Understanding Agency Banking and its Advantages

Agent banking is a way of providing limited banking services to bank customers through the use of agents who usually are not traditional bankers or banking institutions. It is a type of branchless banking that allows the traditional banks to extend their network of branches and services in a cost-effective manner.

Agent Banking means providing limited scale banking and financial services to the under-served population through engaged agents under a valid agency agreement, rather than a teller/ cashier. It is the owner of an outlet who conducts banking transactions on behalf of a bank.

Agent Banking is the provision of financial services to customers by a third party (agent) on behalf of a licensed deposit taking financial institution and/or mobile money operator (principal). Principal shall at all times be a deposit taking Financial Institution and/or Mobile Money Operator (MMO).

An agent is an entity that is engaged by a financial institution to provide specific financial services on its behalf using the agent’s premises.
On a more general note, an agent bank is a bank that performs services in some capacity on behalf of an entity. An agent bank, also known as agency bank, can offer a wide variety of services for businesses looking to expand internationally.
These banks generally act on behalf of another bank or group of banks, but they can act on behalf of a person or business.


Understanding the Roles of Agent Banks

Agent banks can serve the needs of both individuals and businesses through a broad range of services. They can include various forms and are willing to partner on a variety of different offerings. The specific roles of the agent bank will depend on the arrangement made with the client.
An agent bank can be syndicate, where it is the point-of-contact for a borrower that is taking loans from several banks. In this case, they are the lead bank in a syndicated loan and they keep the other banks appraised of developments while sending them interest payments.
Individuals and businesses partner with banks to support the management of their financial and cash transaction needs.
These entities rely on an agent bank for managing funds in a deposit account. These banks can also support customers through letters of credit or extensions of new credit.

Types of Agent Banks

These may include:

1. Foreign Agent Banks

A foreign bank doing business in the U.S. on behalf of its parent bank may be known as a foreign agent bank. Many of these banks are subject to Federal Reserve regulations and are audited by the Federal Reserve annually.
They may also be allowed check-clearing privileges and access to the Federal Reserve’s discount window.

2. Investment Banks

Investment banks often serve as agent banks on institutional investment deals such as syndicated loans. An agent bank serving as a syndicate manager will contract with an issuer to arrange a syndicated loan. The agent bank in a loan syndicate works to facilitate the terms of the loan transaction with the multiple parties involved in lending funds to the issuer. The agent bank is paid a fee for their deal management services. Once the deal has closed, they may also be responsible for managing the oversight of syndicated loan payments and terms throughout the loans involved in the deal.

3. Third-Party Agent Banks

A business may need the support of an agent bank in order to launch new services. Partnership with a third party agent bank is common for credit businesses who need a bank’s support in offering credit cards or loan programs.

Benefits of Agency Banking

1. The benefits of an agent bank include the fact that they can operate internationally. These banks allow businesses to expand their geographic presence, as having a bank that knows how to operate in various countries is advantageous. These types of banks make accessing funds while abroad easier. Agency banks also allow businesses to delegate administrative tasks, where the agency bank can handle the finances of a business.

2. Agency Banking is a type of branchless banking, which comes with the benefits of risk management, product availability, improving financial inclusion and ensuring a wider customer base. It is a method for traditional banks to extend the network of their branches in a cost-effective way, through authorized agents in unbanked environments and rural populations.

3. Agency Banking operates with the help of agents who conduct transactions on behalf of the unbanked. Banking agents can have a digital wallet or stored value account on an online platform, and this platform can apply the set business rules to the transactions started by the agents. Bank customers can have their accounts on a digital wallet or the core banking system. Agents can carry out transactions on such accounts on customer’s behalf. There are business rules that will be applied by the host system to the accounts of customers.

4. An Agency Banking platform lets agents put in, and withdraw money from their digital wallets with various business rules. The service can be used by agents for fund transfer between stored value accounts, or to the bank account of customers from their stored value account. Agent banking also delivers financial services through use of mobile phones, POS (point-of–sale) terminal, card readers and other technology for processing of real time transactions.

5. They support various types of transactions, such as voucher-less prepaid top-up, top-up prepaid voucher sale, loan repayments, account balance queries, merchant’s services, cash withdrawals, cash deposits, transfers and bill payments of various types, such as fines, taxes, government fees, utility bills and more.

6. Bank customers can be issued a bank pin and a magnetic chip card or stripe, and use this pin, which is readable by the agent’s terminal, and card for carrying out transactions. Customers are more secured when compared to cash management. 

7. An agent bank can partner with a business to support the issuance of credit cards in a new credit card program. Many agent banks have also partnered with private lenders to support the growth of new online lending businesses. 

To set up agent banking services, the prospective agent must first have an existing business that is up and running. Then you decide on the bank to partner with. The regulatory framework for agent banking allows an entity to be an agent for as many banks as the entity can comfortably serve.

For agents, the primary advantage is to drive more customers through their business or shop. All of them benefit from the agent banking network model. The banks will be able to expand their customer base by onboarding new customers who were previously out of their reach. By having banking agents, instead of more physical bank branches, infrastructure and manpower costs are reduced while revenues are increased.

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