4 lessons from a global scan
Rural-dominated markets, particularly across Africa, face significant challenges in finding a growth pathway for digital financial services. Zambia is one such market and with a population of 16 million, 60% of Zambians live in rural areas. Yet despite high penetration of financial inclusion (60%), active use of DFS in Zambia lags at 35% 90-day usage.
A number of barriers have contributed to the slow evolution of DFS in Zambia including demand-side, supply-side, and ecosystem constraints (see Helix ANA, 2016). AgriFin Accelerate (AFA) Zambia and UNCDF MM4P Zambia combined to address these barriers in a workshop in Lusaka in April 2017, focusing principally on supply-side constraints. These lessons and insights are synthesized into a technical deck, Tackling the Rural Agent Network Challenge: 10 Cases & Learnings by Leesa Shrader and Christabell Makokha.
Commercial agent growth models have addressed these challenges in a number of ways, but principally through high-touch agent management strategies via super- or master-agents. Interestingly, a number of these models started as exclusive agent engagements but with regulatory changes and anti-competition compliance, each has adopted non-exclusive arrangements.
A global scan of rural agent growth strategies by Dalberg Global Development Advisors identified four principal supply-side constraints, and offered strategies to address them.
1. Insufficient Rural Agent Network: Limited commercially viable distribution channels with sufficient touch points particularly for rural populations
2. Poor Agent Support: Limited financial support to agents and merchants particularly with on-going liquidity management
3. Insufficient Agent Incentives and Profitability: Few incentives for agents to expand in rural areas and low profitability for rural agents within the current commission structure
4. Lack of Consumer Demand for DFS Products: The “wallet for what” problem whereby limited aggregation of products in order to maintain relevance and meet customers’ needs
For instance, Safaricom in Kenya runs its 100,000-plus agent network through a third-party agent network, but legislation required Safaricom to share their network. Other networks like Selcom Tanzania, EZeeMoney, and Yo! Payments in Uganda all moved to a shared model more for competitive reasons as well as regulatory compliance. Non-exclusive rural agent strategies may also rely on seasonal and/or bulk payment transfers to achieve market viability, such as EcoCash in Zimbabwe, Yo!, and Cellulant in Nigeria. Finally, rural agent networks such as Tigo Rwanda, Ruma in Indonesia, and BIM in Peru all use innovative client acquisition and management strategies such as roving agents to reach rural markets.
So what makes a good master agent?
Experience from across rural agent models demonstrates that a good master agent fosters a trusted relationship in the community, maintains cash liquidity, stays focused on the core business of DFS, and makes agent and client acquisition easy. What matters is the stature of the master agent in the community, a factor that Safaricom focused on explicitly in recruiting and maintaining its master agents. Some of the best rural master agents are supermarkets and petrol stations which broadly meet these criteria, but with size comes certain challenges. A large master agent might not have the same incentives to invest or actively manage the agent network on behalf of the DFS provider. Likewise, strong master agents might demand higher commissions, eating into DFS provider profits or erode consumer demand.
Success in rural markets goes beyond the distribution channel. Support for liquidity is a major factor in agent network success. Examples of rural liquidity management come from rural banking partners as well as retailers with high cash turnover. EcoCash, for instance, acquired a bank to provide working capital loans among its agent networks, while EZeeMoney in Uganda uses roving master agents working with the Rural Development Bank to rebalance agents. EcoCash also uses the Post Office as a master agent, while Yo! Payments opted for a 3rd party liquidity management firm to manage their float in Uganda.
Supply-side strategies must also contend with low agent profitability, offering little incentive for DFS services to penetrate rural areas. Current commission structures make the business proposition marginal in low demand rural areas.
Agents in Zambia make on average $72 per month in commissions. However, earnings have been stagnant as mobile money users and the volume of transactions has increased, so has the number of agents (see Helix ANA, 2016). Tigo addressed this issue by selecting small dedicated retail businesses as super agents. Smaller agent networks tend to re-invest profits for agent liquidity. Other facilitators include the use of e-floats which TigoCash provides. Innovative commission structures also include bonuses for new agent acquisition, weighted incentives for rural agents, and incentive-based quotas for rural customers.
