PoS agency banking: No smooth operation yet

Saviour Adugba

• Good, bad and ugly

N I G E R I A HAS BEEN ON A LONG drive for financial inclusion, supported by a related journey to bolster the development of its digital economy. In the quest to achieve this, the Central Bank of Nigeria (CBN) and the Ministry of Communications and Digital Economy have created some policies to help engender the realisation of the nation’s objectives of financial inclusion.

One of the more revolutionary and most rewarding policies has been the introduction of the agency banking license that the CBN made available to both banks and other financial institutions who wanted to obtain the license and create an agent banking network. When the CBN introduced the agent banking license in 2013, it listed its objectives to include, among other things, the following:

• Enhance financial inclusion; and

• Provide for agent banking as a delivery channel for offering banking services in a cost-effective manner.

Agent banking works in such a way that individuals can set up shop typically in areas with either a low banking presence or no banking presence at all, they then provide financial services to customers at a fee through the use of POS machines sourced from banks and other institutions with a license to operate agency banking, and also through the use of direct customer to customer transfers.

Agent bankers usually provide services such as deposit taking, withdrawals, transfers and account opening services. Other services might include bills payment, recharge services and other services as allowed by the CBN guidelines. Usually, agents charge customers anywhere from N50 to N1,500 per transaction depending on the volume of cash involved in the transactions, and the services required.

Agent banking, or POS banking as it is more popularly called, has revolutionised banking and the provision of financial services in Nigeria as we know it. The development strides taken in the POS/agency banking subsector has now made sure that hitherto unbanked people living in rural and remote areas now have access to financial and banking services. People that lived in communities where they needed to travel before getting access to banks are now enjoying the benefit of being reached with financial services in their own communities.

More importantly, the jobs that the subsector has provided for young Nigerians cannot be underestimated with many Nigerian youths who had been unemployed venturing into POS banking services. In urban cities like Lagos, Port Harcourt and Abuja, agency banking has also made banking services more accessible to people; making sure that all and sundry can at least have access to basic financial services in their local areas.

This has in turn engendered financial democracy across board, and helped ameliorate some issues like overcrowded automated teller machines (ATMs), long queues at banks and lack of access to financial services.

But is it all shine and no rain in the agent banking business? What are the challenges that agent bankers face in getting into the sector and staying afloat? What can be done to make the sector more favourable? Saviour Adugba puts the pieces of the jigsaw puzzle together in this report.

Challenges within the industry

Without a doubt, there have been many positives that have come with the agency banking. However, as with many fields involving humans and machines, it also has its own challenges. Business A.M. can report that while some of the challenges faced by the PoS agency banking sector are regulatory, others are quite situational, while a few are due to the different banks/ agent networks.

A capital-intensive market entry

Most people who are looking to operate as agent bankers are either hitherto unemployed youths who are turning to the business to make a living for themselves or small business owners, who want to make extra cash on the side to boost their income. As a result of this the capital required from new entrants into the business is considered heavy for these category of people. Adetokunbo Isreal, an operator in the Iju-ShagaFagba area of Lagos, told Business A.M. that to comfortably start a PoS business in Nigeria a capital of about N150,000 is required. According to him, this amount will help one have an operating capital, procure a POS and secure a kiosk. While N150,000 may be considered by many not to be too much an amount of money, an analysis of the financial situations of many involved in the business and those looking to get into present a better understanding of why they say it is a lot. Alani, a POS operator in the Agege area of Lagos says that finding the money to start the business was a herculean task for him. He told Business A.M. that he had to move from one family member to another family member in order to raise enough money to get started in the PoS business, with which he says he now feeds his family. The view of many operators is that the regulators take a second look at the barrier to entry, which currently exists, with a view to making market entry a less tedious process. They also want to see that the regulators ensure that hardware such as PoS machines are provided at a more affordable rate to the agents.

Agents face Herculean task getting PoS machines

For new agents trying to get a foothold into the business, Business A.M. gathered that one of the biggest challenges for them is the herculean task of securing a PoS machine. As has already been established, using direct customer to customer transfer has become dangerous because fraudsters are now capitalising on that to defraud agency bankers. In order to mitigate that, Business A.M. learnt, agents try to make sure that transactions are done via PoS machines and they also accept cash transfers from customers that they trust. But with the reality of how difficult it is to get a PoS machine from the banks, intending agents have had to use other means, including bribery to secure machines, effectively raising their capital needs. Some of the banks who issue sub-licenses and PoS to agents have cumbersome requirements for them to issue a PoS machine to an agent; and even when their terms and conditions are met, you are not guaranteed a PoS machine. Another operator, who simply identified himself as Olamide, and operates in the Abule-Egba area of Lagos State, told Business A.M., “trying to get a PoS from the regular banks is like to driving at night without full lights; it is a difficult process,” he seems to lament.

An epidemic of “fake alerts”

Another issue that has been rocking agency bankers is the issue of fraud. According to a PoS operator at the Oja-Oba part of Abule-Egba, in Lagos, who introduced herself simply as Deborah, one of the most disturbing challenges that agency bankers face in her area is the epidemic of “fake alerts”. According to her, fraudsters have devised a means to send fake credit alerts to the phones of agency bankers in the pretence that it was sent from the bank. When the agents pay them, they later find out, to their chagrin that those alerts were not sent by the banks, thereby incurring huge losses for the operators. She also said that internet fraudsters usually trick unsuspecting agents into accepting transfers from them only for the CBN to place an embargo on the account for fraud. She describes this situation as “worrisome.”

Lack of service dependability, reducing profits

Another issue that PoS operators have suffered from in their quest to make profit, is the low service dependability on most of the parent companies’ networks. Financial institutions that offer agency banking networks are sometimes unpredictable, leaving the agents to bite their fingers as they lose one customer after the other. Israel says that one of the most frustrating feeling is when a customer approaches you to carry out a transaction and you are not able to help them, by getting it done. Even more painful, according to Israel, is when the customer ends up going to your competitors to do the same transaction. Olamide in his submission told Business A.M. that service dependability dictates the amount of profits he makes per day. According to him, “I pray that the network is good everyday I get to the shop, because when there is a downtime, I go back home empty-handed.” The way forward Notwithstanding the enormous downsides operators have shown, one cannot really overlook the manifold good that the PoS/ agency banking industry has brought to Nigeria’s economy. As Princewill Chinedu, a PoS operator in Ajoa Estate, Isolo, Lagos area told Business A.M.: “POS banking is good business. One just needs to quickly learn the possible pitfalls, and avoid them.”