Are requirements for using agents proportionate?

Regulators want to:

Promote financial inclusion by providing access to affordable financial services in remote and underserved areas. 70% of those living in extreme poverty live in rural areas. It is estimated that only 25% of the rural poor have access to any financial account. Providing financial services in remote areas can be prohibitively expensive for banks that rely heavily on costly brick-and-mortar infrastructure (such as branches and ATMs). Mobile money providers can significantly reduce this cost while increasing convenience through the use of agents, including the mobile operator’s established network of airtime resellers and other small shops that already operate in remote areas. In practice, mobile money and other financial services provided through agent networks are on average 19% cheaper than similar products offered through branches.
Ensure that customers served by agents will be treated fairly and that customer funds will be secure. While using agents offers great potential for expanding access to formal financial services, regulators want to ensure that the risks of using agents are properly addressed. In the absence of proper oversight, agents could provide poor service, fail to comply with transparency and disclosure requirements, or even defraud customers.

Mobile money providers need:

Flexibility to provide cash-in, cash-out, and other services using agents. In order to provide commercially sustainable services in remote and underserved areas, mobile money providers need to sign agency agreements with their airtime reseller networks and/or other commercial entities. Agents act as frontline customer service representatives facilitating services such as account opening, cash-in and cash-out, bill payment, and money transfer. As noted above, using agents can significantly reduce the cost of delivering financial services, thereby fostering financial inclusion.
Risk-based agent approval requirements. The benefits of using agents can only be reaped if regulatory approval is proportionate and risk-based. Regulators may think of agents as small bank branches, impose strict security requirements (e.g., safes, security guards) and require providers to seek explicit regulatory approval for each proposed agent. Such requirements are disproportionate for the vast majority of agents and can prevent an agent-based model targeting rural and/or unbanked populations from taking off. For agents that operate on a prefunded basis, strict security requirements are unnecessary to protect consumers and mobile money providers. With respect to agent approval, a bulk notification scheme (where the provider periodically submits information about new agents to the regulator without requiring formal approval) is much less costly for both the provider and regulator and is sufficient information for the vast majority of agents.

How can regulators address these issues?

Too restrictive:

Agents are subject to bank branch-like requirements with respect to issues such as: (1) Security (e.g., must have armed guards, special safes, etc.); (2) Staffing (e.g., must be employees of the mobile money provider); (3) Approval to operate (e.g., regulator must review and approve individual agent applications); or (4) Who may serve as an agent (e.g., agents must be formal legal entities, non-profit entities, etc.).

Good balance:

Mobile money providers conduct risk-based due diligence on agents and have significant flexibility in choosing agents and outsourcing services. Regulatory approval of individual agents is not required; instead, a notification scheme is in place. Providers are liable for actions taken on their behalf by their agents. Providers must safeguard customer funds held by agents (typically by requiring agents to operate on a prefunded basis) and ensure that agents maintain adequate liquidity to properly serve customers.

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