Ubiquitous access to financial services is one of the hurdles Nigeria has to cross to achieve her financial inclusion target. In this report, SAMSON AKINTARO examines how agency banking is saving a Lagos community from lack of access
Sitting about five kilometres away from Ikeja, the Lagos State capital, Obawole community typifies a case of thirsting in the midst of an ocean. While Lagos hosts the headquarters of almost all of Nigeria’s banks, Obawole, a densely populated tract of the Ifako-Ijaye Local Government Area enjoys no bank presence. Consequently, residents must travel about three kilometres to Ogba, which hosts a constellation of first and new generation banks’ offices, when in need of cash, to make use of an Automated Teller Machine (ATM) and other banking facilities – But that changed in 2016, when Kayode Ogunwale, a resident, approached a bank for a Point of Sales (PoS) machine to help people in urgent need of cash.
This marked the beginning of agency banking at Obawole. Until Ogunwale’s intervention, the closest thing to a bank’s presence in the entire community was a faulty and abandoned ATM of the First City Monument Bank (FCMB), which is sited on Ndike Street, and very close to the popular Ndike Market in the community.
The bank installed the ATM, disclosed Ogunwale, soon after people started queuing up in front of his shop. “Unfortunately, the machine installed was one of the oldest machines, whenever people tried to withdraw money, their card would not come out as it should.
They would have to look for pliers to remove their cards,” he said. Soon, people started warning another off the faulty ATM, he said, adding that the bank has made no effort to repair the device. “And again, because the way they design the ATM is different from the way they design PoS, many still prefer to use PoS. In some ATMs, you can’t withdraw more than N150,000 in a day, but on PoS, you can withdraw up to N1 million in a day,” he said. Ogunwale’s initiative inspired many other residents to establish what has now become not just a cash solution for the people, but an employment opportunity and source of livelihood for many families. Today, almost every street in the community has a PoS agent. But the experience has been bitter-sweet for the agents and their customers.
For Mr. Alabi, who resides at KFarm Estate, a popular domain at Obawole, before 2016, the worst mistake he could make was to return from work on Victoria Island, without withdrawing cash on his way home. The situation worsened if it happened on a weekend. He said: “What that means is that you have to go to Ogba the following day, even when you have no plan of going out, but because you will definitely need cash to sort out some things. God help you if it’s on a weekend, you will have to go and join long queues at the ATMs, and at the end of the day, the machine may run out of cash. “But when we started seeing these people with small kiosks mid- 2016 with PoS machines, where you can withdraw money and pay a token, it was a great relief. If I forget to withdraw cash, I know I could easily sort that out at the PoS shop without having to queue. Of course, it comes at a charge, but what they are charging is not up to the cost of transportation to the ATMs at Ogba, let alone the stress and the time you will spend on the queue,” he said.
Not all sweet experience
But the experience hasn’t been entirely rosy for the residents. For instance, Adeola Adams would not forget the day she had to withdraw her last N3,000 from her account through one of the PoS agents to meet an urgent need. Unfortunately for her, the transaction was unsuccessful but she was debited immediately. According to her, she intended to buy drugs for her sick child. “It was as if some forces were behind my ordeal that day because I kept asking the question: Why today? I almost fought the agent even though I knew it wasn’t his fault. He told me I had to go to the bank to get my money, which got me more infuriated. It was on a Saturday and I had to borrow money,” she said. Eventually, she spent almost N3,000 on transportation to the bank before her money was reversed four weeks later.
One of the major challenges of the initiative, argued Afolabi Oluwabunmi, a PoS agent and manager of Olacon Multimedia, is that, oftentimes, the customers with failed transactions see the agents as fraudsters, and in some cases, threaten them with police whereas the problem is from the banks and the networks. She said: “The network failure is a major problem for us. The fact that the customers would have to eventually go to the bank to fill a form whenever such happens and may not get their money back until after five working days or sometimes 14 days, makes it frustrating. This also exposes us to attack, especially when you are dealing with a customer who does not understand the process and is not willing to listen to your explanation. “This challenge discourages many people from patronising PoS agents, but people are still coming because there is no bank in this area. What I usually do when a transaction fails and the customer has been debited is that I still pay the customer the amount and he or she will come and pay me later when the money has been reversed. But I do that only if the customer is well known to me.”
Cash agent without cash
For Ogunwale, another major problem being faced in the business is getting cash. “Most times, getting enough cash from the bank is an issue, especially in my outlet, because many people see this place as a mini-bank. People come here from as far away as Iju-Ishaga because they know that whatever amount they need, they are going to get it. So, that is giving us a challenge, especially during the festive periods, when you go to the bank they will tell you they don’t have enough cash, despite the fact that we partner with them. In that situation, we have to go the extra mile to get cash elsewhere. Sometimes, you need up to N3 million and they are only able to give you N500,000, so you have to go and source for cash elsewhere to survive in the business,” he said.
