Agency Banking in Nigeria: Entrepreneurial Opportunities and Challenges
Chapter One
Objective of the Study
General Objective
The study’s general objective is to assess Agency Banking In Nigeria: Entrepreneurial opportunities and challenges.
Specific Objectives
The specific objectives of the research are:
- To assess the practices of Agency banking services in Nigeria over time
- Identify perceived opportunities that can enhance the adoption of Agency Banking services in Nigeria.
- To identify benefits that could be obtained from the adoption of the service
- Describe challenges that inhibit banking industries in Nigeria from adopting Agency Banking service
CHAPTER TWO
LITERATURE REVIEW
Agency Banking: Theoretical Review
Agency banking is a retail or postal outlet contracted by a financial institution or a mobile network operator to process client‟s transactions. Rather than a branch teller, it is the owner or an employee of the retail outlet who conducts the transaction and lets clients deposit, withdraw, and transfer funds, pay their bills, inquire about an account balance, or receive government benefits or a direct deposit from their employer. Banking Agencys can be pharmacies, supermarkets, convenience stores, lottery outlets, post offices and many more. (Chiteli, 2013).
According to CGAP (2010) Branchless banking is defined as the delivery of financial services outside conventional bank branches, often using Agencys and relying on information and communications technologies to transmit transaction details typically card-reading point-of-sale (POS) terminals or mobile phones.
In recent years there are many more Agency banking platform vendors have been emerged due to the opportunities of the service since it is found a new and profitable business worldwide. According to Celloscope (2023) their Platform is designed to cater to different financial institutions with common as well as unique need. The platform is flexible enough to be used by for-profit and not-for-profit organizations alike. The Platform helps banks increase service penetration, enhance customer loyalty and stickiness, reduce cost of operations and increase revenue.
As stated by the other well-known technology vendor in Nigeria: Belcash (2023), with mobile banking, banks can empower its customers (directly or through Agencys) to securely access their bank accounts using mobile phones to get information of their accounts like available balance, transactions. The Platform will give banks a competitive advantage over other banks offering same kind of services to their clientele. It will allow banks to come to market with new and enhanced banking services in a shorter time frame with a significant cost reduction.
Evolution of E-banking
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Since the late 1990s E-Banking has developed from virtual insignificance to tens of millions of users worldwide (Christiansen, 2001). However, E-Banking is the product of different generations of electronic transactions. The current web-based internet or E-Banking is the latest of several generations of systems: Automated Teller machine (ATMs), Phone Banking, PC or House Banking. Automated teller machines (ATMs) were the first well-known machines to provide electronic access to customers where as in phone banking, users call their bank‟s computer system on their ordinary phone and use the phone keypad to perform banking transactions. PC banking superseded phone banking and allowed users to interact with their bank by means of a computer with a dial-up modem connection to the phone network. Phone and PC banking entailed maintenance costs associated with keeping up to date with diverse modems and with avoiding prohibitively complex installation procedures.
After those generations Deutsche Bank launched the very first Internet banking project in Latin America in 1996 and Citibank has developed a special “e-toolkit” across all its branches worldwide (UNCTAD, 2002). E-Banking uses the web browser for the user interface and the Internet for data transfer and download of software, and so has a potential for reducing maintenance costs. For users, E-Banking provides current information, 24-hours-a-day access to banking services. The primary services provided by e-banks are transferring money among one‟s own accounts, paying bills, and checking account balances. Loans, brokering, share trading, service bundling, and a host of other financial services are being added to these primary services (Dewan & Seidmann, 2001).
E-Banking is widely used in, among other places, the Nordic countries. In 2001, E-Banking was used by more than 25% of the population in Norway, Sweden, and Finland, and by 15% of the population in Denmark (Christiansen, 2001). In 2004, E-Banking usage in Denmark had grown to 45% (Statistics Denmark, 2004). Jeevan (2023) noted that with rigid controls giving way to deregulation, banks are gearing up their communications infrastructure to obtain a competitive edge from E-Banking, which is fast becoming a reality in India. Nair (1999) points out that E- Banking is fast becoming a strategic necessity for most commercial banks, as competition increases from private banks and NBFIs.
