Risks of Mobile Payment and Agency Banking

Nigeria is  experiencing  phenomenal growth in its banking and e-banking sectors with new policies and regulations that is driving cashlite, branchless Banking and agency banking services for existing and  new customer segments in urban and rural communities.
 
The financial institutions and other players in the financial sector are continually expanding the products and services they offer while constantly searching for new, easy and secure ways of enabling their customers to access and operate the various products and services they offer.

Regulatory changes in recent years is changing the way banking services is provisioned to  unbanked, under banked in rural and urban communities with limited  options for formal Banking services.
 
Mobile Payment is improving access to these groups, cost effectively through the use of Agents in cities, towns and rural communities.

The Central Banks around Africa are also actively licensing banks and other non prudentially managed organizations to deploy mobile financial services  for basic banking services, payment, money transfers and other financial services using the third party agency network.
 
The benefits of agents as financial services intermediaries have proven to be successful in some countries like Philippines and Brazil. More than 18 percent of Banking activities and transactions are conducted at agent locations in Brazil alone with more than 140,000 active agency outlets in operation, making it the most extensive use of agents anywhere in the world.

The successes in Uganda and Kenya are also worthy of mentioned and both are directly linked to the availability of a well connected agency network of the mobile money providers in both countries.

Who are Agents?
Potential agents are either registered entities or non-registered with on going primary business with intentions to provide mobile money as an add-on service in addition to existing primary business?

It is desirable for agents to have primary on-going business to enable them  manage liquidity, reduce rebalancing trips to the nearest bank branch, manage cash at hand and also reduce cost in the early days of low value adoption of mobile financial services.
The scheme operator partner decides the type of services it wants the banking correspondent to offer to the public in accordance with its strategic plan.

The Agent will meet the following benchmarks - ubiquity: available in prime locations and easy access, trustworthiness: trust in non repudiation of the service,  low-cost: low cost set up structures with minimal barrier to entry, liquidity: cash in / cash out requirements that are within the affordability range for the targeted store owners.

Providing basic financial services at the agents for customers of the scheme provider could take many forms.

Bill payments, utilities payment, domestic money transfer, merchant services, low value deposits and withdrawals are some of the basic services available at the agent outlets.

Agents are weakest link in the mobilemoney ecosystem since the scheme provider may not be able to ensure certainty at all times at the outlets and also ensure guaranteed minimum service levels at the outlets. These agents whom are  service providers or shop owners are also faced with potential frauds which could be by omission or commission.

Evidence has shown that  fraud attempts in the early days of mobile money deployments are mostly targeted at agents that may not be well versed in the operations of the service or agents that connived with intentions to defraud the scheme provider.

Evaluating the Risks
Technology and application compromises could present a significant risk for  agents if they are not well educated and trained on some processes like PIN management, due diligence or  record keeping. MobileMoney and Agency Banking are services unlike airtime vending which is a product.

Liquidity risks which will be significant as Agent network grow slowly and confidence level improves over time.
If mobile money recipient cannot consistently cash out at agent outlet at their own locality, the more they are the weary and discouraged to use the mobile channel.

 Providing multiple cash out points like ATM, Cards, transfer to account, token generation and other innovations will address this challenge.

An efficient cash forecasting , management  processes and support for the agents will address this issue and reduce it to barest minimum. The agent risk could take may forms from outright robbery, theft, poor product knowledge, application failures or even poor customer due diligence processes.

In some countries, providers made great haste to launch out to achieve coverage very quickly and paid little or no attention to Agent training which later impacted future operations.

Mobile oney is a service and requires lots of education. Regulators are helping the ecosystem’s long term sustainability and growth by standardized training procedure that is enforced across providers, agent licensing and certification is encouraged by the regulator to providers.

Security
Potential agents during training or sign up activities are always skeptical about physical and logical security as a mobile payment agent. Incidences of robbery and mugging of agents are still unheard in Nigeria but agents are already reporting systematic attempts to defraud   through fake transaction message notifications, subscriber enrollment via stolen ID, unauthorized PIN reset conducted at agent  outlets.
John, newly signed up as an agent with one of the recently licensed mobile financial services provider, His major concern was His physical security and He made some decent efforts to put in place some anti burglary systems. He was recently  defrauded  of  N5,000 ($30) when some dubious persons posing as the channel manager of the mobile money firm accessed his device at his location and changed transaction destination number on his phone to another number which they used to reply messages to confirm  cash out transactions after they had left his outlet.

Fake Currencies
Fraudsters are quickly building their game plan and strategies to engage the agents.

Agents are primarily store owners, mom and pop stores, convenience outlets and some other organized retail outlets.

However, some unemployed youths and semi skilled workers are signing up to become agents in Nigeria without the required understanding of cash management and handling prior to their engagements as agents.

By omission or commission, incidences of agent cash- in currencies having some fake notes are on the rise in the semi urban areas.

During a recent field trip, some agents were interviewed in Badagry area of Lagos state and two out of ten confirmed that they had received fake notes at least once within the first one month of operation while one of them confirmed that He passed the fake note off to another cashing -out customer.

Agency Sustainability
If agents are not earning revenues in the early days of low volume due to low adoption, they tend to abandon the agency outlet and focus on other activities.

The challenge of agency sustainability in Nigeria is still unfolding and most agents that are faced with the sustainability issues are agents that do not presently have primary business and most probably hired new office spaces and mobile money is the only service that is provided at such outlets instead of providing mobile money as one of the services alongside the primary business.
 
Compensating Losses
There are three parties to  the mobile money transaction though not in all cases - The scheme provider, agent  and the customer.

Agents are supposed to be covered by the provider’s insurance plan covering cash in transit, fraud, fire and robbery with coverage up to N100,000 as contained in the regulatory framework but it is still  unclear how customers can recover losses in extreme case of business closure especially if the scheme provider is a non-prudentially managed entity.

Few scenarios where agents had made claims for losses (which cannot be independently confirmed) experiences has shown that agents are usually left to recover losses without adequate support from the scheme provider.

The agent that received the fake currencies during our field visit in Lagos, expressed her regrets that the mobile money provider could not explain to Her in clear teams who bears the losses.

Judging from most stakeholders concerns in the mobilemoney ecosystem, fraud seems to be first on their checklist.

From a Bank’s point of view, dealing with agents can be a nightmare.

Innovative practices that the regulator  can put in place to address the fraud concerns should include  a centrally located fraud alert systems where all providers, agent and customers can log fraud issues in a timely manner so that patterns can be established with a view to curbing or reducing future occurrences and also using the outcomes in continuous training of Agents