Master agents working within third-party distribution networks or within established brands have access to an existing customer base, easing the barriers to entry. EzeeMoney successfully established an airtime distribution network using Coca Cola retail agents. They also utilized paid “brand ambassadors” to sensitize local communities about its DFS products/ services. One major concern across both urban and rural agents is that of security. Safaricom has addressed this issue by subsidizing security bars for agents in high-crime areas. Other innovations in the works include CCTV security cameras and theft/fire insurance for agents.
The question of relevance to the rural customer is a persistent challenge in rural market development. The use of demand feasibility studies in rural areas can help target market segments and offer incentives to DFS product uptake.
TigoCash has used customer transaction data from urban to rural p2p remittances to gauge demand for agent services in those areas. The diversification of products and services targeting rural users benefits both the agent and consumer. Selcom combined prepaid cards and airtime sales in Tanzania and has targeted DFS for pay-as-you-go solar power in rural areas. Tigo Cash provides cash in and cash out and mobile loans and savings to customers in urban and peri-urban areas in Rwanda. EzeeMoneyin Uganda offers bank deposits and data services, which is attractive to both prospective consumers as well as to banks and other rural agent networks. Marketing and branding materials are generally provided to agents, but the use of radio, television, and billboard advertising is also commonplace. Bulk payment services are an important demand driver in heavily agriculture commodity trading areas. For specific agricultural value chains, DFS providers can partner with specific buyers or input suppliers to incentivize trade. For instance, Yo! Payments in Uganda provides bulk payment services for coffee farmers. EcoCash partners with the Cotton Ginners Association of Zimbabwe (Cottco) to provide bulk payments to farmers using roving agents and increase revenue sources for agents. Another high demand DFS function for rural populations is domestic and international remittances.
Other successful demand stimulation activities for rural networks include airtime sales and short-term airtime credit. Safaricom has gone a step further to provide short-term airtime credit (I.e., Okoa Jahazi tariff) based on users’ airtime usage data and potential to repay. Amounts can be as low as US$ 0.10 and as high as US$1.00. This activity is a major profit driver for Safaricom.
Mobile savings products, micro-insurance, bill payment, and mobile credit products have emerged as major drivers of DFS uptake and ‘stickiness’. EcoCash provides a popular funeral micro-insurance coverage in Zimbabwe called EcoSure. In fact, the coverage is highly adapted to the Zimbabwean context where the entire family can be covered under one policy called Thwala Sonke, including parents, in-laws, and traditionally adopted children.
Tigo Cash Rwanda has enjoyed massive success with its mobile money savings product called Tigo Sugira that targets rural populations. Sugira is a product partnership with an MFI bank attracting competitive interest rates and is currently driving stickiness for Tigo Cash. Safaricom uses the hugely popular M-Shwari instant loan as well as a commitment savings accounts to drive rural consumer savings and use of DFS.
P2G bill payments for PAYG water/sanitation and solar have been a driver of DFS in rural areas. EZeeMoney took advantage of this trend in Uganda for rural water projects and enabled EZeeMoney to compete despite tight competition from other providers.
The global scan and key lessons highlight some of the common challenges of DFS maturation writ large, but in rural Africa more specifically. The challenges of establishing a rural distribution network, as well as incentivizing both agent and client are daunting. Still, a number of promising approaches and models emerge from the global scan which can inform present and future market engagement. The upshot of it all, if there is just one, is that near monopoly-like market settings may have provided the opportunity for massive agent network development, but changes in the market structure and regulatory environment have forced these actors to diversify their approach to rural agent network development and support. At the same time, the needs of the rural consumer are better known and products are emerging to support the rural segment. Still, there’s a long way to go for the rural DFS consumers’ needs to be fully addressed.
Andrew Karlyn, Strategy & Insights Lead, AgriFin Accelerate