May 27th, 2024

In 2010, the Central Bank of Kenya (CBK) permitted financial institutions to contract third parties to provide certain banking services on their behalf.

The aim was to hasten financial penetration in Kenya, which was identified as key in implementing Kenya Vision 2030 flagship projects. Since then, there has been a significant increase in agents in Kenya with the current numbers being just over 320,000 agents in December 2023 (CBK website). Following this, Kenya’s early adoption of agent non-exclusivity in 2014 was crucial to crowding-in competition in agent services offering.

Agents have played a key role in driving access to financial services, despite the challenges that customers, agents, and financial institutions face as well as the increasing adoption of digital payments. Numerous studies, such as CGAP’s Cash-in-cash-out for rural agent networks (CICO-rural-agent-networks) still indicate that in the short and medium term, the use of agents to provide a cash-to-digital interface is essential.

On request of some financial industry players in 2022, FSD Kenya, with the support of MicroSave Consulting (MSC) conducted a study to design an interoperable and shared agent network framework and strategy. The aim of the study was to develop a strategy and roadmap to guide the industry on the implementation of a sustainable interoperable and shared agent network based on qualitative evidence from various stakeholders such as customers, agents, and financial service providers.

The study highlighted several key challenges for each of the stakeholders. For customers, the key challenge with agent services was the accessibility of agents especially in rural and some peri-urban areas, the higher cost of the transactions as compared to other channels, as well as the lack of relevant services beyond cash-in-cash-out services. For agents, the key challenges were shrinking agent commissions due to the crowding of agents, inefficient float management mechanisms due to the maintenance of several float accounts to serve customers from various financial service providers and cumbersome onboarding processes.

Lastly, for financial service providers, the key challenges were operational inefficiencies due to duplication of the establishment of agent networks by the various financial service providers, expensive requirements for point-of-sale devices that provide physical printed receipts and lack of a business case for the financial service providers in expanding to rural areas leading to agents being clustered around urban and peri-urban financial service points.

The study recommended that the implementation of agent interoperability could aid in addressing most of the barriers identified and went on to propose various models that could be considered for implementation in Kenya.

Agent interoperability would enable customers to be served by any agent regardless of their financial service provider. It would also enable agents to better manage their float as it would not be tied to a provider. The study also highlighted various considerations that would need to be made around governance, use cases, operational and business models, user journey and the technical platform.

This blog is one of the articles in FSD Kenya’s 2023 annual report. To read the full report, click here. 

 

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