Last update: 2010

Bringing Smart Policies to LifeThe basics: Agent banking

Agent banking: Definition

In the agent banking model, retail outlets such as shops or post offices act as agents for banks in areas where banks and other financial institutions do not have sufficient incentive or capacity to establish formal branches.

• Cash-in, cash-out services are managed using new communications technologies which electronically link transactions to a bank, typically using a bank card and a point-of-sale (POS) device and/or cellphone.

Who are “agents”?

• Post Offices

• Pharmacies

• General Retailers / Stores

• Lottery Outlets

• Merchants, supermarkets

Agent banking: Benefits• Setting up agent banks is less costly than

traditional bank branches– Requires smaller investments in staff and

infrastructure

• It is also more flexible– Agents have lower security requirements than

brick-and-mortar branches

• Significant potential to expand outreach, especially in remote areas– Cuts customers’ travel costs– Retailers’ commissions from agent banking

provide an additional source of revenue for communities.

Broader service offering

• Initially focused on traditional payments of utility bills and taxes

• Now increasingly moving to offer a broader range of financial products and services:– Withdrawals, deposits, pre-approved credit

lines, simplified current accounts, and remittances.

– Conditional Cash Transfers (CCT) – Employees’ salaries– Payments and transfers still dominate, with

savings deposits playing a more limited role

Policy Question: Setting regulatory boundaries

• Defining eligibility criteria for agents• Determining the financial services agents can

offer• Setting disclosure requirements• Adapting AML/CFT regulations

Mexico: Agents are permitted to perform Know-Your-Customer (KYC) verification for low-value transactions.

Brazil’s risk-based approach:Any institution governed by the Central Bank can establish an agent relationship. Banks are responsible for supervising, setting standards for and tracking the operations of their agents.

Policy Question: Protecting Consumers

• Building consumer trust to use agents• Ensuring transparency, especially for

commissions• Guaranteeing privacy and data protection• Supporting complaints resolution• Real-time settlements• “Float” items• Interoperability challenges

Policy Question:Ensuring Commercial Viability

• Laws and regulation supporting agent banking are not enough: there must also be sufficient business incentives for agents and financial institutions to implement this model– Government cash transfers can kick-start the

model, but agents must also be able to offer other services

– Maximizing the number of transactions per customers is one way to ensure the system is financially viable

Example: Brazil

• Brazil is a pioneer in agent banking. Since 1999, more than 100,000 retail outlets have been turned into agent banks, reaching 13 million extra unbanked people.

• All 5,600 municipalities in the country now have access to banking services, many only through the use of agents.

Example: Indonesia

• The Indonesian post office, PT Pos Indonesia, provides payment services through its network of 3500 branches, 300 mobile service vehicles, and 11000 village agents.

• As an agent for its 38 bank partners, PT Pos carries out 20 million money transfers a month.

Example: Peru

• Peru’s network of agents has nearly tripled the proportion of districts with access to bank services, from 5 to 14 percent.

• Setting up an agent bank is estimated to cost just US$ 5,000, compared to US$ 200,000 for establishing a bank branch.

Thank you!

© Alliance for Financial Inclusion 2010

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