Kenya: Is Agency Banking Catching up With Mobile Money?
Tuesday, 23 October 2012
Since February 2011, the Central Bank of Kenya (CBK) allows banks to offer services through third party agents. Gideon Kiarie takes a look at the banking sector’s experiences with agent networks in Kenya’s highly competitive mobile money environment.

In February 2011, the Central Bank of Kenya (CBK) released regulations allowing banks to offer services through third party agents approved by the CBK. Such agents can be telco outlets, SMEs, retail chains, savings and credit co-operatives (SACCOs), or even corner shops – the main qualifications are that it must be a profit-making entity that had been in business for at least 18 months and can afford a float account (see Expanding Access to Financial Services: Agency Banking Versus Mobile Banking).

M-PESA’s Firm Grip
To what extent have commercial banks rolled out this service? By the end of June 2012, there were ‘10 commercial banks that had contracted 12,054 active agents facilitating over 18.7m transactions valued at KES93.1bn,’ according to CBK’s 2nd quarter banking sector performance development report.

However, according to these figures, banking agents still have not caught up with Safaricom’s mobile money transfer service agent network. In its 2012 report, the company reported having 39,400 M-PESA agent outlets. The company has a very firm grip on the market, and clearly not just with regard to their mobile money competitors in the telecoms sector. In fact, the widespread availability of M-PESA may have contributed to the slower expansion of the agency banking network. Agency banking largely offers a variant of M-Pesa with the main exception being that agency services are supported by bank accounts. For example, the Coop Kwa Jirani agency platform by Cooperative Bank offers cash deposits and withdrawals, money transfers, fees and utility payments, balance inquiries and a mini statement. But more banks now also offer a direct connection from bank accounts to M-PESA, allowing customers to transfer funds between both.  

Agency Banking Usage

According to a survey on agency banking carried out by Kenya Bankers Association (KBA) for its Centre for Research on Financial Markets and Policy, 40.9% of agents operations are cash deposits while 36% are withdrawals.

The survey also revealed that customers are asking for additional services not on offer, including ATM cards, recommendations for a loan given the closer interaction, loan processing and advice on various bank products on offer. While these would offer a distinction from services offered by telcos’ mobile money services, they require more expertise than agents have, and closer supervision than they can be given.

The survey also found that 91% of respondents will use an agency outlet because they trust the bank compared rather than the agent. Banks with positive images and long, stable operations are favoured. Agents use point-of-sale (POS) devices and/or mobile phones and must have access to the bank’s core banking system so that the clients’ transactions are reflected in real time. In the same report cited above, CBK notes that various banks have already invested in new core banking systems. ‘The new systems are expected to facilitate centralization of operations, staff rationalisation and support new technological products such as internet and mobile banking.

However, while Safaricom still prohibit their agents from representing any other mobile money service, banking agents can act for more than one bank provided they make a clear distinction in operations of the two. This is expected to raise agents’ income as some have complained or even abandoned agency operations altogether, citing low margins. It also provides the customer with a larger array of products and services to choose from.

Agency banking has helped to bring some banking services to rural areas. The prohibitive costs of setting up branches and ATMs vis-à-vis the expected returns have been a disincentive for banks to roll out their services in rural areas, but agency banking has provided an avenue to these markets at limited cost. Although some rural customers still have to travel some distance to branches for services that agents can’t deliver, basic transactions are far more readily available.

Dr. Anne Kamau, one of the researchers on the KBA survey, highlighted some of the pressing problems that have come up since the agency model inception:
By its nature, the model was intended to take banking to the low income and rural populations. This places  outlets in areas where insecurity is a concern. They lack the sophisticated security measures of the bank branch (CCTV, armed guards) and as the researchers observed, large deposits (large here means over KES50,000) were in some cases turned away. The outlets also operate beyond standard bank opening hours, further exacerbating the security risk.

Other problems include: lack of consumer information on agency banking, for example on charges, lack of sufficient float, image problems (shabby shops may turn off customers); system collapse; equipment breakdown and incompetent agents.


Despite the obstacles, agency banking is expected to gain in importance as banks roll out more products. Together with ATMs, mobile and internet banking, agent outlets may then leave bank branches to become customer care centres providing more complex transactions and services.

Industry front-runner Equity Bank – which had a network of 5,044 agents by mid-2012 – is, in fact, reporting a significant shift in business moving from branches to agents. Business Daily quoted Equity Bank CEO James Mwangi who emphasised the increasing role of agents during half-year results release. ‘On a daily basis, we are moving an average of half a billion through banking agents who are now doing 24% of the bank transactions and we are projecting that the agents will overtake branches in terms of transactions and volume of money.’

And the distinction between mobile money services and agency banking is likely to become blurrier: Safaricom have pursued an integration with the banking system through M-KESHO and other M-PESA-bank account links, and are considering a loan product based on a customer’s airtime and mobile money usage. In the end, even in this field between co-operation and competition, it is the retail client who benefits, and especially lower-income earners find a considerably larger offer of financial services than other countries in sub Saharan Africa.

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