As a means of reaching underserved customers at low cost, financial institutions have designated authority and responsibility to banking agents to deliver financial products and services. Agent banking is a model for delivering financial services whereby an institution — be it a financial service provider or a mobile network operator — partners with a retail agent to extend services in remote or hard-to-reach areas.
<blockquote>Innovative financial institutions are streamlining and digitizing their processes, and utilizing real-time data and analytics to increase both the efficiency and effectiveness of agent networks.</blockquote>
Despite the growing volume of agents, the agent network model is rife with utilization and operational challenges. The good news is that technology offers financial institutions an opportunity to make agent models more efficient and productive for themselves and their customers. Based on in-depth interviews with industry experts and senior bank officers, and supplemented by a review of the literature, this brief examines the role of technological innovation as a potential driver for improving the quality and maximizing the productivity of agent models.

We found it useful to study this topic across two time-horizons: the short-and long-term; and from the perspectives of the main stakeholders in the agent network triad: the financial institution, the agent, and the customer. This structure allows us to account for two key trends: 1) the diminishing role of cash as a payment form, and 2) an increasing readiness of institutions to embrace digital transformation. It also allows us to explore commonly-cited challenges with agent networks through an illustrative, hypothetical narrative lens, giving voice to each stakeholder group. The narratives are accompanied by real-world examples of how technological integration and innovation has helped to improve and streamline processes within agent networks. Finally, we anticipate that in a future financial services ecosystem that is digital and cashless or cash-lite, we will see the role of the agent evolving from transaction processors to solution providers.

Leveraging Technologies to Improve the Quality and Maximize the Productivity of Agent Models

<h1>Introduction</h1>
Financial services are going digital. Digitization will change the way financial institutions organize themselves to relate to their customers, and it will dramatically change how customers experience financial services. These changes will be especially profound for traditionally underserved customers who are the targets of financial inclusion efforts.

The good news is that digital delivery models make it possible—and profitable—for banks to serve many people who were previously excluded because their incomes were too low or their locations too remote to reach through high-touch models. The high operational costs associated with physical buildings and staffing only makes sense if the branches break even and provide a satisfactory return within an acceptable timeframe. Low-income customers with thin credit histories borrowing small amounts of money have long presented a challenge to the analog way of doing business. Thus, serving the underbanked customer segment through digital channels presents an opportunity—by lowering operational costs and increasing customer engagement—to transform financial inclusion into a sustainable business. Additionally, digitization allows thin-file customers to have their creditworthiness assessed through alternative scoring models that incorporate other types of behavioral records.

When done effectively, the returns to digital transformation can be significant. For example, DBS Bank, a financial services group in Asia named <a href="https://www.euromoney.com/article/b18k8wtzv7v23d/world39s-best-digital-bank-2018-dbs">“world’s best digital bank” by Euromoney in 2018</a>, has seen digitization contribute to rising shareholder value. DBS customers who process more than half their transactions remotely bring in more revenue than traditional customers. <a href="https://www.economist.com/finance-and-economics/2018/03/08/how-digitisation-is-paying-for-dbs">Two-thirds of DBS’s gross profit currently comes from digital customers</a>. A DBS staff member told us, “The cost-to-income ratio for digital customers is just 34 percent, compared to 55 percent for traditional customers. The return on equity from digital customers is, impressively, at 27 percent.” Numbers such as these make it attractive to reach new customer segments. But if the transition from face-to-face to digital is to succeed, financial institutions will need to understand and address the special characteristics of these segments and get the digital customer journey right—for both their own operations and the customers’ experience.
<h2>Walking vs. Flying</h2>
For customers, the difference between a traditional and a digitized customer journey can be as dramatic as the difference between walking and flying in an airplane. The traditional customer journey includes traveling to branches to talk with a customer service representative, assembling pages of paper documents to meet KYC requirements, and then waiting for days to receive decisions. With digitization, customers can discover and apply for products on their phones and receive funds into mobile wallets, all in a matter of minutes.
<blockquote>The difference between a traditional and digitized customer journey can be as dramatic as the difference between walking and flying in an airplane.</blockquote>
In order to produce such a streamlined journey, financial institutions must address technical and operational challenges and regulatory issues. And, as we discuss in this report, the journey they construct needs to work well for customers—especially when those customers are new to their services. Digitization can bring enormous gains in speed and convenience to customers, but it can also create gaps as it shifts from familiar, person-to-person interactions to interactions that take place on a digital device.

