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Banks get risk-shy, engage agents

By Geoff Iyatse (Assistant Business Editor) and Adeyemi Adepetun (Head, Communications & Technology Desk)
13 November 2020   |   4:28 am
Money deposit banks (MDBs) are increasingly transferring risks of cash processing and management to third parties under the guise of agency banking model, an investigation by The Guardian has revealed.


• Customers pay more as ‘10-percenters’ rule
• Telcos blame banks for POS failures
• NATCOMs call for more base stations, upgrades

Money deposit banks (MDBs) are increasingly transferring risks of cash processing and management to third parties under the guise of agency banking model, an investigation by The Guardian has revealed.

It was gathered that banks see agency banking as the new frontier of the old competition in the retail segment. Similar to the days marketers were given bogus targets, the agents are now handed targets with mouth-watering bonuses attached.

A first-generation bank, for instance, has kicked off campaign, running from November 1 to January 31, 2021, promising to give “top performing agents” cash rewards ranging from N50,000 to N500,000.

In a mail sent to the operators on October 31, the bank listed the six categories of the promo (created to boost its agency banking network) to include silver, silver plus, gold, gold plus, platinum and platinum plus. For the silver category, an agent is expected to complete 1,000 transactions in a month within the promo period, which entitles him/her to a chance to win N50, 000 cash prize.

Platinum plus agents are required to target 13,000 monthly transactions, which the bank said is an automatic ticket for a N500, 000 cash prize. The mail said a total of 250 winners would emerge monthly during the campaign.

Sources said other banks were planning to commence similar campaigns to secure sizable slices of the agency banking cake.

Banks are doing other things to motivate agents. A Point of Sale (PoS) machine is only given after a prospective agent would have demonstrated sufficient entrepreneurial capacity. In some cases, an applicant is expected to have successfully executed 210 transactions within three weeks (10 transactions per day) via support of a mobile app to be entitled to a PoS machine.

Thereafter, a unit of PoS machine is given, which could be reclaimed if the agent falls below the upgraded target – 20 transactions daily.

SADLY, the increasing popularity of PoS is the new vampire sucking Automated Teller Machines (ATM) dry. Operators disclosed that ATMs are cash-starved as part of the banks’ support for “agency banking.”

Across the country, depositors face herculean tasks getting cash from ATMs. The few ones that dispense cash are crowded, with customers queuing for close to an hour to make a withdrawal.

Banks have embraced the COVID-19 containment protocols, including the decongestion of the work environment, making it increasingly difficult for customers to carry out transactions at the counters. Depositors, who are handed tallies by security guards as they arrive at banking premises, wait outside for hours to be allowed in for transactions.

The continued closure of some outlets by banks when the lockdown was partially lifted has also restricted access to physical banking transactions.

Thus, many depositors are being compelled to patronise agents (who are currently cashing in on the opportunity to fleece customers) for deposits, withdrawals and to some extent, money transfers.

Expectedly, the increasing cash rollback by banks offers the agents an opportunity to make some money. This has led to the proliferation of outlets in the metropolis.

Central Bank of Nigeria (CBN) introduced agency banking about five years ago to deepen financial penetration. The model remained a rural affair until recently, when it started taking a root in the city.

In Lagos, there are agent bank outlets on almost every street and bus stop in addition to mobile operators.

THE scenario in Abuja, Port Harcourt, Owerri, Kano and other major cities is not different from that of Lagos. Agency bankers have taken over AYE Junction, a major commercial hub in Abuja with a heavy concentration of banks. A resident, who said there are about six shops on his street in Maralaba, handling businesses on behalf of commercial banks, claimed most people prefer patronizing the agents to joining long queues to make withdrawals.

While the model is also growing very fast in Port Harcourt, Rivers State capital, ‘cash-back’ – a smart practice where fuel station attendants or other salespersons exchange cash for PoS transfers for a tip – has become an established strategy for circumventing frustrating ATM services. ‘Cash-back’ is also growing head-to-head with agency banking in Kano, Asaba, Owerri and other major cities in the Southeast.

As agency banking gains acceptance, the ATMs are becoming increasingly underfunded. In the face of the challenge, more depositors have resorted to the agency option, which has made the already-expensive banking service even costlier.

The agents, some of which cluster around banks whose ATMs are often out-of-cash, charge between two and 10 per cent, depending on the time of day, location, demand and other factors.

Findings show the service is much more expensive at nights and weekends, just as those who operate in remote communities also charge more. During the recent curfew in Lagos when banks shut down completely, for instance, charges could be as high as 10 per cent depending on demand.

A depositor told The Guardian he paid N1, 000 for N8, 000 during the weekend the curfew was in force. The charges are much higher than the transaction costs the principal (banks) impose on the PoS merchants.

While charges vary by banks, most merchants charge N100 per transaction not exceeding N10,000. Charges for the value of transactions above N10,000 are higher and also in ranges.

BUT the cost is just one of the many challenges the new banking option poses to customers. The agents operate at a very small scale, which affects their payout capacity. A customer, Paul Busari, told our correspondent at Idimu, Lagos, on Thursday night, that he had to visit six different outlets to raise N150, 000 he needed urgently for a transaction.

“I wasted man-hour and spent more because it would have been cheaper if I got the money from one operator. These guys do not have the capacity and if the banks are starving the ATMs to keep them in business, there is a serious problem,” an upset Busari, a property manager, said.
A banker, who would not want to be named, admitted that ATMs were cash-starved “to push the growth of agency banking” which is required to reduce the risk and cost of processing cash.