Forms of E-banking
The tools/channels used in executing E-banking include plastic cards (debit cards, credit cards, and prepaid cards), personal computers, telephone, mobile phones, internet, ATM‟s, POS or point of interaction machines (Morufu and Taibat, 2012). The description of the above mentioned tools/channels are as follows:-
Debit cards: – Debit card is a banking card enhanced with ATM and POS features so that it can be used at merchant locations. Debit cards allow you to spend only what is in your bank account. It is a quick transaction between the merchant and your personal bank account. A debit card is linked to an individual‟s account, allowing funds to be withdrawn at the ATM and point of sale without writing a cheque. When using a debit card to pay for goods and services, the purchase amount is deducted from the cardholder‟s checking account. The types of debit card include online debit card and offline debit card. With offline debit card, debit is not made immediately. Benefits of using a debit card include making the payment process at the checkout counter quicker and more convenient, eliminating the need to carry a cheque book and a lot of cash, using it at locations where personal cheques are not accepted, and reducing the possibility of loss or theft of cash (Okoye, 2013).
Prepaid debit cards: – These are debit cards not usually linked to a customers‟ account. They must be funded before being used by cardholders. Prepaid debit cards are identified with such names like cash cards, value cards, and Naira cards etc. prepaid cards can be used as gift cards students ID cards, Government payment card, payroll card, Bursary card, insurance cards, travel cards etc. (Morufu and Taibat, 2012).
CHAPTER THREE
RESEARCH DESIGN AND METHODOLOGY
This chapter presents the methodological framework applied to solve the research problem and to answer the research questions. The chapter starts with the chosen research design, research approach and study area. Afterwards, the sample selection and the data collection methods are presented.
Research design
A research design is the arrangement of conditions for collection and analysis of data in a manner that aims to combine relevance to the research purpose with economy in procedure. In fact, the research design is the conceptual structure within which research is conducted; it constitutes the blueprint for the collection, measurement and analysis of data (Kothari, 2004).
Accordingly, the study basically follows descriptive research method which is concerned with description of the state of affairs as it exists at present. Descriptive research design is a scientific method which involves observing and describing the behavior of a subject without influencing it in any way. It sets out to collect, organize, and summarize information about the matter being studied (Punch, 2006).
Accordingly, by assessing selected Nigerian commercial banks, the study tried to describe challenges and opportunities toward effective adoption and implementation of Agency banking service in Nigeria.
Population and Sampling Techniques
In research methods, population is the entire aggregation of items from which samples can be drawn (Mattewos, 2016). Based on purposive sampling, the study only considered commercial banks leaving out the rest financial institutions. A sample of 4 banks composed were used.
CHAPTER FOUR
RESULTS AND DISCUSSION
The previous chapters dealt with general introduction of the study, review of both related theoretical and empirical literatures to identify the knowledge gap and the research methodology used to meet its objectives. This chapter presents the empirical analysis of the data collected through semi-structured interview and close ended questionnaire which was analyzed through statistical package for social science (SPSS) version 2.0. Accordingly, the chapter has two sections in which the first section contains analysis of the data collected through questionnaire while the second section deals with presenting results of the interview conducted.
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION
Summary of Findings and Conclusion
Agency banking service has become interesting for many developing and under developed countries having large rural and unbanked population. To this end, the study aimed to assess the challenges and opportunities of implementation of Agency Banking service in Nigerian banking sector. Accordingly, the following conclusions are drawn from the analysis in the preceding chapter:
- There is a written policy framework that guides financial institutions to oblige in accordance with applicable proclamations and
- Across-country legal and regulatory difference doesn‟t have impact on the adoption of new technological innovations.
- Selected institutions have internal controls and procedures to prevent illegal actions regarding with Agency Banking
- There is lack of technical and managerial skills in implementation Agency Banking
- Deficiency exists in the financial network that links different
- Poor ICT infrastructure hinders the delivery of the
- It is costly to implement Agency Banking due to high cost of ICT equipment and network, software and organizational
- Telecom network instability and low internet access makes the delivery of the service challenge full.
- Liquidity is part of the challenge faced by Agency
- Price lists in the form of commission designed by financial institutions is not attractive by end users.
- Change resistance culture of the society makes the implementation and delivery ofthe service so difficult.