Charting the Customer Journey in the Digital Age

<h6>LEGACY AND NEW FINANCIAL SERVICE PROVIDERS HAVE A LOT TO GAIN FROM NEW DATA</h6>
<h3>The traditional boundaries separating players in adjacent industries are blurring, and the future market for financial services is up for grabs.</h3>
There are many internal and external challenges that providers must address for the promise of new data to be fully realized. From getting the right culture and technical talent in place to engaging with regulators and partners on data sharing and management, there are numerous obstacles to negotiate in capitalizing on the explosion of new data to reach underserved and unserved markets with new commercially viable solutions.

This report is intended to help mainstream financial institutions accelerate their efforts to confront these challenges and future-proof themselves for what the data revolution has in store, but may be useful to other financial service providers as well. However, this report is not an attempt to provide a “how-to” guide for navigating the various stages of the data value chain—there are too many contingencies to prescribe a “one-size-fits-all” solution. Instead, it is an effort to shed light on the potential of data to improve financial services for the underserved.

Accelerating Financial Inclusion with New Data

<em>Banking Sector Approaches to Customer Engagement and Capability</em> explores how financial institutions are leveraging innovation, new technology, social networks, and other tools that inform and engage customers. This brief builds on the belief that good product design builds the financial capability of customers. The research captures a number of successful models, including:
<ul>
 	<li>RBL offering unsecured loans that allow customers to build up a credit score for the first time in India</li>
 	<li>Standard Bank leveraging existing informal group savings culture combined with a lottery to incentivize and reward savings activity in South Africa,</li>
 	<li>A small cooperative bank “rounding up” loan repayments to create an auto-saving mechanism among credit recipients in Mexico<em>.</em></li>
</ul>
This brief is part of the Mainstreaming Financial Inclusion: Best Practices initiative which aims to facilitate learning and action on how mainstream financial institutions around the world can reach underserved populations with quality financial services. The project is completed in partnership with the Institute of International Finance (IIF), with support from MetLife Foundation.

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Banking Sector Approaches to Customer Engagement and Capability

We use the term “inclusive  insurance” to encompass many different approaches to reaching the unserved,  underserved, vulnerable, or low-income populations in emerging markets with appropriate and affordable insurance products. These range from microinsurance for people with very little disposable income to new  products and  services for an emerging middle class around the globe who have not been served by traditional  insurance. Based on insights from written submissions and in-depth interviews with 30 people across 22 institutions, this report invites us to re-think the concept of insurance and its fundamental role in society.
<h2>Major Findings</h2>
In  the  broadest  terms,  the  challenges  of  providing  insurance  to  lower-income  population segments are similar to those of providing mainstream insurance: identifying, understanding, and connecting with customers; providing relevant products; and carrying out the administrative work of collecting premiums and paying claims. For customers at the base of the economic pyramid, the small incomes from which premiums must come require insurers to solve these challenges in highly cost-efficient ways. Adding to the intensive cost pressure, several factors amplify the challenge of connecting with these customers: their remote locations, lower education levels, and lack of experience with formal institutions.

Strategies for effectively serving this target market include:
<ul>
 	<li>Simplifying products so they are easy to understand, easy to enroll in, and easy to claim against. For institutions, such simple products engender trust and are lower cost to provide.</li>
 	<li>Finding new distribution channels and aggregators-from telcos to farmer cooperatives to banks—to identify and connect with low-income customers.</li>
 	<li>Leveraging digital channels and new “insurtech” (insurance technology) innovations to connect with, and serve, low-income customers.</li>
 	<li>Implementing new business models and products to provide and administer the risk mitigation solutions at scale that meet low-income customers’ needs.</li>
</ul>
This report is part of a two-year initiative, <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/mainstreaming-financial-inclusion">Mainstreaming Financial Inclusion: Best Practices</a>, to help advance efforts of financial institutions to reach customers at the base of the economic pyramid. This report was completed in partnership with the <a href="http://www.iif.org">Institute of International Finance</a>, and made possible with support from <a href="https://www.metlife.com/about/corporate-responsibility/metlife-foundation/index.html">MetLife Foundation</a>.

Inclusive Insurance: Closing the Protection Gap for Emerging Customers

The volume of data in the digital universe doubles in size roughly every two years, <a href="https://insidebigdata.com/2017/02/16/the-exponential-growth-of-data/">estimates indicate</a>. The phrase “data rich” has become common business parlance. In the financial inclusion sector, big data is revolutionizing credit underwriting, product development, client segmentation, financial capability-building, and more. But how is this revolution actually happening? For many banks, it’s through partnerships with fintechs. Ujjivan, one of the largest microfinance institutions in India, recently chartered as a small finance bank, had until recently a limited portfolio at the SME level, which was hindered by high operating costs. This changed thanks to a partnership with the Bangalore-based fintech Artoo.

