Some 1.7 billion people around the world lack access to basic financial services such as a bank or mobile money account. Digital financial services have the potential to bring this population, concentrated in developing countries, into the financial system—giving them greater financial security and resilience to economic setbacks. But for that to happen, people need a mechanism for depositing and withdrawing their physical cash; that is, cash-in/cash-out services. Agent networks, a distribution channel that relies on individual entrepreneurs under a franchise-like model, have been shown to be an effective way to provide those services.

In 2018, BCG conducted a study on the economics of financial services agent networks, with a particular focus on those that support mobile money platforms. The work demonstrates that agent networks can flourish in areas that support healthy numbers of transactions. In those locales, the transaction fees earned by agents more than compensate for the financial costs and operational burdens of the business. Traditionally, financial services providers have made decisions about where to invest in agent networks mainly according to population size and density, creating an urban versus rural segmentation. This study defines the limits of network reach on the basis of agent and provider economics and identifies a new approach that will help identify overlooked profitable locations and drive potential interventions to support agent network growth.

The Promise of Digital Financial Services

In a small village in Kajiado County, Kenya—80 kilometers from Nairobi—M-Pesa agent William is helping to transform daily life. From a counter in his uncle’s small grocery shop, William collects about $300 in cash deposits every day from local villagers and dispenses upwards of $500 in cash, processing these financial transactions through the M-Pesa mobile payments account on his mobile phone.

William has developed a loyal set of customers, typically day laborers, farmers, and other local members of his Maasai community, who rely on him to deposit their earnings, purchase mobile airtime, and pay important utility bills. He offers informal credit to some customers and also runs a small side business recharging mobile phones for those who lack access to electricity. Twice per week, he pays a neighbor to drive him 20 kilometers by motorbike to the nearest bank. There, he adjusts both the amount of cash he has on hand and the balance, or “float,” in his M-Pesa account.

Mobile money agents can put banking within reach for 1.7 billion people globally.

Digital financial services, including mobile wallets and digital payment systems offered by platforms like M-Pesa, have the potential to usher into the financial system many of the 1.7 billion people the World Bank estimates lack access to a bank account or mobile money service. But there’s a catch. For digital financial services to take off in developing markets, where virtually all transactions are still conducted in cash, people need access to physical infrastructure to safely and seamlessly deposit and withdraw cash. Banks have traditionally offered these cash-in/cash-out services via ATMs and bank branches. But these solutions are often too expensive to make economic sense in markets that have low-income, low-density populations.

That’s where mobile money agents like William can make the difference. The mobile money agent model has experienced rapid growth in developing markets over the past 15 years, particularly in sub-Saharan Africa and South Asia. Yet, despite this momentum, many unbanked populations, particularly in rural areas, are beyond the reach of these networks. In light of that, BCG has partnered with the Bill & Melinda Gates Foundation to study the economics of mobile money agent networks and their role in advancing financial inclusion. The key questions: What are the economics of mobile money networks for both individual agents and the providers, such as banks and mobile network operators (MNOs), that develop them? Where is this model sustainable—and what factors limit its reach?

Our work begins to shed light on the kinds of action that the private sector, governments, and philanthropies can take to cultivate and support these agent networks. Such efforts can dramatically expand access to financial services—and that, in turn, can transform lives, giving consumers a safe and low-cost way to store and transfer money and ultimately helping to lift people out of poverty.

Credit: BCG