Markets & Finance

Agency banking racing to catch up with mobile money

eqty

Pedestrians walk past an Equity agent shop in Nairobi. The Central Bank of Kenya’s annual supervision report for 2012 shows more bank customers are carrying out transactions through agents. FILE

It is just a matter of time before Kenya's agency banking gives mobile cash transfer service a run for its money as adoption and use of the former continues to grow tremendously.

Latest data from Central Bank of Kenya (CBK) indicate that agency banking, which was launched in 2011, is handling millions of dollars every month. This gives a glimpse into how the platform is fast growing as banks spread financial services across Kenya.

In the first quarter of this year, agency banking transactions cumulatively hit $3 billion. This was a rise from last year's figure, where the value of the transactions cumulatively from 2011 stood at $2.3 billion.

Last year witnessed the greatest growth in agency banking services, with the value of transactions standing at $1.8 billion. This growth was more than triple from the previous year, where transactions stood at $512 million.

Cash deposits through commercial bank agents in 2012 stood at 13 million transactions, valued at $1.2 billion. On the other hand, cash withdrawals were valued at $591 million.

The agents also made transactions of payment of retirement social benefits worth $13 million and bill payments worth $2.8 million.

"Tremendous growth has been evidenced in agency banking conducted by commercial banks. As at 2012, there were 10 commercial banks that had contracted 16,333 active agents facilitating over 38 million transactions valued at $2.3 billion," said CBK in an analysis.

(Read: Agency banking transactions rise three-fold in 2012)

The outlook of agency banking services this year is rosy, with uptake of the service rallying in the first quarter. The first three months has seen agency banking agents transact business worth $655 million, which surpasses the value of transactions in 2011.

The number of commercial banks venturing into the service also continues to rise, with the first quarter seeing one bank joining the fray. Similarly, number of transactions and agents also rose in the first three months of this year.

"As at March 31, there were 11 commercial banks that had contracted 18,082 active agents facilitating over 48.4 million transactions valued at $3 billion," said CBK in a report for bank's performance in first quarter received Thursday.

"This was an increase from 10 banks that had contracted 16,333 active agents facilitating over 38.7 million transactions valued at $2.3 billion in December 2012," it added.

Agency banking model allows banks to liaise with commercial outlets like cybercafés, shops, petrol stations and supermarkets to offer financial services that include depositing and withdrawing cash.

The partnership has seen banks in Kenya take financial services closer to people, in particular, to areas that lack them. It is estimated that a third of the country’s 40 million people lack access to banking services.

Kenya changed its banking laws in January 2011 to allow commercial banks offer their services through the third-party businesses. The agents operate as satellite branches.

Last year, CBK amended its rules to allow micro-finance institutions offer their services through the third party agents. This is expected to increase spread and uptake of agency banking services.

"This reform was informed by players' concern over high establishment costs for places of business. It was also guided by their limitations to substantially increase access to services to majority of their customers as well as the unbanked Kenyan populace based in the rural and peri-urban areas using brick and mortar branches," noted CBK.

The regulator noted that agency banking has helped banks mobile deposits.

"Adoption of agency banking model helped banks to upscale their deposit levels. Customer deposits grew by 14.8 per cent from $18 billion in 2011 to $20.3 billion in 2012. The growth was attributed to increased deposit mobilization by banks as they expanded their outreach," said CBK.

A survey in Nairobi noted that many Kenyans are turning to agency banking services. At a chemist along Moi Avenue, the owner of the premises offers agency banking services for Equity and Kenya Commercial Bank, in addition to mobile money services.

He has set aside three cubicles for the three services, each manned by an individual, an indication that the number of customers has increased.

Kenyans in 2012 made mobile money transactions worth $18 billion. In January this year, mobile money transactions hit 1.4 billion. And in February, transactions rose to $1.64 billion.

While this is over eight times more the amount of money transacted on agency banking, it is certain that the latter is gaining ground and may soon eat a chunk of mobile money market.

-Xinhua