The Power of Mobile Money Agent Networks

The 1.7 billion adults who lack a bank or mobile money account—roughly 35% of the world’s adult population rely largely on cash transactions in their daily life. According to research by the World Bank and Mastercard, in developing countries, more than 90% of transactions are executed with cash. Absent a way for people to move that physical cash into and out of an account, this population will remain excluded from the financial system. Agent networks—particularly those that use mobile technology—can provide that critical link.

THE ROLE OF A CASH-IN/CASH-OUT INFRASTRUCTURE

Cash-in/cash-out services provide a bridge between a cash-only world and the use of both digital and traditional bank accounts. Such accounts can set consumers on a path to the adoption and sustained use of more-complex financial products. In fact, even in an advanced financial system such as the US, more than 30% of transactions are still conducted in cash, making cash-in/cash-out services a continued necessity.

In most developed economies, cash-in/cash-out services are delivered via bank branches and ATMs. Countries with nearly universal financial access have large numbers of these access points. South Korea, for example, has more than 200 ATMs per 100,000 adults and over 30 branches per 100,000 adults, according to the World Bank. This system is less robust in developing nations, however. That’s because bank branches are expensive to set up and operate. World Bank Data suggests there are an average of just 5 banks per 100,000 adults across countries in Africa. And ATMs require high capital investments as well as costly ongoing maintenance and cash replenishment.

How Traditional Bank Agents Helped Fill the Gap

Given the limited reach of traditional cash-in/cash-out infrastructure, another model has been required to ensure broad global access to financial services. In some markets, the answer was the deployment of local bank agents.

These agents, who help banks acquire and serve customers, have worked under what is essentially a franchise model. Bank agents are typically required to invest significant upfront capital in the business and are encouraged to leverage their personal connections and credibility within the local community to stoke demand. This model provides substantial cost benefits to the provider, as the agent incurs the majority of startup costs, and most ongoing costs are variable and commission-based. The agent model also features some important non-financial benefits. As the retail face of the business, agents can provide customer assistance in a way that most ATMs cannot. This is especially valuable in communities with low rates of overall and technological literacy.

THE TRADITIONAL AGENCY BANKING MODEL

In Latin America and South Asia, the agent model has played a critical role for traditional banks that are seeking a low-cost approach to network expansion. Brazil offers an inspiring case study in which dramatic increases in financial access can be attributed to a vast network of bank agents that exceeds 400,000 according to the country’s central bank. In India, both public- and private-sector banks have relied heavily on the agent model to comply with the government’s financial-inclusion mandates. Based on an analysis of data from the Federal Reserve Bank of India, BCG estimates that from 2012 through 2016, the number of agents (known as business correspondents, or BCs) in the country grew 40% on a compound annual basis, significantly outpacing the growth of ATMs and branches (8% and 20%, respectively, during the same period).

In markets with high levels of deposits and demand for loans, banks can generate healthy earnings via the agency banking channel. The model, however, has its limitations.

In low-income communities with relatively small deposit balances, agent operations are more likely to be a cost center for the bank. That’s because the bulk of the activity is cash-in/cash-out transactions on which the bank pays the agent a fee but often earns nothing. In such cases, investment in the agent channel can still make sense for nonfinancial reasons, such as helping to reduce congestion at bank branches, keeping the bank in compliance with government mandates, or supporting the long-term development of promising markets. But in light of the economics, banks are generally selective in their expansion of traditional agent networks in low-income, sparsely populated areas.

THE RISE OF THE MOBILE MONEY MODEL

Mobile technology has been a game changer in helping to expand access to financial services. Over the past decade, banks, MNOs, and other players have invested in the development of mobile money platforms, which typically include a mobile wallet and an integrated payment system. These platforms allow customers to store, send, and receive money via their mobile device, serving as a convenient and low-cost alternative to a conventional bank account and a gateway to broader financial inclusion.

MOBILE MONEY AGENTS 101

The power of that model has fueled a rapid expansion. From 2011 through 2017, the ranks of mobile money agents worldwide swelled from about 500,000 to 5.3 million, according to the GSM Association. That has supported widespread consumer adoption of mobile money services, with roughly 600 million new mobile money accounts registered during that period. Most of those accounts have been opened in sub-Saharan Africa (more than 300 million) and South Asia (more than 200 million).

Today, the market is poised to expand even further. For one thing, about two-thirds of the world’s unbanked individuals own a mobile device. Banks in developing markets are increasingly investing in mobile money platforms in addition to traditional branch-based services, with the goal of expanding their reach among underserved and lower-income customers. Countries are also continuing to revise regulatory guidelines to remove barriers that can block nonbank players such as MNOs, fintechs, and e-commerce companies from introducing mobile money services. For example, in 2015, the Reserve Bank of India issued licenses for a new payments bank model, a shift that prompted a variety of nonbank companies to enter the market with mobile money offerings.