Agency Banking

Definition: Agency banking is a type of non-traditional banking, and it operates much like traditional banking through the use of specialized branches.  However, unlike traditional branches, in which banks operate as extensions of their corporate departments, agency banking facilities are maintained by businesses for the sole purpose of providing banking services to their customers. Essentially, an agency bank is a branch licensed by the financial regulator in one state but licensed by the financial regulator in another state when it comes to supervising account-holding activities by customers.

Agency banking is a competitive advantage for banks, as it lowers operational costs and spreads costs across a larger base of participants. In addition, compared with banks that operate standalone entities, agencies generally offer lower interest rates, a broad selection of products, customized services, access to specialized technology and internal channels.

Agency banking is a type of personal financial assistance service provided by financial institutions to their clients. The objective of the agency system is to offer low-cost services with a competitive pricing structure for individuals who lack sufficient resources or access to traditional financial institutions. Usually, the main purpose of this type of assistance is to help poor and lower-income individuals improve or maintain their current financial standing.

Components of Agency Banking

  1. Agent banking service providers

Agent banking service providers assist banks in identifying suitable customers for financial products by matching them up with cooperative banks or brokerages through an automated process. In addition, some agent banking service providers specialize in particular business sectors and geographic locations, thus providing more convenient services to clients from different parts of the world.

  1. Bank or financial institution

The bank or financial institution offers you a service or product. Suppose you choose to pay for this service or product from your bank account. In that case, there are critical financial consequences – (i) you must maintain sufficient funds in your account, and (ii) if your financial obligations exceed available funds, an alarming lack of transparency determines how those funds will be utilized.

  1. Banking Agent

Banking Services provided by a banking agent include check writing, money transfer, and payment accounts. Because these individuals are intermediaries between the customer and the financial institution, they have an added responsibility to perform proper due diligence on their clients’ behalf. Usually, they work together with a company to provide these services and keep a client’s complete financial history for their report at any given time.

  1. Super/Subagents

Also known as super agents, banking agents enable consumers to make advance payments for goods or services on behalf of companies they have business relations with. Many financial institutions prefer the sub-agency model because it helps reduce transaction costs without sacrificing a consumer’s right to decide what type of financial services they receive.

  1. Mobile operator

Banking Services provided by Mobile operators provide USSD connectivity which means they can provide quick and reliable transfers even if their network is not available locally. These subscriptions enable users to carry out transactions even when their main device is not connected to the network. They also enable users to make funds available at any time for use

  1. Consumers

Consumers are the users who use agency banking. Usually, they don’t have a large amount of money available to them, but they will still be motivated to find the best products for their needs. The good news is that these consumers are typically interested in banking products and services provided by financial services providers for their business needs.  

Working of agency banking

  1. The financial relations between an agency and a customer are established upon establishing an account with the client’s bank or financial institution. In this stage, the retailer establishes an account with “an authorized agency” (AFLC) to sell the product or provide a service, whether to the customer or another party. The retailer will be registered for account information with the relevant financial institution upon establishing a relationship with an agent.
  2. Once authorized, the service provider creates the Wallet and transmits it to the bank. The banking agent then deposits a prepaid balance in the Wallet.
  3. A customer can open an account at an agency branch by presenting his valid national ID card or residency permit.
  4. Customers pay cash to the banking agent to deposit money. On receiving cash, the banking agent transfers the same amount in the customer’s account from his mWallet.
  5. Similarly, if a customer wants to withdraw money, they can transfer the bank account to the agent’s mWallet. Then the agent pays the same amount to the customer in the form of cash.

Advantages of agency banking

Agency banking differs from mainstream banking in several important ways –

  • It is not insured by the government
  • It pays interest at a slower rate than commercial banks, and most importantly
  • It allows its customers to set their own money management goals. 
  • It is cost-effective
  • Provides low application fees and faster openings.
  • Banks have responded by offering more competitive pricing and expanding their product offerings, making it easier for customers to choose

Agency banking is a mobile-friendly service providing you with all the essential financial services you would need. Account openings, balance inquiries, and transfers are made simple through the use of party-specific software applications. Not only can individuals use Agency Banking but also small businesses with only limited funds available to them. Banks are required by law to offer to finance but often limit their services to companies with higher risk profiles or those who already have established relationships with them.