I’ve been part of a CGAP team working on a three-country study of agent networks over the last several months. We blogged about our time in Brazil earlier this year, and you can download the deck with our analysis of agents here. We also did some analysis of M-PESA agents last year, and we will be updating this information in the coming weeks.
More recently, however, I was joined by colleagues Karuna Krishnaswamy, Claudia McKay, Mark Pickens in India talking to FINO and Eko, along with other companies involved in different forms of branchless banking. Over the next few weeks, we’ll be blogging about various aspects of our time there. You can see our overall analysis of agent networks in India in this deck.
I’m starting off our analysis here by discussing something completely unique that we saw FINO doing with agents in the state of Karnataka: doorstep banking. FINO agents (or Customer Service Providers – CSPs – as they call them) are roaming and deliver services at the doorstep of customers. This differs from anything we’ve seen in Kenya, Brazil, the Philippines, and even other agent schemes in India. We visited rural and peri-urban locations up to 40 km from Bangalore, and interviewed 19 agents.*
FINO agents in Karnataka offer no-frill bank accounts from the State Bank of India (SBI). Some agents also sell insurance products. The business case for agents is working, but just barely. The average monthly profit is USD 23.42, far below what we’ve seen with M-PESA (USD 130.26) and Brazil (USD 134.42). Last November, account opening was halted while SBI migrates account data to its own servers, and the average monthly profit dropped to USD 8.08. Despite these low profits, agents appear patient to wait and see if the FINO business turns into something big. If FINO is able to sell more products over this channel, as they hope to, then there should be more revenue for everyone in the future, including the agents.
To get a better sense of FINO’s model and how it works for the agents, let’s take a quick look at two agents: one for whom doorstep banking is a successful proposition and one for whom it is not.
Mr. Rao* is a very successful FINO agent. He does more than 1,000 transactions per month servicing 1,600 customers. During the period of account opening, he opened 400 new accounts per month. He is also very active in selling FINO’s insurance product (12 per month). With account opening, Mr. Rao makes a monthly commission of USD 123*, of which USD 24 is a guaranteed fixed wage. His major expense is transportation totaling USD 66 (not surprising since he goes to the customer, not vice-versa). So his monthly profit is around USD 57.
Yet despite his success, the agent business is distinctly a side business for him. Lending in his personal capacity is his major source of income which provides him with a monthly income of around USD 1,100. He spends 7 hours a day traveling to villages for his lending business, so the FINO agent business was an easy add-on. In addition, he is able to explain and sell the financial products to new customers given his high level of financial literacy.
The case of Mr. Jayaraman* looks quite different. He does around 900 transactions a month, servicing 1,125 customers. But he doesn’t sell the lucrative insurance product like Mr. Rao, nor does he open as many accounts. His monthly commission is USD 64, of which USD 24 is the same guaranteed fixed wage. While he doesn’t spend as much on transportation as Mr. Rao, the roughly USD 20 that he does spend substantially eats into his profits, which amount to only USD 44. The problem for Mr. Jayaraman is that unlike Mr. Rao who does the FINO agent business as an add-on to his existing business, this is Mr. Jayaraman’s main source of income. He spends up to 10 hours a day visiting customers as far as 15 km away to carry out transactions.
One distinct difference between FINO agents and those we saw in Kenya and Brazil is that while FINO agents have transportation expenses, they are not linked to liquidity management. Agents don’t have to travel back and forth to the bank handling cash since FINO takes care of this for them. In Karnataka, agents spend a lot of time (and money) traveling to customers’ doorsteps, but they don’t have the extra burden of traveling to the bank.
It’s clear that the FINO agent business cannot be a full-time proposition. And it has never been FINO’s intention that agents would be doing this business exclusively. The challenge, however, is that the time required to offer doorstep banking services can make it difficult for those that have another business to run, unless that business is already very compatible with travel. While some FINO agents are earning some extra income, others are struggling to determine the right balance between time spent traveling and time spent on other ventures. What is obvious is that the winner in this entire arrangement is the customer, who gets free banking services without even leaving her home.
* Sample size for this analysis is 19. Data verified by FINO as reflective of CSP base in Karnataka.
* Names have been changed.
* 1 USD = 45.62 INR as of March 15, 2010.