What Is an Agent Bank?

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.

Agent banking is the latest innovation in banking services available in Bangladesh. It aims to provide
formal banking services to the unbanked, including populations that have traditionally been more
inaccessible. Although officially sanctioned by Bangladesh Bank in late 2013, agent banking has only
recently started to take off in Bangladesh in the past year and a half. It represents another channel, like
mobile financial services, promoted by the Government of Bangladesh to promote financial inclusion.

Understanding 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 also be syndicate, where it’s the point-of-contact for a borrower that’s taking loans
from several banks. In this case, it is the lead bank in a syndicated loan and it keeps the other banks
appraised of developments while sending them interest payments.

Features of Agent Banking

Agent banking services are provided by authorized banking agents. These agent points are much smaller
than bank branches and are equipped with point of sales (POS) devices, mobile phones, barcode
scanners, computers, and biometric devices. By reducing the overhead required to set up a bank branch
and through its use of technology, agent banking allows financial institutions to reach underserved
segments of the population, particularly in rural and remote areas, in a more cost effective way. The
agent banking model also heavily stresses rural access, and banks are required to have two agent points
in rural communities for every one agent point they have in an urban area.

Benefits of Agent Banks

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 and other banks by facilitating letters of credit or extensions of new
credit.

The benefits of an agent bank include the fact that it 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.

Services Offered through Agent Banking

Collection and processing of documents in relation to account opening

Cash deposit and withdrawal of daily maximum BDT 100,000
Savings products
Fund transfer between accounts
Cheque deposits
Inward foreign remittance
Loan application, credit and debit card application form collection and processing
Small value loan disbursement and collection
Utility bill payments
Bulk disbursements
Account balance inquirie

Types of Agent Banks

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.

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 its deal management
services. Once the deal has closed, it may also be responsible for managing the oversight of syndicated
loan payments and terms throughout the loans involved in the deal.

Third-Party Agent Banks:

Oftentimes 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.
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. Lending Club is one example of a private lender requiring the support of an
agent bank for its services. Lending Club works with Web Bank to facilitate the origination of its loans to
its online borrowers.

Disadvantages of Agent Banking

Agency banking is not without its fair share of challenges. The level of liquidity that bank agents
maintain influence the use of agency banks. Agents do not always maintain enough cash demanded by
customers and this discourages repeat business. They also highlight that lack of security, malfunctioning
equipment and errors also discourage the uptake of agent banking. Network problems also deter the
use of agent banks by customers as they sometimes suffer from connectivity problems. As already
mentioned before agents are already existing businesses with a different line of business from the
banking services that they are required to offer. This posses a challenge because agents may no always
priorities agent banking transactions. Preference will most likely be given to their existing business
transactions. This situation may frustrate agent banking customers and some may stop use these
facilities altogether. Another challenge emanates from the fact that agent bank operators are not
employees of the financial institution. This means the corporate culture of the financial institution may
ordinarily not be ingrained in them. Many banks due to excessive competition in their industry are
concerned about customer services and experience. They endeavor to give positive customer
experiences to their customers. On the other hand the retailers engaged to offer agent banking services
may not value customer experiences. This may result in them being rude or harsh to customers,
discouraging customers from using the facilities.

Agent Banking Risks

The use of agents by banks exposes banks to various risks which can be operational, technological, legal
and reputational risks. All these challenges emanate from the lack of capacity, poor training and the lack
of necessary tools and systems. The use of a non-bank employee to effect transactions on behalf of the
bank poses operational risks such as agent fraud and theft. The agent may also charge customers
unauthorized fees or offer abusive services to customer such as requiring customers to purchase certain
goods and services to obtain other services. The other operational risks include the loss of customer
assets and records, data entry errors, poor cash management by the agent resulting in the agent not
being able to meet customer withdrawals and failure by the agent to resolve or forward customer
complaints to the bank. Technical risks occur where there is system or hardware failures which can
cause a lack of services availability and informational loss. Legal and compliance risks may occur when
customers sue a bank as a result of agent failures.

The following juristic persons are eligible to act as banking agents:

MFIs regulated by Microcredit Regulatory Authority of Bangladesh;

NGOs registered with Social Welfare Directorate;
Societies registered under the Societies Registration Act, 1860;
 Cooperative Societies formed and controlled/supervised under the Cooperative Society Act,
2001;
Government offices having branch/unit offices;
Courier and mailing service companies registered under Ministry of Posts &
Telecommunications;
Companies registered under the Companies Act, 1994;
Agents of mobile network operators that fulfils the eligibility criteria as laid down in these
Guidelines;
Local government institutions; 12.10.Union Digital Centre (UDC);
Agents of insurance companies that fulfil the eligibility criteria as laid down in these Guidelines;
Any business entity having trade licenses from eligible authorities that fulfils the eligibility
criteria as laid down in these Guidelines;
Any other entity which Bangladesh Bank may prescribe or authorize.

