Financial inclusion has been globally recognized as an important indicator of economic development. According to the World Bank’s Findex 2017 report, only 21.3% Pakistani adults have a formal bank account or about 6% of the world’s unbanked population lives in Pakistan. In National Financial Inclusion Strategy (NFIS)[1] 2015, the State Bank of Pakistan (SBP) has given indicative targets to financial institutions. These include increasing the number of financially included adult population in Pakistan to 50% by 2020. Digital Transaction Accounts of branchless banking industry were recognized as the key enabler for achieving this important target. As part of its 100-days agenda, government in 2018/9 has once again prioritized NFIS and has set a target to achieve 65 million active Digital Transaction accounts including 20 million female accounts by 2023[2] .

Branchless banking industry has already made strides in reaching out to a large customer base through both its products and agent networks. In this way, they are including those who were financially unserved before the advent of the branchless banking industry. Recent gains in financial inclusion numbers were due to BB services; some 10 million BB accounts were opened during the period July–December 2017. The total tally at the end of June 2018 was 39.2 million accounts—30.9 million men and 8.3 million women. However, number of agents, which are an integral part of BB, is not catching up with the pace of BB subscribers. Out of 400,000 agents only half of them are active, i.e. performing one transaction in 90 days. Just two percent of Pakistan’s agent network is women[3]. Such a low number is alarming and shows that there are hindrances in including women in the financial ambit.

BB agents are customers’ first point of contact with financial institutions. They provide BB services such as account opening, bill payments, cash-in, cash-out (CICO) and over-the-counter (OTC) services. In Pakistan, according to the SBP’s Branchless Banking Quarterly Newsletter, April to June 2018[4] , the number of agents has crossed 400,000 by the end of June 2018. The number of agents suggests that Pakistan is heading in the direction of fulfilling its pledge to financially include half its population, however, number of Active agents is the matter of concern. After the initial success of the Over the Counter (OTC)-based business model, branchless banking operators are now focusing their efforts towards encouraging more accounts and, also, motivating existing accounts to remain active by launching new products. In this phase, the role of agents doesn’t diminish. In fact, at this point, they can potentially be entrusted with more responsibility (focused towards costumer services, account opening and relationship management) that is directly linked to the growth of the business.

There are two issues hampering agent growth. First, the on-boarding process is onerous and time consuming for both the service providers and agents. Agent onboarding takes typically 4–6 weeks and rate cases, can even take up to six months. Processing is linked to paper-based requirements which is inefficient. Second, not all agents have been able to maintain the same level of activity due to varying profitability/commission levels. This blog focuses on agent growth and explores the issues of agent on boarding and profitability. In addition, it also provides the following recommendations.

1. Tiered Agent Network

BB regulations in Pakistan allow risk-based, tiered KYC requirements for individual accounts. However, strict KYC requirements prevail for BB agents. From a global survey and conversations with service providers, it is clear that the SBP can initiate stakeholder consultations for the introduction of four tiers of agents based on their functions with proportionate risk-based KYC requirements. Tiered-agent networks can facilitate the segmentation of agents based on their function, such as account opening or serving existing customers. The tiers will allow the introduction of risk-based know-your-customer (KYC) requirements for agents.
Account opening agents will have to go through more stringent KYCs compared to agents that are just performing cash-in, cash-out (CICO) and other OTC services. The increased profitability that will inevitably take place with establishing these tiers will encourage them to grow their role and expand to achieve the next tier. Merchants as possibly fourth tier of agents would allow agents that are already savvy with handling financial products to become merchants, i.e., start accepting payments from digital accounts. Their KYC requirements would be determined by already established policy of the SBP.

Draft Electronic Money Institutions (EMI) regulations by SBP have also proposed that providers will be allowed to appoint CICO agents in the field. The KYC requirements for such CICO BB agents should be the same as that for EMI ‘agents’ proposed in EMI regulations. This would help avoid any confusion and regulatory arbitrage in the market as both CICO BB agents and EMI agents would be performing the same type of functions.

2. Digital KYC and effective use of AgentChex

Onboarding agents, one of the core components of digital financial services (DFS), is still manual i.e. paper based. In line with global best practices, SBP can adopt a phase-wise approach to digitizing KYCs for Agents. This practice, while expensive to implement, would be beneficial in the middle to long run because digital KYCs are less onerous and more efficient than analogue ones. Pakistan already has tools, namely SBPs’ AgentChex and e-CIB; and NADRA’s Verisys, that are necessary to conduct partial, and even complete, personal and business verifications digitally. AgentChex is an application managed by the SBP and is a functional repository of agent KYCs and transaction history. Supplementing this information with location coordinates and socio-economic data of the agent’s coverage area will further help in analyzing the agent performance and identifying expansion areas.

3. Agent Certification

Training and certifying agents is an important aspect of the agent onboarding process and must be continuous. Agents should be required to complete these trainings at least every six months, so that they are up to speed with current risks and operational requirements. A complete log of these training should be maintained in Agentchex in order to help other operators recruit and share these agents. According to the Agent Network Accelerator (ANA) report for Pakistan, most agents fall within a tech-savvy age bracket (24 years and up) and are literate. In light of this, trainings can be made online and gamified.

Note: The opinions expressed in this article are the author’s own and do not necessarily reflect the views of Karandaaz Pakistan

[1]http://www.sbp.org.pk/ACMFD/National-Financial-Inclusion-Strategy-Pakistan.pdf

[2]http://www.finance.gov.pk/NFIS.pdf

[3]https://karandaaz.com.pk/wp-content/uploads/2017/09/170921_ANA-Pakistan_Web_FINAL.pdf

[4]http://www.sbp.org.pk/ACMFD/National-Financial-Inclusion-Strategy-Pakistan.pdf