Will Agency Banking be the required shot in the arm for the financial sector?

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Will Agency Banking be the required shot in the arm for the financial sector?

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Banks and other financial sector players in Uganda await the issuance of the Agency Banking regulations in growing anticipation. Their issuance will allow for the extension of the provision of basic financial transactions to your local super market, hardware shop or pharmacy. In this way, banks should offer more convenient, flexible and accessible account access for both new and existing customers.

Save for a handful of players,banks in Uganda have been going through difficult times. While largely driven by poor credit portfolio quality, it has also been due to the minimal growth in the number of customers being served through the banking halls. It has also been driven by the relative ease of access to basic transactional capability – including transfers and utility payments – provided through the growing networks of mobile money services.

The adoption of Agency Banking by banks is likely to turn this around. Why?

The customers are changing and management teams in the banks realise this. They are younger, more technologically savvy and greatly time conscious. Walk into any banking hall during the upcoming school fees payment period and note the disgust and fatigue exhibited in the customer queues. A faster, closer and easier way to make this payment will be preferred. And the banks most responsive to this be patronized accordingly.

Our population is growing rapidly, and will need new ways of being served. The World Bank estimates that the population of Uganda – currently 38 million – will be over 100 million by 2050. The opportunity to grow the customer base will best be taken by the players that can serve them with the least hassle.

The technology to reduce risk and provide high levels of service through agents is now maturing enough to ensure the Banks’ risks are reduced. In providing service through agents, Banks expose themselves to higher levels of risk and customer dissatisfaction through reduced quality of customer service. Having been rolled out in many countries in Africa, Asia and Latin America, providing financial access through agents is not a new concept. As such, Banks can avoid the challenges and minimise losses through fraud by adopting learnings from other countries and industries.

Through their agents, banks will get better, more relevant and real-time feedback from more customers. There liability of, and broader range of payment services available through mobile money indicates that Banks have been left behind by the telecom companies in product development. Agency Banking should encourage more product development and better responsiveness and in turn keep customers happy – thus more business for the banks.

All this points to two likely things – banks will get more customers, and these customers will be happier.

Despite being in Uganda for more than 50 years, only 13% of Ugandan adults have access to a bank account versus 85% who have access to a mobile phone. By leveraging the outreach of the telecom network to provide the much-needed financial services, more customers will want to have bank accounts in order to grow their savings and get access to credit. Banks will need to focus on ensuring the agents selected can be trusted by customers to provide a safe and secure location to transact. Similar to their efforts to promote their banking through mobile phone (i.e. mobile banking) offerings, customers will also need to receive awareness messages on how to use their phones and cards to transact at agent locations.

By providing access at various agent locations, the cost of travel and information access must go down. With more time saved, better products and greater access to credit, customers will have greater incentive to use more services provided by banks. Greater satisfaction from banks will result in more business and better performance of the industry, and could well be the necessary aid to stimulate faster growth of  the financial services sector.

FSD Uganda is supporting Banks’ preparation to provide more relevant, sustainable and efficient services through agents by providing the expertise to aid their planning and product development. In March, FSD Uganda will also publish the findings of its research into the perceptions and expectations – including where,when and how customers want agent assisted service – of Agency Banking.

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