Key Roles and Responsibilities of BANK:

The ultimate responsibility for agent banking lies with the banks. Banks shall endeavor to obtain
accurate information from the juristic person and its officers and shall not represent to
Bangladesh Bank that it was misled by the juristic person or its officers.
Banks shall be responsible for monitoring and controlling of the agent and for providing active
oversight of the agent’s activities or functions.
Banks shall pay close attention to concentration risk while granting agent banking outlets to
master agent.
Banks shall arrange regular training program for both agents and related bank officials and
provide operations manuals and necessary forms/stationery to facilitate branchless banking.
Every bank shall sensitize its agents on the provisions of these Guidelines.

Target market of agent Banking:

Banks are using e-money products, agents and payment systems as their main strategies to reach
Unbanked segments and their target market include:

•Low-income households.

For most of the banks in our study, the greatest focus is therefore on increasing transaction volume and
cross-selling a broad range of services to under banked, underserved Low-income customers.
•Small and micro businesses.

Banks find that serving small businesses fits both their social and business missions. Many banks
recognize the SME market as particularly underserved.

• Rural and remote households.

Many banks see the potential for technology to provide access to customers in remote areas.

•Customers transitioning from informal to formal status.

Affirming that the transition from the informal to the formal economy is essential to achieve inclusive
development and to realize decent work for all, and recognizing the need for Members to take urgent
and appropriate measures to enable the transition of workers and economic units from the informal to
the formal economy, while ensuring the preservation and improvement of existing livelihoods during
the transition

•Women.

According to the Global Findex 2014, men have higher levels of account ownership than women by an
average of 9 percentage points in developing countries. Banks identify then women’s market as
underserved and profitable, while also expressing commitment to empowering women as
entrepreneurs, consumers and investors, and removing cultural, legal and other barriers they face in
gaining access to financial services.

• Hard-to-reach market segments.

Banks committed to CSR gave examples of targeting youth, persons with disabilities, minorities, and
farmers.

• Credit-invisible.

Those without a credit history or with a poor credit score cut across many of the categories above.

Agent banking vs mobile banking

The concept of agent banking seeks inclusion of unbanked groups to banking channel and expansion of
payment and transactional services by reducing costs and increasing efficiency. Agent banking models
are still in the development stage depending on situational and country-specific needs. Its journey
started in 2014 from Latin American country Brazil. The World Bank and the Multilateral Investment
Fund (MIF) introduced this idea at a seminar with the central bank of Brazil on March 2014. Later on,
some Latin American countries, some African countries and some Asian countries like Philippine, India,
Bangladesh adopted the concept in their own way. Achievement and success of this model depend on
the extent of financial inclusion, cost effectiveness and technological sustainability. One such model of
agent banking relies on some technology developed by a company under TATA group in India. It
achieved moderate success with a hand-held computer feature including wireless connectivity and
receipt printing on collection of installment payment of insurances, lease financing installment payment
from customers living in remote areas. They have no time or intention to go to bank and keep deposits
there.
For example, a truck driver bought his own truck with lease financing facilities either from bank or from
truck manufacturer. Drivers mostly spend their time on the road, take rest on the truck and get back
home 4/6 times a year. But the installments need to be collected on a monthly basis. To solve this
problem this handheld computer, this one-man show agent banking proves effective. This man keeps
track of the customers under his one-man agent bank and informs them the installment payment date.
Then the agent reaches the agreed location on the appointed date of payment and collects money from
customers. He enters data to the handheld computer online and gives receipt to the customer.

This is actually mobile agent banking. But this model has not seen much growth and sustainability over
the past 5/6 years. It lost its attraction to the customers for the overwhelming popularity of the mobile
money transaction for financial inclusion, cost effectiveness, accuracy and trustworthiness. On the eve
of the emerging digital technologies in the Fin Tech industries, agent banking models have lost their
appeal. Further investment in agent banking will be bad investment for any financial institution like
buying an old horse to deliver goods faster and efficiently to customers rather than buying an electric
car or solar operated drone for delivery.

On the other hand, mobile money and mobile transaction in the fin tech industries are getting more
popularity and also well accepted by customers as long as the development of security features are
integrated. Almost 60 per cent of the banks reduced their operational cost and financial inclusions
through the mobile apps. Almost no cost increased for customers in transactions. Sometimes banks are
earning extra money from the third party service provider of apps and e-commerce companies.

It is evident that adoption of online banking and mobile banking is much easier and cheaper than trying
to revive the already buried agent banking models.

Reference:

1. https://www.investopedia.com/terms/a/agent-bank.asp
2. https://www.marketlinks.org/sites/default/files/resource/files/Tipsheet_AgentBanking101_July
2016.pdf
3. https://www.coursehero.com/file/p35qfee/Disadvantages-of-Agent-Banking-Agency-banking-is-
not-without-its-fair-share-of/
4. https://www.bb.org.bd/aboutus/regulationguideline/brpd/sep182017agentbank.pdf
5. https://www.scribd.com/document/350940758/Target-Market-of-Agent-Banking
6. https://www.thefinancialexpress.com.bd/views/opinions/agent-banking-vs-mobile-banking-
1604681012