This partnership is described in CFI’s new joint-report with the Institute of International Finance (IIF), <a href="http://bit.ly/2uWXvFQ"><em>How Financial Institutions and Fintechs Are Partnering for Inclusion: Lessons from the Frontlines</em></a>. We discovered dozens of partnerships between mainstream financial institutions and fintechs in emerging markets, and we detailed the workings of 14 of them. The partnership between Ujjivan and Artoo is just one example among many of how financial institutions are increasingly turning to fintechs to improve how they effectively collect, use, and manage data.
<h1><strong>The Value of Better Data Management</strong></h1>
Traditionally, banks collected a great deal of information on loan applicants, but much of it remained in paper form, in loan folders stacked high in offices. With the advent of core banking systems, banks spent a great deal of time transferring data from paper to computer. And once on the computer, much of the richness of the data has gone unused. Largely the data has not been leveraged effectively due to siloed digital infrastructure, inefficient legacy systems, and restrictive or uncertain regulatory requirements. More useful data management relies on the ability to efficiently obtain, store, retrieve, structure, clean, and analyze large bodies of data. This is a monumental task, and best practices and requirements are rapidly changing. Therefore, partnerships with fintechs to help improve data management across an organization can be of tremendous value, helping financial institutions lower costs, identify customer potential, reduce fraud, increase cross-selling opportunities, and expand their customer base.
<h1><strong>The Partnership Between Ujjivan and Artoo</strong></h1>
Beginning in 2012, the partnership with Artoo provides Ujjiva with a digital field application, which is a cloud-based platform that digitizes the entire credit process, including loan generation and underwriting so that field officers enter customer data directly into the system via phones or tablets. As part of this work, Artoo supports Ujjivan’s data management. The platform deepens Ujjivan’s ability to track sales and portfolio performance. Artoo allows agents to capture more data points and consequentially creates more quality data for the bank to use in credit decisions. Data is captured on the Artoo platform, but is still owned by the bank.

<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2017/09/ujjivan-and-artoo.jpg"><img class="wp-image-24076 aligncenter" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/09/ujjivan-and-artoo.jpg" alt="" width="620" height="560" /></a>

Artoo’s platform has led to a 40 percent decrease in loan-processing time and a 50 percent rise in the number of loans processed per agent. The boost in efficiency resulting from the partnership with Artoo has enabled Ujjivan to expand its SME customer base from 60,000 to 200,000 clients in three to four years, an increase of over 230 percent. Following a pilot where the companies split costs, Ujjivan now pays Artoo a subscription fee for the functions it uses.
<h1><strong>Regulatory Challenges for Data Management</strong></h1>
All the financial institutions we spoke with that were creating partnerships in this area faced regulatory challenges surrounding the movement and use of data. For Ujjivan, regulations required that all customer data be stored on servers in India. Artoo had to switch its system from Amazon Cloud Services, with servers housed in the U.S., to a local Microsoft-based cloud service provider.

Meanwhile, in the case of partnerships between banks and fintechs that provide alternative credit scoring capabilities, we saw regulation limiting the flow of data from the banking institution to the alternative risk modeler, and vice versa. This is indeed a point of much contention in many markets and creates some tension in partnerships. Banks seek to maintain control over customer financial data, fearing that fintechs that gain access to data will use it for their own business purposes.

<em>For more on bank-fintech partnerships, including other standout examples, read the report:</em> <a href="http://bit.ly/2uWXvFQ"><em>How Financial Institutions and Fintechs Are Partnering for Inclusion: Lessons from the Frontlines</em><em>.</em></a>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2017/07/31/how-financial-institutions-and-fintechs-are-partnering-for-inclusion-lessons-from-the-frontlines/">How Financial Institutions and Fintechs Are Partnering for Inclusion: Lessons from the Frontlines</a>

<a href="https://cfi-blog.org/2016/07/21/new-cfi-and-iif-report-reveals-banks-are-leading-financial-inclusion/">New CFI and IIF Report Reveals Banks Are Leading on Financial Inclusion</a>

<a href="https://cfi-blog.org/2017/08/23/juntos-harnesses-artificial-intelligence-to-improve-customer-engagement-for-bbva-bancomer-and-bancolombia/">Juntos Harnesses Artificial Intelligence to Improve Customer Engagement for BBVA Bancomer and Bancolombia</a>

