Wednesday, April 11, 2007
Utilising Agents to distribute low cost Banking
One of the biggest challenges of bringing low cost banking to rural areas are the cost of distributing banking products. It takes a lot of time and effort to get someone to open a bank account - especially given the stringent regulatory requirements. I have seen some instances where banks have a requirement to have a photo-copy of this and that, as well as firm identification, in addition to a form that must be filled in and signed - quite a cumbersome and difficult process.
So some companies have started deploying a mechanism where agents are utilised to distribute these bank accounts. This means that some-one works on a commission basis to get people to open bank accounts. These agents do not earn a fixed salary, but rather get paid for each account that is opened by them. Great idea! Often this is also a mechanism to create work for people that do not have work. I have always been intrigued by this approach. I do subscribe to creating work and getting the community involved with banking themselves, but I am not sure if the economies work. How many accounts do an agent have to open to be able to earn a living wage? This is especially difficult if the commission must be earned on a low cost bank account. All of the sums that I do make this approach a marginal employment for the agents and I am not sure if it will work.
Low cost banks have two remedies:
a. Enable an agent to open bank accounts, but also sell more lucrative products (that have better margins) - preferably products that require a bank account (like insurance, loan products etc.). or
b. Enable customers to open a bank account themselves (even on their phone) with no assistance and no photo-copies. This is possible, and have been implemented by Fundamo.