The shop owner has helped people in your situation in the past, he said.
You get there, meet the shop owner. She sells groceries but on the door is a banner of one of the popular banks. You are stranded you say and she asks how much you needed to withdraw from your account. You tell her and she brings out a POS machine, have you insert your Debit Card. Your account is debited, and you are given your cash. How relieved you are.
You have just been served and saved by a bank agent.
What is Agent Banking?
Agent banking is a way of providing limited banking services to bank customers through the use of agents who usually are not traditional bankers or banking businesses. Under an agency agreement between the financial institution which may be a commercial bank, mobile money company or a primary mortgage institution, the agent conducts banking transactions on behalf the bank or financial institution..
Agent banking or agency banking, as it may also be called is one of the retail channels of expanding financial inclusion, which is another term for making banking services reach a large number of people, particularly people living in the rural areas, semi-urban centers and the unbanked and under-banked segments of the urban population.
In Nigeria, Agent Banking started in 2013 when the Central Bank of Nigeria released its guideline on the operations and management of agent banking. Since that time, many of the commercial banks have signed on agents to help drive their retail banking services. As at January 9, 2019 FCMB says it has 529 banking agents who are operating in different parts of the country. First Bank which is reputed to be the first bank in Nigeria to embrace the agent banking model when the guideline was released says it has over 13,000 agents spread across the country.
How to start agent banking business
To set up agent banking services, the prospective agent must first have an existing business that is up and running. Then you decide on the bank to partner with. The regulatory framework for agent banking in Nigeria allows an entity to be an agent for as many banks as the entity can comfortably serve.
Having decided on the bank to work with, you approach the bank and get details of their requirements for the appointment of banking agents. The bank assesses the applicant based on its internal criteria as well as the general guidelines set up by the regulatory authority; in this case the CBN.
The Bank then applies to the CBN for approval. Individual agents are not permitted to apply directly to CBN for approval. The bank will usually submit a list of its proposed agents for consideration and on approval by the CBN, enter into agency agreement with the respective agents.
The Bank thereafter, supplies the agent with the needed equipment for the operation of the agency banking relationship. This will include: POS terminals, relevant software where necessary, other gadgets and other things the agent will need to carry out his duties.
The agent opens a bank account for the purpose of the agency relationship, buys floats from the bank and start rendering light banking services to the bank’s customers using own premises and human resources.
There are three levels of agency relationships that exist in agent banking, namely: super agent, sole agent and sub agent.
The super agent is an agent who is allowed to have other agents (sub-agents) in a network. The super agent can also be independently licensed by the Central Bank of Nigeria to conduct certain banking services within the limits of prescribed regulatory framework.
To be licensed as a super agent, the operator is required to have a minimum capital of N50 million and a minimum of 50 sub-agents in its network. The company is a required to obtain letter of reference from a financial institution.
MTN Nigeria, through a subsidiary company, Yellow Digital Financial Services, recently obtained a super agent license to offer super agent banking services. With her MOMO agent network programme, MTN hopes to register 500,000 agents spread across the 36 states of the federation and the FCT rendering money transfer and bill payment services.
There have been other super agents operating before MTN MOMO entered the scene.
Sub-Agents work under a super agent. A sole agent, on the other hand, is one who have a direct agency relationship with a chosen bank but does not have the power to recruit sub-agents.
In discharging his responsibility, the agent bank must adhere to important banking guidelines such as the anti-money laundering laws and the Know Your Customer KYC rules.
Who is eligible to be an agent
Any applicant for agent banking business must meet the following requirement:
1. Must have been in a legitimate business for at least one year. The financial institution will usually determine what business is permissible for its agency relationship.
But as a rule, schools, NGO’s and faith based organisations are not permitted to be agent banks. Businesses that are commonly accepted include but not limited to: supermarkets, gas stations, business centers, mobile money agents, retail shops,restaurants, etc. Any business with regular cash flows is suitable to act as banking agent.
2. Business structure – the following business structures are acceptable for agent banking businesses: limited liability companies, sole proprietorship, partnerships, cooperative societies and any business entity which the CBN may prescribe from time to time except organisations that are not for profit based.
3. The business or entity has not been classified as a non performing borrower any financial institution in the past 12 months.
4. The business must have appropriate physical infrastructure and staff to carry out agent banking services
Delivery Channels: Agent banking services is rendered through the use of POS terminals, card readers, Mobile Phones, and bank linked mobile wallets for real time transaction processing.
Services Rendered by Agent Banks
Agent banks help to drive the retail services of banks to places where it is not profitable for banks to establish branches. Some of the services they are allowed to provide include:
- Account Opening
- Balance Inquiry
- Deposit and withdrawal of cash
- Issuance of mini-statements
- Funds transfer (Local)
- Bills Payment – Taxes, tenement rates, utilities, subscriptions, etc.
- Payment of salaries
- Collection of bank mails
- Cheque book request and collection
Some agency contract may allow the agent to do more if the principal (Bank) believes the agent has the capacity.
How Bank Agents Make Money
The following are the revenue streams for bank agents in Nigeria:
Commission – The banks pay their agents commission on the volume of transactions carried out on their behalf. This commission is agreed stated in the agency agreement and will normally vary from bank to bank.
Transactions are usually settled on a monthly basis and commissions credited to agents account after due deduction of due charges. A recent study shows that an agent who drives volume can earn as high as N200,000 every month on commissions net of charges.
However, some agents have complained that their bank principal slam them with so much charges that their commissions are eroded.
Service Charges – Depending on the terms of the agency agreement with the Bank, agents also collect service charges from the customer for some services rendered. This particularly applies to bills payment, taxes and subscriptions.
Float – By putting a good cash management policy in place, an agent can make use of cash deposits, net of withdrawal for the benefit of his primary business without hurting the agency relationship. For instance, a supermarket operator who doubles as a bank agent can apply excess cash to replenish his stocks rather than banking it and have his account with the bank debited to the value of the amount so applied. Doing this rightly is a win-win to both the agent and the bank.
This is what one bank agent has to say:
“People here are doing it like daily contribution. They compel themselves to put in something into their account everyday, no matter how small. Instead of patronizing the Esusu people, they come here to make deposit. Sometimes, I use their money for my other business and ask the bank to debit my account in order to credit their account“.
How Much Do You Need To Invest?
Not much investment is required since you already have an existing business.To be approved as a bank agent, the law requires that you must have been doing an existing business for at least one year with physical presence, infrastructure and staff component required for your business. These resources are what you are expected to deploy in discharging your agent banking duties.
The only equipment you will need to do this business are: POS, Card Reader, Mobile Phone and except your mobile phone, the other equipment will be supplied by the Bank.
However, you are required to deposit some money with the Bank to cover your float and this will vary from bank to bank. The bank will assess your business cash flow to determine your float.
Agent banking presents a lot of benefits to the economy, the banks, operators and bank customers. It enhances financial inclusion by helping to take banking services to places where bank branches are not present. For the banks they enjoy the benefits of cost reduction as it cost them less to provide limited financial services to the financially excluded people by the use of agents rather establishing branches.
For operators, agent banking is providing the with the opportunities to diversify their business and earn extra income. In doing so, they are building capacities and learning new skills in Information Technology, Cash management and relationship building.
To succeed in the business of agent banking, you must site your business in places where there less or no bank branches or busy environment, put in place adequate risk management strategies, ensure you have honest staff to prevent fraud. You must also enhance your cash management skills, raise reasonable working capital so as to have a higher float and ensure you ahere to the rules.
As with any other business opportunity we share here, do your research properly and if possible seek a professional opinion before embarking on agent banking business.