Can Branchless Banking Be Distributed Like Coca-Cola?
In the past few weeks, my colleagues have blogged about our study of agent networks in India. You can see our overall analysis of agents (called CSPs or Customer Service Points in India) here. The India research was one part of a three-country study (along with Brazil and Kenya) that highlights the critical role agents play as the key interface between a branchless banking service and its customers.
However, a mobile network operator (MNO) or bank rarely liaises directly with each individual agent. Instead, they rely on middlemen who manage anywhere from 10 to several hundred agents. Called different names in various countries (such as distributors or aggregators), in India they are called Super CSPs (SCSPs). EKO’s SCSPs are particularly interesting as they sell EKO’s service along with other products for major FMCG, MNO and pharmaceutical companies.
In India, a single distributor for a company like Coca-Cola (or Airtel or Nestle) works with several hundred retailers who sell Coca-Cola’s products. The distributor is responsible for selecting retailers, managing inventory, picking up/delivering cash and managing paperwork (e.g., for SIM registrations). Is it feasible for a distributor to add mobile banking to the other products they sell? Although the basic responsibilities are the same, m-banking is new to customers and retailers and so SCSPs must take on a more hands-on role. They must answer retailers’ questions, decide which retailers would make good agents, and ensure that they meet sales targets. The SCSP also manages cash and e-float directly with agents and takes agents’ cash to the bank for them. Typically, a distributor hires dedicated employees for each major product line. For m-banking, a SCSP will need one full-time employee for every 50 agents or so. In return, SCSPs receive a commission for each new account opened as well as for ongoing transactions.
So what is the business case for SCSPs? It is too early to answer this question definitively, but one SCSP from East Delhi, Mr. Sinha*, provides some clues. He has worked as a distributor for two major FMCG chains for over five years and makes about $4,500 profit a month. Mr. Sinha has just added EKO’s product to his existing distribution business in December 2009. He is very enthusiastic about EKO’s business potential and says it meets a real, unmet need in the Indian population. He has signed up 70 of his existing retailers to act as EKO agents. In January, his agents opened just 500 accounts but by February this had jumped to 2,000 accounts with 3,000 expected in March. In February, he made $650 profit from EKO business (equivalent to 14% of his distributor profits). Although this is promising, Mr. Sinha expects to make at least $1,000 a month from this business once his retailers have opened more accounts.
Mr. Sinha essentially requires a 20% increase in total profits for m-banking to be worth the effort. His EKO business is in a growth phase currently and time will tell how realistic these expectations are. One thing is clear: getting the business model right for SCSPs like Mr. Sinha will be critical in order for mobile money providers to build scalable agent networks.
* Names have been changed