It seems that the world is convinced that one of the teachings that this COVID-19 crisis has brought us is the need to step-up the drive to digital in the provision of financial services. There is a new consensus that ditching face-to-face contacts – and brick-and-mortar locations, and replace them with digital interactions is the only way to go. Digital is more and more the best tool to promote social distancing.
How important is to by-pass agents in a post-COVID-19 digital push?
The drive to digital, the war against cash, the trendiness hype, the lower-cost idea; all the attributes line up, and COVID-19 presents us with a need-case scenario, almost tailored to perfection.
Let’s step back for a second…
Before we discuss the introductory statements, let’s think about the frontline in remittances: the brick and mortar agent. In almost every place on earth, in originating markets such as the US, Canada, Europe, Brazil, Chile, Costa Rica, the Middle East, Hong Kong, Malaysia, Japan, Korea, Singapore, the agents are the front line of the service. They command a substantial market share that is slowly coming down in favor of digital, is true. In destination markets, the agents have also, still, a commanding lead even if bank or mobile wallets remittance deposits are increasing. Whether the agents are directly taking or paying remittances, they are the cash-in, cash-out frontline. ATM or kiosks have not been able to strip from them a good chunk of the market.
The inconvenient middleman
Many experts, in public and private institutions, perceive agents as the middleman that increases the price to the public and must be eliminated, to draw the price down. As the World Bank pushes for reducing the cost of remittances to migrants, it has been easy to blame the agent. The share of the commissions that agents receive, and going direct to the consumer, eliminates the price increase. The travel agent’s rapid disappearance has been used as an example of the fate of the money transfer agent.
The biggest nay-sayers
Agents in the sending markets are now the biggest nay-sayers to digital remittances. Time and time again, day by day, they are in the frontline showing customers with simple math, that the use of digital and apps is not less costly that is taunted to be. They show their clients how the exchange rate fluctuates widely with online companies, and if you do not shop around, in the long run you lose out. The agents do their best to help their remittance customers with price comparison like the online comparison sites do, as they usually offer different company’s transfer services in their agencies.
Agents also seize in any problem a customer has with a digital company, spreading the word through their community of how Juan or Mohamed’s remittances were misplaced online; they explain how it took weeks for the issues to be resolved. The message is clear: we are here for you, and we fight for our client’s rights. I understand why some of my colleagues in online remittance providers think that those efforts by agents are futile, and you cannot fight “progress.”
A necessary evil?
Traditional MTOs have always looked at agents as the source of many of their problems. The agent-licensee relationship has never been comfortable. Issues such as loyalty, financial and compliance risk, banking relationships, technology maintenance, and training, have always strained this relationship. Traditional MTOs have had difficulty understanding that they are a B2B company and not a B2C. But, in the end, being a B2C company is what MTOs have always wanted to be, and the agent has been seen by many as a “necessary evil.” A glance at agent-licensee contracts gives you an insight into the feverish desire of the licensee to possess the end customer.
I see commercials in the US by pharmaceutical companies telling the end customer: “tell your doctor to prescribe this drug for you” as an example of the perception that the middleman, in the case, the doctor, might not be working on your favor. Maybe some of these companies are giving up on courting doctors, same as licensees have given up on courting the agents and caring for their needs.
Agents as small neighborhood businesses
Let’s think about agents as a small neighborhood business. In the sending markets, they are mostly owned by migrants themselves serving their own. As our colleague, Alberto Laureano, CEO of Barri in the US, told me: “Every cent that these agents make providing financial services, like money transfers, are invested in their local community.” An agent cannot live nowadays, offering only remittance services anymore; they must provide other services. Phone calls were a significant moneymaker, not anymore. Packaging services are increasingly helping agents survive in specific markets and for certain corridors. But is a more extensive array of services and products that are keeping those agents alive.
Maybe digital will take agents out of the way, and the cents these agents make will leave their local communities and go then to payment processors, foreign exchange brokers, in the payment’s food chain. And yes, this can be good in the long run for migrants, as many proclaim. Maybe digital can achieve financial inclusion in ways that other efforts have not succeeded.
A middle of the road disclaimer
Before I go deeper into the opinions that I am presenting here, I want to state that I do believe in all the attributes that digital in financial services bring and represent. In my life as a consultant, speaker, moderator, opinionated activist, and community builder, I have pushed traditional players to modernize. I have been an evident defender of fintech and the need to let fintech start-ups thrive. I have even been accused as too crypto-friendly in some circles. But I try as much as I can to have a 360-degree view and try not to be blinded by the light.
The question is: Can we help agents serve their clients remotely? Should we force them to choose to serve them face-to-face, or not exist?
Many agents have tried to serve the clients that cannot physically go to their store in many creative ways. And time and time again, those creative ways have been stopped by policies or by regulation. Or by becoming too expensive or too risky. Agents use to tell their clients to deposit funds in the agent’s bank account and call them or text them with the remittance information. As agents know the clients well, the risk, from the agent’s perspective, was minimal. Bank accounts were then closed, or cash deposits were banned. Remittances door-to-door pick-up and debit cards have been used too, with mixed results. Zelle, the payment tool that US banks are using, is a new tool for agents. All of these tools reappeared in force through the COVID-19 crisis.
In the survey presented in the link at the end of the blog I want to hear your opinions on this question!
Let’s go back to the same question, with a twist: Can we bring agents into the digital world and leverage their community ties and the trust their clients have in their advice? How can we do that in a controlled, risk-avoidance way?
As I asked this question around to my colleagues, I was surprised to hear how some traditional MTOs are coming up with exciting proposals to their agents. Not many, but there are some. Some licensees, to incentivize agents, have been working with them to convert their end customers to digital, not stealing their clients or text them messages to forget the agent and download their app. For that to happen, agents are offered cash incentives. I am actively helping some traditional MTOs in the use of white label solutions for their agents, to keep their clients but continue serving them through their online portals and apps. Agent owners, with more extensive networks (10-30 stores that they own or manage), are slowly ditching their traditional MTOs and jumping into the white-label digital wagon, by going directly to licensed fintechs, which are aggressively serving them.
In the survey presented in the link at the end of the blog I want to hear your opinions on this question!
For me, this is good news. Just think about M-Pesa or the work the GSMA has done in Africa. Without the agent network, without the work M-Pesa did to get the agents on their side, very little could have been accomplished. Some might say, as I was told in an IMTC Roundtable, that I cannot equate M-Pesa agents to the realities of North America, Europe or Middle East Money Transfer agents. But I insist that working with agents and managing their needs will be a win-win scenario for those companies that have a vision for the future that might not need to be always black-and-white or too driven by an either-or split. Shades of grey might be an interesting middle of the road scenario.
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