The charges factor
Beyond the challenge of network failure, many customers are taken aback by the charges imposed on them by some of the PoS agents at Obawole. While they charge N100 on every N5,000 withdrawal under normal circumstances, some of the agents exploit the prevailing circumstances in the country to inflate their charges. According to John Onah, a resident of the community, during the COVID-19 lockdown last year, some agents were charging as high as N500 to withdraw N5,000, while a N2,000 charge was applied to N20,000 withdrawal. On weekends when the number of customers usually increase, they charge N300 for a N5,000 withdrawal. But Ogunwale argued that the charges are not exploitative in nature stressing that what they “are doing is like a community service”.
He said: “The agents are supposed to make their gains from volume and not value. If you collect like N50 to N100, you get more customers.” While noting that there are two categories of agents – those who subscribe to Mobile Money Operators (MMOs) and those who subscribe to banks – he said bankbased PoS agents are not supposed to charge because they are to get commission from the banks, but many still charge because they have a lot of bills to pay. According to the CBN’s guidelines for agency banking, “agents shall not be permitted to charge any fees directly to customers, and details of remuneration for the agent shall be specified in the contract between the agent and the principal”. In other words, banks should have prior agreements with agents on settling transaction costs.
This agreement ostensibly includes a remuneration package from the bank to the agent, according to the CBN’s minimum requirements. However, the quest for survival, argued Ogunwale, has forced many agents to look beyond the banks’ commission and start charging customers as they deem fit.
“Most of the agents you see around started CONTINUED FROM PAGE 23 the business with as little as N50,000 and that is what they are relying on to feed their family on a daily basis, so they will not be able to wait until they receive the bank’s commission. What they fail to realise is that if they charge the customers little, more people will patronise them and by the time they do many transactions, it becomes something tangible,” he said.
True to Ogunwale’s postulation, Paul Ojeme revealed that he became a PoS agent soon after the recession caused by the COVID- 19 pandemic cost him his banking job in June last year. A family man with a wife and two kids to cater for, his joblessness made him to sit at a friend’s shop every day and from there he realised he could also do what his friend was doing and make a living from it. He said: “I had to beg my friend to put me through the process of setting up my own business and with the little savings I had from my previous job, I started in August last year. Though the gain from the business isn’t much, I am able to take care of my family with what I realise on a daily basis and still have little to save. Right now, I am not thinking of applying for job anywhere again, all I am thinking is how to expand this business and open another shop in another area and put somebody there to manage it for me.”
More agents, less business
The proliferation of agents, although a good development for customers, has become a source of concern for old hands in the business. According to them, there has been a steady decline in the number of transactions they carry out on a daily basis as more agents open shops. Findings revealed that at the advent of the business, operators recorded 60 to 70 transactions in a day. But now that many people have veered into the business, pioneers of the business hardly get 40 transactions in a day.
Banks’ waning interest in ATM
Explaining why banks are not keen on installing ATMs in many areas, a bank official, who did not want to be named, said the ATM business is sparsely profitable compared to other channels, as the cost of maintenance is high and profit is usually shared by three parties – Terminal owner, Card issuer, and Switch companies like Interswitch. He added that this is why most banks are also not in a hurry to provide regular maintenance or repair of an ATM if it is damaged. “ATMs are expensive to procure and expensive to maintain, and therefore Nigerian banks are not encouraged to deploy so much.
To maintain an ATM is not cheap, a button (FDK keys) at the sides of an ATM costs about N80,000 each. That is why you find some ATM buttons not working when you visit the bank,” he added. However, Mr. Sunday Adeoye, a banker, noted that the availability of various channels of financial transactions such as PoS, internet banking, USSD, mobile apps, among others, has de-emphasised the need for more ATMs. According to him, banks are no longer competing on the basis of number of ATMs or branch presence but on innovative products that enable easy access to financial services.
Adeoye added that the number of bank customers using ATM has also reduced compared to the early days of the machines. He said: “Aside from cash withdrawals, people go to the ATM for transfers, airtime purchase, checking account balance, among others. All these services are now available on their mobile devices.”
Agency banking gaining momentum
With the success story at Obawole community, there is no doubt that the agency banking launched by the Central Bank of Nigeria (CBN) in 2012 is gradually becoming an important part of the Nigerian financial system. According to the Enhancing Financial Innovation & Access (EFInA), around 60.1 million Nigerian adults are financially excluded, meaning they have no bank accounts and are unable to access credit, insurance, or basic banking services. Another high number of adults are underserved as banking services are limited in their locations.
EFInA estimates that while 40 per cent of adults had access to payments services, only two per cent had access to either savings or lending providers. Agency banking was set up to address these challenges and has indeed been playing significant roles in bringing financial services closer to the people. The CBN defines agent banking as “the provision of financial services to customers by a third party (agent) on behalf of a licensed deposit- taking financial institution and/or mobile money operator”. According to the CBN, financial institutions are allowed to select three kinds of agents: super agents, sole agents, and sub-agents.
The institutions are expected to oversee the activities of the agents, ensuring they keep to the regulations of the financial industry: “The financial institution shall be responsible for all actions or omissions of the agent notwithstanding anything contained in the contract to the contrary; provided they relate to banking services or matters connected therein.”