“Cashless economy is an audacious policy that must be encouraged. There are penalties for certain volumes of cash transactions already, which means agency bankers’ charge is not new. Over time, banks have encouraged customers to use online platforms. But it is obvious that certain people still want the feel of physical cash.

“We will not stop such individuals but they should be ready to bear the cost. So, if the banks feel such customers should go to agent banks, I don’t think there should be an issue,” an operation head in a branch of a second-generation bank said.

A PoS merchant, Charles Umane, said a banker who introduced him to the business assured him that all the banks were aggressively promoting agency banking and that they would not mind starving the ATMs to enable the model to succeed.

Umane, who is also a primary school teacher, added: “And it makes sense to them. If you cash N10, 000 at an ATM, the bank earns N35. If it is the card issuer, it will earn N0. But most banks charge N100 per N10, 000 transaction, which is shared with the agent. They are still left with N50.”

But a security guard attached to a bank business outlet at Murtala Muhammed International Airport Road said insecurity is the major reason ATMs at the branch have not been “loaded with cash.” He said there would be cash sometimes, but the maintenance personnel refuse to show up when the machines require “resetting.”

“The bank officials are also human beings. Nobody wants to risk his life because of customers. If a machine suddenly stops working in the night, for instance, who will respond to a request to come to the office to fix it?” he asked.

DURING the #EndSARS protests, some ATMs were vandalised, leading to a pullback by banks. In the height of the vandalism, most ATMs across the country stopped dispensing cash, forcing many people to appreciate, for the first time, services of agent bankers whose access to cash was also limited.

Agency bankers and other depositors were locked out of bank halls. The illiquidity created led to 500 per cent increase in charges.

The rising awareness of the comfort the model offers in the face of excruciating banking experience has sent a signal to the market that it could serve as a source of livelihood. Investigation shows that thousands visit banks daily to inquire about the agent account opening process.

At a branch of a first generation bank in Oshodi on Tuesday, about six customers were being attended to on the process of account opening and inspection of the operation facility.

The limited risk involvement of the bank in the burgeoning business, it was learnt, is a major attraction to the lenders, whose only stake is the PoS machine.

“I opened my account, rented an office and fund my wallet with my money. The only thing the bank did was visiting to inspect the office. They also provided me with the PoS machine. There is no other commitment from the bank,” Rita Odunsin, a merchant in Lagos told The Guardian.

Odunsin, whose shop is located opposite a bank whose ATM was not dispensing when The Guardian visited, said she did an average of 35 transactions daily and charged N200 to N300 per N10,000 transaction. On average, she makes a profit of N200 from each transaction.

TELECOMS operators, yesterday, blamed banks for the increasing rate of POS failures and charged them to regularly optimise their internal infrastructure.

Chairman of the Association of Licensed Telecommunications Operators of Nigeria (ALTON), Gbenga Adebayo, in an interview with The Guardian, said the telcos should not be blamed for the rate of failures, but banks’ servers.

Explaining the way it works, Adebayo said the terminals handshake with the servers of the banks. “So, if the two systems cannot see each other properly, that is where the problem is. It is not necessarily due to network failure. If it was due to network, there won’t be service at all. So, the fact that the device actually handshake with something and send back an error message shows there is a means of transmission. In that regard, the failure will be blamed on banks. If it was network dependent, it will not even initiate any transaction from the beginning at all.”

He said if banks’ servers failed to respond to the queries of the terminals, transactions would naturally fail.

In the same vein, President of the National Association of Telecoms Subscribers of Nigeria (NATCOMS), Chief Deola Ogunbanjo, said infrastructure upgrade would be necessary for both sectors.

Ogunbanjo said POS works via the software because they are all SIM-enabled. He said though the operators are investing, “they need to invest more because the current service quality is not efficient enough to serve everybody, including machines.

“So, we need to build more Base Transceiver Stations (BTS), erect more masts, where necessary. The country has over 207 million active subscribers. In UK, where subscription is lower than ours, they have over 70,000 masts, but in Nigeria, we are slightly above 30,000. So, there is need to build more BTS and upgrades our radio equipment on the mast so that POS and other terminals can be adequately served, and function as required. This will also rub off well, even on broadband target of the country.”

FINDINGS show that when customers use their credit/debit cards on the POS terminals, which are run by commercial banks, customers’ accounts are debited without the fund getting to the e-commerce platform.

“When the customer is lucky, the fund can be returned to his or her account immediately, but should the network challenge persist, it could take between seven or 14 workings days before the fund is returned to the customers’ account,” a merchant of one of them POS operators stated.

The merchant, who preferred anonymity, further explained the phenomenon behind transaction failure during the use of POS.

According to him, if immediate authorisation is not available at the time the card was processed, the payment is stalled and therefore the transaction would be incomplete.

“There are times that the banks would have debited your account after swiping your card and imputing your data on the terminal, but the fund fails to get to the PTSP and in the process, arguments and counter arguments may occur”, he stated.

He noted that most POS terminals are provided with connectivity through GSM Subscriber Identity Module (SIM).

Accordingly, he said the POS terminals use the GPRS service of the network (the GSM service provider) to communicate with the network infrastructure of terminal deployer, in this case CBN licensed Payments Terminal Service Providers (PTSP) and National Central Switch as Payments Terminal Service Aggregator (PTSA).