Reaching a broad population of unbanked consumers to provide financial services is a challenge in many countries. Both banks and non-banks have used agents (affiliated but not owned third parties), as permitted by regulations, to deliver aspects of financial services or (in the case of MNO’s) to handle the sale of airtime and related services.
In a digital payments system, the critical role provided by agents is “cash-in, cash-out.” Without this capability, it is unlikely that the digital payment system would be used by consumers, particularly in rural and remote areas. The goal of the digital payment system, of course, is to reach “digital liquidity” – a state where consumers, merchants, and other entities using the system are content to leave their value in digital form in their wallets. Until that point is reached, however, “cash-in, cash-out” needs to be supported, and agents are a good way to do this.
A variety of bank and non-bank agent models have developed over the years. In some models, the agent is controlled by a single provider: an “exclusive” agent. In other models, the agent offers its services to many different providers. This “shared” agent model has many variations: in some cases, agents separately contract with each provider, and use that provider’s systems – in other variations, a “super agent” manages a network of agents and may provide systems that allow agents to act on behalf of multiple providers through a single system.
In this section we examine the question of the “shared” versus “exclusive” agent model in a digital financial services system which serves the poor.
Arguments in favor of exclusivity: providers will invest in enrolling, training, and otherwise supporting agents only if they are exclusive; existing agent networks were built on that understanding. Enabling providers to do this is the quickest way to build the broad networks of agents necessary for DFS ubiquity.
Prohibiting agent exclusivity would unfairly deprive providers of compensation for existing exclusive agent networks; it would reduce the incentive for providers to enroll, train, and support agents. Non exclusivity can also make it more difficult identify which MMO is liable in case of agents misconduct or error.
Considerations Around Agent Exclusivity
Arguments against exclusivity include knowing that exclusivity constrains ubiquity in that non-subscribers of a given provider service will have either a slower, more expensive, or otherwise inferior experience in handling “cash-in, cash-out” at that agent, if they are able to use it at all. This contributes to overall higher costs and consumer dissatisfaction with the service. Agent profitability is also more challenging in an exclusive model.
Prohibiting agent exclusivity would support a robust, competitive market for financial services, which should drive costs down. Agent networks can assume the roles of enrolling, training, and supporting agents that would otherwise be handled by single providers. The costs of these activities are distributed by all the providers that utilize the agent networks.
The Financial Inclusion Perspective: Non-Exclusivity is Preferred
Non-exclusive agents will support a more open and competitive environment, which should improve both the digital financial services system goals of low cost and ubiquity of reach. Existing exclusive agent networks or provider arrangements could have a defined period of time to allow some compensation, for a limited period of time, to providers who have invested in the setup of these agents.