Notes on Agency Banking- Origins & The Future

Solomon Nzere
6 min readJan 14, 2024
Photo — Photo by Towfiqu barbhuiya:

Let me tell you a story.

About a year ago, I joined a startup with a mission to help small businesses start, grow and run sustainably. I joined the sexy side of marketing as a content marketer. It meant I did cute things — write monthly brand newsletters, interview my team members for employee spotlights, set up a business community, write blog posts, design brand campaigns, script videos….

I had a colleague, Peace who was in the payments madhouse. You see, a few months before I joined, the startup had decided to enter agency banking in Nigeria. TL: DR Agency banking is a business that allows agents ( usually in kiosks or offering services alongside an existing business) to offer financial services to people in their community- cash deposit, cash withdrawal, transfers, account opening etc powered by an agency banking provider who supplies POS terminals and offers day to day support.

This part of the business wasn’t cute. I knew it because Peace was constantly in market storms from Kano to Owerri driving the deployment of POS devices. Or trying to deploy communications to counter the activities of fraudsters and ensure that marketing materials reach all our regions.

I hailed her from afar and during marketing group calls, thankful that it was not my madhouse to manage… Until it was. Peace decided to take a leave of 2 weeks and I was assigned her tasks. At this time, my blood pressure skyrocketed, I lost my temper at work and was significantly overwhelmed.

This was my baptism of fire into payments in general and agency banking in particular. And it got worse. A couple of weeks later, Peace announced her departure leaving me with her full portfolio.

Diving headfirst into payments and agency banking has birthed this series where I attend classes or read through articles on the sector and make notes.

Today I am re-reading Paystack’s deep dive on agency banking and making important notes + quotes.

Origins — What Was & What Is?
Before agency banking, commercial banks regularly deployed sales representatives to markets to encourage people to open accounts and request debit cards. Much like telcos did with sim card sales, paying for teams to go to different communities to sell sim cards and increase penetration.

But unlike telcos, where the user once set up did not require a lot of support or access to support facilities, account owners needed physical infrastructure. They need to send money, receive money and perform other transactions. This was particularly true for populations that used feature phones primarily and could not access digital services.

Agency banking solved this problem. Banks no longer had to have bank branches every 10 minutes. Instead, local businesses and community members could apply to become agents. By becoming agents, they were able to provide basic financial services to their community members.

Today, agency banking is synonymous with mobile money, but its scope has expanded. Payment providers like Nigeria’s Paga, Egypt’s Fawry, and legacy banks like Nigeria’s First Bank, have successfully scaled agent networks in their respective markets. These financial players team up with businesses and individuals firmly rooted in local communities. The reason is simple but powerful: these agents often have existing relationships with people in the community, building a level of trust that’s crucial for dealing with money. That kind of connection hits home in a way a formal, roaming sales rep can’t match.

Understanding today’s agent

In a country like Nigeria, cash withdrawals remain the dominant use case for customers interacting with agents. Here, agents act as human alternatives to ATMs and bank branches, equipped with POS devices and bundles of cash, ready to serve in both dense metropolitan areas and rural regions that lack access to traditional financial services.

How do agency banking providers make money?

When you go to a POS agent to withdraw money, it usually goes like this- You tell the agent the amount you want to withdraw, and they tell you the charge. You send the amount + charge to them ( or pay the charge separately in cash)

But in this sample transaction, how does the agency banking provider make money?

In most cases, the agency banking provider charges a particular percentage of the transaction value. So let’s do the maths. You want to withdraw 5,000 with a charge of 200. The agency banking provider will take a charge (For example- 0.50%) of the transaction value (5,000) and remit the balance to the wallet of the agent. This means 4,975 will be remitted to the agent’s wallet.

Not a lot of money right? But there are even more limitations. No matter the transaction amount, the total amount the agency banking provider can charge as commission is often capped ( Commonly a maximum of 100, this means no matter the transaction value, the agency banking provider cannot deduct more than 100)

In addition, most agency banking service providers have to bear the cost of paying payment partners and other parties in the transaction out of this small fee, further reducing their margin.

So how do you grow a profitable agency banking provider business?

The take rates for providers are small but large players are able to leverage their scale and transaction activity to negotiate better margins with payment partners and in some cases, cut off these middlemen entirely.

Smaller agency banking providers that lack the scale and leverage to obtain better terms with payment partners have to contend with thinner margins and usually struggle to compete in the market without losing money.

Will cash and agents still be King?

Not for long, prolonged cash scarcity, efforts to unionize and increase agent charges by agent associations, increased cost of sourcing cash by agents and an uptick in the use of digital channels have meant that more people are turning away from cash as a primary means of payment.

In the long run, it’s logical for regulators to aim for financial inclusion by cutting down on both the cost and use of cash. A future with low-cost, widespread digital retail payments offers convenience and cost savings for both governments and consumers. However, this threatens agency banking models which rely heavily on commission revenue from cash-based transactions.

The data shows that this trend is underway. According to GSMA, net cash out (cash withdrawals minus deposits) on mobile money has fallen over the last few years as more users are transacting digitally within the mobile money ecosystem.

How do agency banking providers position for the future?

Last year, while working late I bumped into our product manager and I asked him a question out of the blue- Do you think agency banking will still be here in 5–10 years? He was optimistic, believing that agency banking in its present form needed to scale to untapped regions across Nigeria.

But in that time, certain questions have made this concern even more timely. The closure & sale of some agency banking startups in Nigeria including the one I used to work at and the introduction of personal banking products by leading agency banking providers.

The Paystack article also notes this trend-

For agency banking providers, the current landscape creates an immediate need to address several pressing concerns:

Identify ways to stand out from competitors to agents, beyond just pricing and reliability.

Extract the greatest value from agents and grow payments revenue in the short to medium term, especially as long-term trends shift towards digital transactions.

Here are some interesting pivots we might see as the market continues to contract.

  1. Agency banking service providers will transform POS terminals into business management tools to manage orders, sales growth, profit & loss etc.
  2. Agency banking service providers launching personal banking/ business banking verticals
  3. Agency banking service providers niching down on utilities/ bills payments
  4. Agency banking service providers experimenting with SME lending/ microlending products

That’s it for the first edition of this series. feel free to leave comments and recommend more industry materials to review.