How Artoo Helped Ujjivan Unlock the Power of Data

This report examines how partnerships between mainstream financial institutions (e.g., banks, insurers, and payment companies) and fintechs are addressing financial inclusion challenges and expanding access to the formal financial economy for underserved segments of the global population, particularly in emerging markets. It incorporates insights from 24 in-depth interviews with people at the frontlines of this innovation and highlights 14 partnerships focused on financial inclusion that we think exemplify best-case scenarios and good practice. Contrary to the popular narrative, financial institutions view fintechs as partners in innovation, not threats to their core business. By offering better, less expensive, and more innovative products, financial institutions can assert their continued relevance as customer-facing institutions with help from fintech partnerships.
<h2>Major Findings</h2>
Mainstream financial institutions partner with fintechs to improve product offerings, increase efficiency, and lower costs – goals with special relevance to low-income customers. By partnering with mainstream financial institutions, fintechs get to scale their technology and can access capital to grow. As a result of these partnerships, low-income customers who are left out of – or poorly served by – the financial sector have greater access to higher quality, more convenient, and less expensive financial products and services.

To facilitate productive fintech partnerships, mainstream financial institutions are organizing internally for innovation, strategically integrating systems and staff, and developing contractual agreements to ensure stability and success. Fintech partnerships enable legacy institutions to engage with and learn from new technology in low-risk, low-cost ways. They are also key to allowing incumbents to compete in a world where alternative players, like Facebook and Amazon, are threatening the central role of financial institutions in the lives of customers. By offering better, less expensive, and more innovative products, financial institutions can assert their continued relevance as customer-facing institution.

One encouraging and somewhat unexpected finding is that the partnerships between financial institutions and fintechs represent a slow but pervasive financial industry shift toward customer-centricity. Better data management and use, new digital banking products, and greater customer engagement all enable better service for underserved customer segments.
<h2>Who Should Read This Report</h2>
The primary audiences for this report are those in mainstream financial institutions who want to know how their contemporaries are engaging with innovators to pursue financial inclusion, and those in fintech companies who want to understand the way banks are likely to approach them. In addition, venture capital firms, multilaterals, and industry associations have much to learn from this research about what drives banks to partner, what gets in the way, and what comes next.
<h2>Acknowledgements</h2>
This report is part of a two-year initiative, <a href="/about/what-we-do/mainstreaming-financial-inclusion-best-practices/">Mainstreaming Financial Inclusion: Best Practices,</a> to help advance efforts of financial institutions to reach customers at the base of the economic pyramid. The initiative and this report were made possible with support from <a href="https://www.metlife.com/about/corporate-responsibility/metlife-foundation/index.html">MetLife Foundation</a>.

How Financial Institutions and Fintechs Are Partnering for Inclusion: Lessons from the Frontlines

<span class="wf_file"><span class="wf_file_text"><strong>Washington, D.C. (January 13, 2017)</strong> <span style="font-family: Arial">—</span> The Center for Financial Inclusion at Accion (CFI), the Institute of International Finance (IIF) and MetLife Foundation, together with the International Finance Corporation (IFC) as a technical partner, announced today a two-year initiative to help advance the financial services industry's ability to reach un</span></span><span class="wf_file"><span class="wf_file_text">served and underserved populations</span></span>

Center for Financial Inclusion at Accion, Institute of International Finance and MetLife Foundation Launch Project to Help Financial Industry Overcome Barriers to Financial Inclusion

Modelo Peru is a historic collaborative effort to establish an inclusive national digital payments platform<span style="font-size: 11pt;line-height: 115%;font-family: 'Calibri','sans-serif';color: #4a514d">—</span>Billetera Movil (Bim)<span style="font-size: 11pt;line-height: 115%;font-family: 'Calibri','sans-serif';color: #4a514d">—</span>the first of its kind in the world, launched in February 2016. Now that Bim has been operating for nearly a year, it is possible to examine the implementation challenges and potential solutions. In this Brief, we explore Bim's initial setup and subsequent implementation, its four main challenges, and what the road to success looks like for the financial institutions, government, telecommunications companies, payers and payees, all of whom have a stake in the success of Bim in Peru.

This report is co-authored by Pablo Anton, CFI and Tomas Conde, of the Institute of International Finance.

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Modelo Peru: CFI Brief

This study – produced in partnership with the Institute of International Finance - examines the underreported role of banks in driving financial inclusion. Of the 3.2 billion people in the world with financial transaction accounts, 97 percent hold an account at a financial institution. According to the World Bank’s Global Findex database, over 90 percent of the 721 million new accounts opened between 2011 and 2014 were opened at financial institutions—the vast majority banks, but also including credit unions, cooperatives, microfinance institutions, and postal banks. Banks are playing a leading role in providing and extending financial services to underserved populations. Thanks to advances in technology, banks are also increasingly designing viable business models to serve unbanked and underbanked populations, which Accenture has estimated as a $380 billion market opportunity.

