The BackEnd explores the product development process in African tech. We take you into the minds of those who conceived, designed and built the product; highlighting product uniqueness, user behaviour assumptions and challenges during the product cycle.
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Onitsha, a city in Nigeria’s southeastern region, is known for its bustling roadside markets, motorparks and heavy human traffic. It’s as urban as you can expect a Nigerian city to be; well built schools, hospitals and significantly wide lanes for all types of vehicles.
But Onitsha is a cash-first city where everything is hands-on. If you happen to need money for a transaction, you’ll be directed to any of the “POS shops” that can be found at almost walking distance. Not to an ATM or a bank.
Salespeople carry their POS devices around seeking customers. These agents are able to provide various services with the device; cash withdrawal and deposit, money transfer and electricity bill payments. Each service costs a fee depending on the amount involved.
At a POS shop I visited (which also housed a sports betting business), the agent charged ₦100 for a ₦10,000 cash withdrawal. He handed me a “First Bank” receipt for the transaction, bearing the name of the agent and even agreed to change a torn banknote.
I could have withdrawn more from an ATM and I would have preferred the security, but this experience wasn’t terribly inconvenient.
In fact, agent banking is the norm not just in Onitsha or Lagos, but in most parts of Nigeria and Africa. For every group of 100,000 adults in Africa, there are 6 banks, 13 ATMs and 340 mobile money agents, according to a 2020 GSMA study on the state of the mobile money industry.
This gives a mobile money agent in Africa 26 times more reach than an ATM, and 58 times the reach of a bank branch, GSMA estimates.
Between December 2018 and 2019, the number of active ATMs in Nigeria reduced by 1,097. While the value of transactions made at ATMs held steady at ₦6.5 trillion, volumes fell by about 35 million transactions.
| Number of Active ATMs | Transaction vol | Transaction value | |
| 2019 | 17,518 | 839.8 million | ₦6.5 trillion |
| 2018 | 18,615 | 875.5 million | ₦6.5 trillion |
| 2017 | 17,449 | 800.55 million | ₦6.44 trillion |
| 2016 | 17,398 | 607 million | ₦4.9 trillion |
The prominence of agents in Nigeria grows as banks seek to cut costs on ATM installation and maintenance. These costs (or at least the risks involved) have been amplified thanks to some property damage and looting of machines in the wake of the #EndSARS protests. At a number of bank branches, machines are disabled late in the day and during weekends.
Meanwhile, Nigeria’s mobile money’s fortunes have been on an upward trend. Growth was particularly transformative between 2018 and 2019 on all key metrics, with transaction value and volume catching up with figures from ATM transactions.
| Number of customers | Number of agents | Transaction vol | Transaction value | |
| 2019 | 15.3 million | 266k | 377.3 million | ₦5.1 trillion |
| 2018 | 8.5 million | 38.4k | 87.1 million | ₦1.8 trillion |
| 2017 | 3.84 million | 10.5k | 47.8 million | ₦1.10 trillion |
| 2016 | 5.54 million | 13.8k | 47.05 million | ₦756 billion |
Banks are taking advantage of this expanding mobile money infrastructure to diversify their service offerings and reduce their direct contact with customers. With the Central Bank of Nigeria (CBN) providing guiding legislation, most banks have set up agent banking channels across the country.
What is agent banking?
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.”
What do CBN’s guidelines permit?
The ₦100 I was charged in Onitsha for cash withdrawal was not reflected on the receipt I was given. Why? Because it appears that, according to the CBN, agents are not expected to charge customers directly:
“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, it is understood that 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.
As for the activities permitted, agent banking operators are allowed to perform a broad category of services. Apart from cash deposit, withdrawal and bill payments, they are also authorized to generate and issue mini statements, disburse and receive loan repayments.
Banks are supposed to undertake risk assessment on each agent to determine what range of services they can provide.
On the other hand, agents are not authorised to take cheque deposits or enable customers cash cheques. They are also not allowed to facilitate foreign currency transactions or provide cash advances.
What does the future hold?
The rise of digital banking could bring a reasonable reduction in the volume of ATM activity. Banks like Wema and GT are doubling down on improving in-app experiences for customers to discourage in-branch banking, while the likes of Kuda and Carbon are going the 100% digital route.
But as long as the majority of Nigerian commerce continues to be informal, the need for cash will need to be satisfied. Therefore, we can expect that mobile money agents operating POS shops (they are called ATM shops in some places) will keep playing a necessary role in the financial system.