- Prospective Agencys are not attracted to be part of the business due to various requirements stated under Agency due diligence required for knowing your customer (KYC) purpose.
- Deposit mobilization, accessibility of banking services, simplicity, reduction of operational cost and reduction of costs for branch expansion are stated as
Having its own positive contribution to the economy as well as to the society, the emphasis given to implementing Agency Banking services efforts by commercial banks is low resulting from low level technical and managerial skills, absence of financial networks among banks, low internet access and network instability and lack of awareness creation of the service to the society by the service deliverer. Moreover, commission and liquidity issue among Agencys and end users hinder the smooth delivery of the service. Finally, it can be concluded that although Nigeria has made a significant progress in terms of launching, promoting and delivery of the service, many gaps still remain in being one of a developing nation having effective and efficient Agency banking service so as to reach the unbanked society who takes a greater portion of the population.
Limitation of the study
In the course of conducting the research, the researcher confronted limitations of related researches conducted on the area as the issue is relatively new in Nigeria, documents about Agency banking programs and manuals, journals and publications related to the subject. Likewise, the research doesn‟t consider customers of the service due to time and budget limitations. Moreover, the researcher faced problems about unwillingness and negligence of some respondents.
Recommendations
In view of the research‟s forgoing findings, the following recommendations are forwarded;
- Since policy framework is a crucial part on the strategic plan of institutions, theresearcher recommended those policies to be applied in strengthen way
- Financial institutions commencing AgencyBanking service should enhance their way and culture of applying controlling procedures so as to prevent illegal actions
- Banks should facilitate proper and continuous training courses for their employees tohave adequate understanding of the Agency banking technology so as to achieve the desired
- Since AgencyBanking service delivery is dependent on telecom technology, Ethio telecom who is a sole provider of telecom service in Nigeria should enhance and accessible their overall services nationwide.
- The research recommended that bank should collaborate with financial network thatlinks different banks to enhance their service delivery and share costs of ICT equipment and network, software and organizational structure which were indicated as a big challenge in the implementation of Agency Banking
- Banks should visit and give training to Agencys on how to operate the service andattract customers to open accounts and to make deposit to avoid their liquidity
- Commission rates which are indicated as unattractive should be revised by banks inadequate form to be mutually benefited by the service delivered with end users.
- Banks are recommended to have continuous awareness creation for societies aboutthe benefits of the service and operation through promotions, symposiums and a door to door community
- Though it is a must to fulfill Agencydue diligence for Knowing Your Customer (KYC) purpose to implement effective Agency Banking service, the research recommend banks to review and modify their requirements to give consideration for validity of identification cards, genuineness of permits and non-tolerable critical points
References
- Afework Gugsa, (2015), Assessment of Adoption of Agency Banking Innovation in Nigeria: Barriers and Drivers, A Thesis submitted to Addis Ababa University College Of Business & Economics, Addis Ababa, Nigeria
- Atandi, F. Gichana (2013), Challenges of Agency banking experiences in Kenya, International Journal of Academic Research in Business and Social Sciences, Vol. 3, No. 8, PP 397-410
- Ayana Gemechu. (2012), Adoption of Electronic banking system in Nigerian Banking industry: Barriers and Drivers, A Thesis Submitted to the School of Graduate Studies of Addis Ababa University
- Belcash Technology Solutions (2023), Retrieved from http://Belcash.co/
- Booz-Allen and Hamilton (1999). Corporate internet banking: A global study of potential Effects‟, New York, NY.
- Celloscope Computer Technology (2023), Retrieved from http://celloscope.co/
- CGAP (2010), Retrieved from, http://www.cgap.org/publications/branchless-banking- diagnostic-template
- Chiteli, N. (2013), Agency Banking Operations as a Competitive Strategy of Commercial Banks in Kisumu City, International Journal of Business and Social Science, Vol. 4 No. 13, PP 306-317
- Christiansen, H. (2001), Electronic Finance: Economics and Institutional Factors, OECD Financial Affair Division Occasional Paper No. 2.
- Claessens, J., Dem. V., De Cock, D.; Preneel, B. & Vandewalle. J. (2002). On the security of todays online electronic banking systems. Computers & Security, Vol. 21:3:257- 269.