<img style="margin-left: auto;margin-right: auto" src="storage/2_BanksLeadGlobalIncrease.png" alt="2 BanksLeadGlobalIncrease" width="540" height="375" />

To better understand the strategies enabling this growth, and to help banks, their partners, and the public sector work together to reach the next 2 billion, the Institute of International Finance (IIF) and the Center for Financial Inclusion at Accion (CFI) interviewed executives from 24 leading banks working in emerging markets to understand their business strategies, how technology and partnerships can enable inclusion, and where they see obstacles going forward.
<h2>Banks’ Top Opportunities in Financial Inclusion</h2>
<p style="margin-left: 30px"><strong><span style="color: #ea7600">1.</span></strong> Build on digital payments, including:
<span style="color: #ea7600"><strong>a.</strong></span> G2P - procurement, payroll, social transfers, pensions, etc.
<span style="color: #ea7600"><strong>b.</strong></span> Private sector - retailers, consumer goods companies, payroll, etc.
<span style="color: #ea7600"><strong>2.</strong></span> Start with the underbanked and use data to understand their needs.
<span style="color: #ea7600"><strong>3.</strong></span> Cross-sell the full range of products.
<span style="color: #ea7600"><strong>4.</strong></span> Address the usage gap by building financial capability.
<span style="color: #ea7600"><strong>5.</strong></span> Develop the ecosystem through bank-led partnerships, increasing customer convenience while sharing costs and risk.
<span style="color: #ea7600"><strong>6.</strong></span> Enable remote account opening using digital IDs, supported by proportional, tiered KYC requirements.
<span style="color: #ea7600"><strong>7.</strong></span> Align all systems to digital banking, benefiting banked, underbanked and unbanked customers.</p>

<h2>Banks’ Top Barriers to Financial Inclusion</h2>
<p style="margin-left: 30px"><span style="color: #ea7600"><strong>1.</strong></span> Lack of trust - in banks, in digital, in agents - leading to lack of uptake.
<span style="color: #ea7600"><strong>2.</strong></span> Lack of financial capability and digital literacy - leading to lack of usage.
<span style="color: #ea7600"><strong>3.</strong></span> Agent networks - building them, equipping them, ensuring their quality.
<span style="color: #ea7600"><strong>4.</strong></span> Data - privacy, security, cost, lack of capacity to analyze the data, lack of willingness for parties to share data, and regulations around these issues.
<span style="color: #ea7600"><strong>5.</strong></span> Regulatory issues, especially pricing, capacity, and KYC requirements.
<span style="color: #ea7600"><strong>6.</strong></span> Lack of coordination among government bodies.
<span style="color: #ea7600"><strong>7.</strong></span> Lack of connectivity/infrastructure.</p>

<h3><a class="wf_file" href="storage/documents/IIF_CFI_Report_FINAL.pdf"><span class="wf_file_text">Download the Publication here »</span></a></h3>
<h3><a class="wf_file" href="storage/documents/IIF2FCFI_Executive_Summary_1.pdf"><span class="wf_file_text">Download the Executive Summary here »</span></a></h3>
<h3><a class="wf_file" href="storage/documents/Fact_Sheet_for_IIF_paper_SHC_2.pdf"><span class="wf_file_text">Download the Fact Sheet here »</span></a>
<a class="wf_file" href="storage/documents/IIF2FCFI_Executive_Summary_1.pdf">
</a></h3>
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The Business of Financial Inclusion: Insights from Banks in Emerging Markets

Jacqueline Foelster

Amin Khairy

Pablo Anton-Diaz

Ethan Loufield

Tess Johnson

Dennis Ferenzy

Allyse McGrath

Sonja Kelly

Susy Cheston

Elisabeth Rhyne

India

Mexico

South Africa

East Asia and Pacific

Latin America and The Caribbean

South Asia

Sub-Saharan Africa

Peru

Agent Banking

Banks

Data Analytics

Delivery Channels

Financial Service Providers

Financial Technology

Fintechs

Partnerships

Rural Populations

Telcos

Underserved Groups

Digital Financial Services

Human Touch

Microfinance Institutions

Alternative Data

Financial Capability

Inclusive insurance

Insurance

Insurance Companies

Consumer Credit

Credit

Customer Centricity

Mobile Banking

Trends

Enabling Environment

Payments

Policy, Regulation and Government Initiatives

Financial Inclusion Strategy

Report

Blog Post

Press Release