Clara Veniard, Bill & Melinda Gates Foundation November 2010 One of the primary impediments to providing financial services to the poor through branches and other bank-based delivery channels is the high costs inherent in these traditional banking methods. The amount of money expended by financial service providers to serve a poor customer with a small balance and conducting small transactions is simply too great to make such accounts viable. In addition, when financial service providers do not have branches that are close to the customer, the customer is less likely to use and transact with their service. However, we see the emergence of new delivery models as a way to drastically change the economics of banking the poor. By using retail points as cash merchants (defined here as agent banking), banks, telecom companies, and other providers can offer saving services in a commercially viable way by reducing fixed costs and encouraging customers to use the service more often, thereby providing access to additional revenue sources. Using confidential cost and revenue estimations provided by three service providers in Africa, one in Asia, and three in Latin America, we have found that agent banking does improve the economics for these institutions compared with branches, especially for high-transaction, low-balance accounts that are common among poor users.1 Our analysis focuses on four types of agent banking delivery channels: 1. POS-enabled bank agent – This is an agent managed by a bank that uses a payment card to identify customers. 2. Mobile phone-enabled agent – This is an agent managed by a bank that uses a cell phone to identify customers. 3. Mobile wallet – This is an agent that is often managed by a telecom, uses a cell phone to identify customers, and provides store-of-value accounts called mobile wallets that are backed by bank deposits. Customers can use mobile wallets to send, receive, and store electronic monetary value. For this analysis, we consider them a store of value account that provides a useful comparison for a savings account directly provided by a financial institution. 4. Bank-provided account linked to a mobile wallet – This is a bank account that is linked to a mobile wallet. The bank does not manage the agent and pays a fee to the telecom for deposits and withdrawals. The cost and revenue estimation is done on a per account basis for transactional accounts, commitment savings accounts, reverse commitment accounts, and time deposits.2 It focuses on the costs and revenues incurred by the financial service provider associated with account opening, financial margin, and transactions for low-cost accounts. Our revenue assumptions are based on a view that financial service providers can and should charge for withdrawals and transfers through agent channels. Although some institutions in the sample do not, we contend that this may be counterproductive when reaching new lowincome markets where customers have a higher willingness to pay for nearby transaction services and where the financial margin earned on lower-balance accounts will be insufficient to cover the cost of maintaining that account. We envision that clients will transact more with greater proximity to agents.
How Agent Banking Changes the Economics of Small Accounts
Page 1 of 5
In our consolidated estimations, institutions charge for withdrawals and transfers, but do not charge any account opening fees, monthly...