Agency Banking in Nigeria -  the Fintech Play

Agency banking in Nigeria is a system where banks and licensed financial institutions appoint individuals as agents to provide basic financial services, such as deposits, withdrawals, transfers, bill payments, and account opening, directly within their communities. Instead of visiting a traditional branch, customers can interact with a “human bank” in their neighbourhood to deposit money, withdraw cash, pay bills, or transfer funds. For example, in a community without a traditional bank, a customer without access to online banking services can walk to a human bank to deposit physical cash. The human bank securely holds the cash and processes a transfer of the equivalent amount to the bank account of the depositor. In such cases, the “human bank” will typically charge a commission for the transfer. In urban areas, agency banking addresses practical cash needs. For instance, a customer may need cash because a vendor only accepts cash or because a vendor’s digital payment infrastructure is unreliable. The human bank typically keeps cash on hand to facilitate these transactions and would often be strategically located within cash-heavy verticals, in say, open markets, churches, events and shopping centres. The human bank charges a commission for its services and shares the commission with its principal. 

Although corporate entities can also serve as banking agents, agency banking, by design, is fundamentally human-driven. Under the new Agency Banking Guidelines in Nigeria, only corporate entities that already operate business outlets can carry on corporate agency business, such as a shop providing banking services alongside its regular business.

It's important to note that a typical fintech license does not permit direct provision of banking services. Thus, to operate in this space, a fintech must either obtain a license as a financial institution, usually a deposit-taking bank or function as a super-agent under an existing bank.

Revenue Models for Fintechs in Agency Banking

Fintechs aiming to operate in Nigeria’s agency banking space typically obtain a microfinance banking license, though even fintechs without a banking license can participate as super-agents for a principal bank. For fintechs licensed as principal banks, the primary source of revenue comes from commission sharing with their agents or super-agents. Each time an agent completes a transaction, whether a cash withdrawal, deposit, funds transfer, airtime purchase, or utility payment, the customer pays a commission, which is shared by the agent and the fintech. Fintech entities that do not hold a banking or deposit-taking licence earn similarly by sharing in the commissions paid by their principal banks.

Beyond commissions, fintechs with deposit-taking licenses do often generate income through point-of-sale terminals. They may charge fees for terminal rentals or resale, or collect upfront fees when providing devices, and levy charges for device replacements or repairs. Another source of revenue comes from the float or wallet balances that agents maintain to facilitate digital transactions. Deposit-taking fintechs can earn interest on pooled float kept with them as well. Naturally, the more active the agents and the larger their float, the greater the potential revenue for fintechs. Additional revenue opportunities arise from merchant onboarding and value-added services. Fintechs can bring merchants onto their platform to accept payments, and offer services that support agents, such as loans, insurance, or cash logistics.

This publication is based on the authors' independent analysis, observations, and experience advising clients on regulatory and compliance matters. It is provided solely for informational purposes. The views expressed herein do not constitute legal advice or an official recommendation, nor do they represent the position of any institution or client. Readers should seek specific professional advice before relying on any part of this publication.