Branchless Banking Interoperability and Agent Exclusivity
This is the third post in our series on interoperability and related issues in branchless banking and mobile money. Read the first post that presented the overall framework for the discussion and the second post that looked at the interconnection of mobile money platforms. Today, we discuss interoperability at the agent level as it relates to agent exclusivity. We include agent exclusivity in the topic of interoperability because it raises many of the same issues as platform interoperability.
Agent exclusivity revolves around the ability of a customer of one provider to use the agent of another provider for cash-in and cash-out services related to that customer’s account. Non-exclusive agents can expand financial access by providing more access points to a greater number of customers, while limiting the rise of a dominant actor which could ultimately reduce competition. But as with platform interoperability, regulators are cognizant that prohibiting exclusive agents could deter private actors from entering the market. What service provider would invest in identifying, training, and equipping agents if competitors can piggyback off their investment?
To be clear, when we speak of agent exclusivity, we are only referring to the cash-in and cash-out services performed by agents – not other services (where permitted) such as customer enrollment, related KYC, and processing of loan documents. Agents providing only cash-in and cash-out services are often called “cash merchants”. We distinguish the cash merchant services from other services because cash merchant functions arguably present less risk to the financial service provider since agents typically transact against their own accounts. Think human ATMs.
We identify at least four different ways to share cash merchants:
- Cash merchant serves account holders of the financial service provider it represents and provides cash-out services to non-account holders in what are called off-network transactions.
- Cash merchant provides cash-in and cash-out services not only to account holders of the financial service provider it represents but also to account holders of other service providers.
- Cash merchant represents multiple service providers and services the account holders of all, but does it through multiple agent accounts.
- An independent cash merchant services account holders of all service providers but through a single agent account provided that the mobile payment platforms are interconnected.
Each of these cash merchant sharing models has different requirements concerning platform interoperability, regulation, and liquidity management. And some are more financially inclusive then others.
In our opinion, agent interoperability is possible even when there is agent exclusivity, as long as platforms are interconnected as is the case with interoperable ATM networks. For instance, as shown in column two in the figure above, agents can remain exclusive to one provider but with platforms interconnected and relevant business rules established, agents can cash-in or cash-out for any account holder across the interconnected platforms, using their agent account with one service. As shown in column four in the figure, platform interconnection is also a prerequisite along with agent non-exclusivity in what could be another vision of agent interoperability – an agent servicing multiple account holders across multiple networks through a single agent account.
Even in cases where exclusive agent arrangements have been prohibited, private operators often find ways around it. In one jurisdiction, operators monitor the number of transactions conducted by a specific cash merchant for their account holders and if they sense the cash merchant is favoring a competitor, they will cancel their agency agreement.
Agent exclusivity raises competition concerns for regulators. Take as an example M-PESA which now has more than 20,000 agents throughout Kenya. Competitors have argued that Safaricom used its head start to tie up the supply of potential cash merchants, effectively exercising a monopoly and limiting competition. But how should Kenyan competition authorities evaluate this claim? Have competitors really exerted enough effort to secure their own cash merchants or are they simply wishing to capitalize on Safaricom’s efforts? And how would the available pool of cash merchants be defined? How long should regulators wait – and what market indicators should they ascertain – before they mandate the shared use of cash merchants? And what model of sharing cash merchants should they mandate? Is there a business case for sharing agents and if not, what should regulators do to avoid limiting competition?
These are just a few of the questions that regulators and providers are trying to answer.
- Michael Tarazi & Kabir Kumar