KENYA: Why banks, mobile money agents are counting losses

Edward Obiko

We have all seen, with mounting horror, the health and economic impacts of the Covid-19 crisis as they have unfolded globally over the past months. In response to the economic disruption from Covid-19 pandemic, the Central Bank of Kenya announced a set of directives on 16th March, 2020.

These directives promote digital transactions to curb the spread of Covid-19. These directives have significantly impacted the banks and mobile money agencies as it has reduced the transaction income for these institutions.

The main services provided by mobile money and bank agents are cash-in (deposits) and cash-out (withdrawals) also referred to as CICO. One of the directives eliminates customer charges on transfer of funds from a bank account to a mobile wallet – effectively encouraging this as a deposit option as opposed to depositing cash at a physical agent location. Another of the directives makes it free to transfer funds under Sh1,000 ($10) between mobile wallets.

This encourages customers to make small transfers or payments digitally, thus reducing withdrawals at agents. As a result of these directives, and others limiting business hours, mobile money and bank agents are counting their losses in several ways. Many agents have seen their transactions – and commissions - fall by more than half.

In some cases, agents catering to customers at government institutions and business centers have had to close shop. The Kenyan government also imposed a curfew from 7pm to 5am next day, effective from 26th March, 2020.

The curfew exempts providers of essential services. According to a recent research carried out by Caribou Digital and Microsave Consulting, a significant number of agents indicated that the curfew impacted their prime business hours usually 6am – 11pm), and had negatively affected their business. Many agents also reported redirecting their float investment towards other businesses, or to stock up on provisions for their households in preparation for an imminent complete lockdown.

Beyond the drop in both deposits and withdrawals, the research indicated that agents reported an increase in the value of deposit transactions. This can probably be attributed to one of the Central Bank directives that increased the limit of funds one can hold in a mobile wallet as well as the increase in per-transaction limits. Many agents reported that this also had a significant impact on their ability to serve multiple customers since they have run out of float much faster. They noted that commission structures for mobile money agents are typically skewed to incentivize the lower-value transactions, which were more common prior to the government directives. As a result, a number of agents reported turning down customers who wanted to deposit higher amounts, firstly to earn better commission for lower transaction bands, and secondly to serve more customers, effectively achieving customer satisfaction for a larger number of customers.

Although agents report that the reduction in the transaction volumes has reduced their need to replenish float at banks and super agents, a few agents report that the demand for deposits of higher value have led them to seek credit in order to maintain higher e-value float.

A few agents have, however, recorded an increase in their agency business attributed mainly to customers’ behavior change. Agents who also run other main businesses have observed, and in some cases encouraged, increased withdrawals to pay for goods and services that they are selling.

Many customers now prefer to pay using mobile money, regardless of whether the payment is a withdrawal or a till number payment. It is key to note that an agent earns a commission when a customer makes a withdrawal, whereas a merchant is charged a commission if they receive a payment. These agents reported their preference to customers paying through withdrawals, and some even discontinued acceptance of till payments. However, some agents, fearful of infected cash, are encouraging their customers to pay for goods digitally despite the impact on their revenues.

A coordinated approach is required to ensure that agents are able to realize their full potential as efficient conduits of financial support to vulnerable households, as well as playing a positive role in championing and modelling appropriate hygiene behaviour for their customers.

Key components of this coordinated approach include providing agents with clear, concise, agent-specific instructions on maintaining hygiene and their role in fighting the pandemic.

Given their critical role and the importance of protecting agents as essential frontline workers, mobile money providers and banks in partnership with Governments and Health Ministries should provide the appropriate equipment for agents - such as masks, sanitisers and gloves.

To seize the opportunity to encourage moves to digital payments, DFS providers should also review bill pay/merchant commissions accordingly. The new commissions should clearly incentivize agents who are also merchants to accept digital payments in preference to insisting that customers withdraw and then pay in cash.

While politically challenging, distributing government cash support payments over time would help reduce liquidity stress. Some government programs are using only bank agents to deliver payments to the people. It would make sense for them to leverage MNOs’ agents as well as those of banks. This will reduce the distance that many people need to travel to access their payments, thus reducing the risk of further spreading the pandemic. Using MNOs’ agents would also reduce liquidity stress for bank agents.

Edward Obiko is senior manager at Microsave Consulting.