Agent banking is beginning to gain currency in Nigeria, yet not so many people know about it. Whether you are a small business owner, a school leaver, retiree or unemployed; you can make extra cash with agent banking.
What Is Agent Banking
Agent Banking is the delivery of limited banking services through a third party. The third party renders some banking services on behalf of a bank, using own resources.
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 kilometres away into the next town. You are stalked and sweating.
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.
Why Agent Banking?
The goal of agent banking or agency banking is to enhance financial inclusion. Thus with agent banking, the CBN intends to take financial services closer to the 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 with the release of 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.
The CBN have also expanded the scope with the licensing of Super-Agents to engage in agent network management.
Categorization of Agents In Agency Banking
There are three categories of agents in Agency banking, namely: super agent, sole agent and sub agent.
The super agent is an agent who has the authority to recruit other agents (sub-agents) and manage them in a network. The super agent is independently licensed by the Central Bank of Nigeria and must be a company incorporated in Nigeria.
He provides the sub-agents with POS and other relevant equipment and supervises their activities. He also ensures that sub-agents carry out agent banking functions in line with prevailing regulatory guidelines.
This services is usually referred to as agent network management.
Some of the popular super-agents include: OPay, PayCenter, Interswitch, MoMo, etc. Airtel also recently got a CBN license to offer Super-Agent services.
A sole agent is one who have a direct agency relationship with a chosen bank or other financial institutions 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.
Each bank will usually prescribe the amount of money the Sole Agent will need to commence the relationship.
Sub-agents work under a super agent in an agency network. You see them everywhere in their kiosks or under umbrellas on the roadsides with their POS. These are the people you popularly call POS operators or POS business owners.
How to start agent banking business
The process you take to start this business will depend on the category of agency banking you want to play at.
To be a super-agent is more rigorous as it requires direct licensing from the CBN.
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 applicant is also required to obtain letter of reference from a financial institution, among other documentary requirements.
To be a sole-agent, all you have to do is apply to any bank of your choice. The bank assesses the applicant in line with the general CBN guidelines.
The Bank then applies to the 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.
Thereafter, the bank 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, funds it. And he is in business.
In line with existing regulatory, an applicant must be operating an existing business to qualify to provide agent banking services.
Some of the businesses that are easily suited for this include: super markets, gas/petrol filling stations, business and communication centers, corner shops, boutiques, distributors of FMCG, etc.
NGOs, religious bodies and such other similar organizations are not allowed to offer agency banking services.
Sub-agents are agents that are recruited and managed by the Super-Agent under an agent network management arrangement.
All you need to be a sub-agent is your initial investment for your float, a POS and a mobile phone. You can start this business from the corner of your house, a rented shop, kiosk or any empty space where you can mount an umbrella to provide you a cover from the sun and rain.
However, your location is key. Operators who site their business on busy areas, with limited bank ATMs make more money.
TWith about #100,000 you can become a sub-agent with any of the licensed super-agents.
The amount you pay will cover cost of POS, the installation of agent banking application on your mobile device and your initial float.
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:
The banks pay their agents commission on the volume of transactions carried out on their behalf. This commission is 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 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.
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.
Smart agent can deploy sound cash management strategy for the benefit of their primary business.
For instance, a supermarket operator who doubles as a bank agent can apply excess cash to replenish his stocks. 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?
To be a Super-Agent, you need a minimum investment of #50 million under the prevailing regulatory framework. You must also meet prescribed anti-money laundering and compliance requirement. The documentation processes is also rigorous and may require that you engage a consultant to guide you.
However, to operate as sole agent and/or sub-agent may not require much investment. If you have an existing business such as a super market, gas station, business center, etc; you can add to your revenue stream by becoming an agent to your 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.
To be a sub-agent, all you need do is to approach a super agent of your choice and follow through the process. The super agent will brand your kiosk or shop, give you a POS and link you into its agency network. And you are in business.
Super agents will usually require a deposit of between #50,000 to #100,000 from applicants for enlistment into their agency banking network.
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.
To succeed in the business of agent banking, site your business in places where there are limited or no bank branches or busy environment. Put in place adequate risk management strategies. And 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 adhere 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.
Buchi creates content and leads the Team at Stalwart Investment Partners; a business development and investment consultancy firm. He provides strategic advisory to help SME's, small business owners and HNI's grow profitable business and make informed investing decisions.