How agent banker makes money

Technology has sunk its teeth in every area of our lives and the banking sector has embraced it regardless of the glitches that arise every now and again. One tech aspect is agent banking that allows Ugandans to access financial services from bank-appointed agents, away from the traditional banking halls.

However, how does this service work? Is it for the betterment of the banking experience?
Dickson Isabirye, a former banker, with Stanbic Bank, embraced the system because he understood the trade. Additionally, agent banking is an investment where one’s money is intact – it simply makes more money.

“Akin to bank savings, it is an investment where your capital is not touched at all. That is save the fixed assets bought for the business such as the terminals (devices used to make the transactions) and setting up the structure to operate from,” he shares.

Capital
The amount needed is premised on what one desires to do because agent banking is wide. You can do anything with it such as transfers, withdrawals, deposits, bill payments and mobile money transactions. For instance, an agent banker stationed near a URA office may have very few deposits save URA payments – a reflection of the needs of the people around.

On the other hand, one stationed downtown, like Isabirye, will have several deposits and withdrawals on both mobile money and banks such as Centenary and Equity as they are more trader friendly. As such, the capital needs are different.

“Downtown is my community where clients make deposits and withdrawals, and seek float and they pay me a small fee while the bank gives me a commission. Owing to the huge mobile money eco-system, my capital demand is big,” he says.

Isabirye, who began with one branch and later had six branches started with Shs15m in 2021.

“Six months later, due to the lucrative sales, I added another branch and sunk in another Shs10m. By the end of 2021, the total capital was Shs125m,” he shares.

If one is starting, Shs15m to Shs20m is sufficient depending on the services they intend to offer.

The first capital came from Isabirye’s savings but due to the business boom, he enlisted the help of friends and family who added him some money.

“These were earning small interest rates off their bank savings so I was a better investment. It was more of a grant where they allowed me to use the money and will repay in future,” he shares.

Turnover
While the current economic climate is one Isabirye terms as bad, he says earlier in the year, transactions were so many thus a turnover of between Shs200m and Shs300m in a day. However, when URA imposed more taxes on his clients’ clothing businesses that greatly influenced his, the clients either scaled back on deposits or totally closed their doors. Lately, he makes between Shs90 million and Shs100m.

The hard economic times also saw Isabirye merge and later close his branches one after another.

“I currently have one as it was not financially viable to have several branches, yet bills such as rent, and electricity must be paid. Additionally, employees could not take a pay-cut seeing they were also struggling. I had to lay-off all the workers in other branches,” he says. That also meant a capital reduction to just Shs30m.

Requirements
For one to start agency banking, they need to be a company. Fortunately, Isabirye had already registered one thus, saving him that cost. All he needed were the machines and each terminal is about Shs1m.

“Then, we needed machines for three to four banks because at that time, not all banks were fully integrated by Agent Banking Company (ABC).  Therefore, one needed  minimum of Shs3m. The situation is better because if I am using Centenary Bank, I can make the deposit without having a different machine. Nonetheless, not all have joined ABC so you need about two to three machines. Additionally, for each bank, you need about Shs5m every day to act as float,” Isabirye says.
 
That aside, location can make or break the business. Know which location will bring you more transactions because agent banking is a volumes game.

“With small commissions, the bigger the volumes, the better for the business,” he says. For one that desired to be part of the downtown upbeat business activity, Isabirye says his location is ideal.

“Every now and again, someone will come for a mobile money transaction in form of deposits, float or withdrawals thus more transactions and ultimately, profits,” he says.
Knowledge about how the trade works is crucial. Whoever has done mobile money business stands a better chance.

One should also appreciate the purpose of agent banking before moving into it because the money is not that much. Agent banking, from his experience, is a cost reduction service to the banks as it reduces traffic to the branches. That means less costs on the branch and this builds up to the entire bank and in turn, more profit.

Taking a look at a sister system, when mobile money was starting, MTN and Airtel paid out big commissions to agents and so many people flocked into the business. As such, you would say that these are to encourage people to adopt the system – picking up the usage of the service.

Once the transactions are many, they are no longer attracting customers so the need is reversed (agents are dependent on the telco companies).

“The bigger the transaction volume, the more the reduction in commission. In the same vein, banks are increasingly biting down on the commissions in a bid to subsidise on what is paid out as transaction volumes increase. That helps them achieve the cost cutting goal,” he says.

Therefore, the pull should not be that people are benefiting because inasmuch as people are earning, the bank will always look for ways to make savings. However, it is an investment avenue.

Challenges
Unstable network is the major issue and with the current situation where transactions have greatly reduced from an average of 70 to 10, any lost customer affects profits greatly.

“On average, the commission is Shs1,000 per commission so if you miss six transactions, that is Shs6,000 lost which dampens an already bad situation,” he shares.

Trans-bank deposit charges: If a client needs to deposit on Centenary Bank yet the agent has an Equity machine, a charge of about Shs1,000 is levied on the client.

However, according of Bank of Uganda regulations, agents are not supposed to charge for deposits. Therefore, this charge pushes away customers.

“The charge is by the bank doing the transaction on behalf of another. However, the people using this system are low income earners yet desire to bank daily. As such, this charge cuts back on their income,” Isabirye shares.

Losses due to network issues: When an agent carries out a transaction and it fails, the client’s account is still debited owing to a system glitch. It is like doing an ATM withdrawal but get a system error message.  However, a few minutes later, the system shows you withdrew money yet you never got it. The agony is when one attempts a big transaction severally. Usually, for other banks, money is reversed, however, in the case of Stanbic last year, the bank credits customers inasmuch as the machine showed network failure.

“In that glitch, I lost about Shs30m around August 15 and many affected persons left the trade. While they say investigations are ongoing and we are yet to get back our money, they know the companies onto which this money was deposited,” Isabirye shared.

Seeing that it is a new system, such glitches are expected to occur but how you manage them matters.

Fraud agents

These do transactions from wherever – buy float for their own numbers then liquidate or cash out. They try to manipulate the system to get more commission. “Some of these are responsible for the network glitches because they are stressing the system with several and repetitive transactions,” he says.

Future
Isabirye says although the network is unstable, some days are better than others.  “If one can make Shs10,000 to Shs15,000 in this economy, how about when it recovers?” he posits.  He hopes to move from the sub-rented space in about a year’s time.
“I look forward to owning my own shop rather than co-renting because the economy will pick up,” he says.