Banking Agents - The Key to Successful Mobile Banking Services

February 18, 2009    

A thriving network of agents is vital to the success of any branchless banking business model. However, building and sustaining an agent network has proven to be challenging for branchless banking pioneers, particularly in the mobile banking space.

In a survey of two of the fastest growing mobile banking networks serving poor people - M-PESA in Kenya and GCash in the Philippines – CGAP found that providers have successfully established large agent networks, but they continue to face difficulties in building a profitable model.

To date, building viable agent network involves a host of challenges. One challenge is ensuring that agents are adequately compensated. Branchless banking (including mobile banking) requires outsourcing cash transfers to agents of these distributed networks, such as small shops. Agents who are paid a commission on each transaction must have a sufficient volume of transactions to cover the cost of providing the service.

Quality of service is another challenge. Mobile banking service providers need to ensure that adequate technical support and security are available for agents, particularly to serve customers who are new users of banking and financial services. The quality of the service depends, in many ways, on the types of agents being used to offer financial services to customers. There are various types of agent networks deployed worldwide.

Currently, most banking agents are retail, lottery, and postal outlets that work on behalf of a financial institution and let clients deposit, withdraw, and transfer funds; pay their bills; inquire about an account balance; or receive government benefits or a direct deposit from their employer.

In Kenya and the Philippines, payment services by mobile operators rely on their broad prepaid card distribution networks to double up as cash-in/cash-out points. This model is being adopted in Bolivia, Colombia, India, Mexico, Pakistan, Peru, and South Africa. In Brazil, 105,000 bank agents have opened shop, most in the past five years, bringing all municipalities into the formal banking system.

We look at the initial development of the M-PESA and G-Cash mobile banking platform, focusing on the role that agent networks play in providing services as well as agent-related challenges that providers face. Such comparative research on the M-PESA and GCash agent business models has shed light on a key aspect of successful mobile banking services. We find that some things, such as market competition, are beyond the control of the companies. But companies can make certain strategic decisions around cash handling techniques and commission structures that will make the business model more attractive to small agents and will therefore expand services to more people.

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