Friday, February 8, 2013

Agent Banking in China: The Thousand Mile Journey has Begun

Chinese philosopher Laozi is quoted as saying that a thousand mile journey begins with a single step. I thought of that proverb when I recently had the opportunity to visit the far north east of China to investigate opportunities for agent and mobile banking in rural communities. As I outlined in my previous blog on the opportunity for mobile money in China, there have been positive developments from a regulatory perspective recently. The People’s Bank of China is supporting a pilot this year to allow agent banking in some provinces with an aim to develop financial services down to the village level.  This is very exciting, as although China has banking penetration of 64%, access to finance through branches, ATMs and other channels is another matter. 

Village Life in Rural China in Winter
I had an interesting insight when I visited a village in China this week. By all accounts, China has nearly 1 million villages, and from what I understand, it is unusual for a village to have a bank branch or ATM (although I would love to see research on the distribution of branches at the village level in China). This presents significant challenges to the residents, who will often have to travel many kilometers to reach a branch. Despite the fact that the cash economy prevails, this barrier of access still presents issues, as rural residents will often receive pensions or subsidies that will be paid into a bank account. In addition, many villagers will spend much of the year working in larger cities and industrial areas, so domestic remittances are common. Accessing these payments when you live 30 kilometers from the nearest branch, you don’t own a vehicle and it is minus 30 degrees presents significant challenges!

Typical Grocery Store in a Chinese Village
A merchant I spoke to was overcoming these challenges in a fascinating way. He runs a small grocery store in a village of a couple of thousand people, and his customers shared their frustrations on not being able to deposit or withdraw cash from their bank accounts without visiting the nearest town some distance away. His solution was simple and effective. He has set up an Internet banking account with a PC and modem, and now does electronic transfer of cash from his account to the recipient for a small fee. He also allows withdrawals when the sender has transferred to his bank account. He sets transaction limits so he can manage his own liquidity and he keeps a log book to track transactions. He has also branched into prepaid airtime direct from his bank account where he tops up the customer’s phone from his balance and receives a small cash commission. In essence, he is a banking agent, albeit on an informal basis.

I am always amazed at the ingenuity shown by customers and agents in emerging markets. This example demonstrated to me that firstly, there is absolutely an unfulfilled need for agent banking in China, and that secondly smart merchants will realize this need and will embrace formal agent banking solutions as they develop. I have said previously that I believe China and other markets in Asia like Bangladesh and Pakistan will eclipse anything happening in mobile money in Africa once the programs gather momentum and the regulatory environment is established. China is on the cusp of an exciting time in financial inclusion. 

- Brad Jones 


  1. Great blog, Brad. I love hearing stories of how innovators step in to fill the gaps that the big players don't provide. The idea that there is one person in a village who has a bank account and uses it to become an informal agent shows that there is a demand for agency services, and it could be easy for banks to tap into that demand if the right regulatory environment is in place.
    It's also interesting to see how these services develop in a market where the banks are highly functional for banked customers. There is a much greater value to providing access to a banked account in a country that has inter-bank switching, internet banking, relatively widespread ATMs and POS machines and large streams of formal payments than in an underdeveloped country where many banks are still antiquated and manual. A mobile wallet might be sufficient for most users in Kenya or Bangladesh, but I think a branchless banking service is more likely to win in Indonesia or China due to the more developed banking sectors.

  2. I agree completely Mike. The solutions in China and Indonesia need to leverage existing infrastructure as much as possible. Mobile may not even be part of the solution. Computers, tablets, POS at the agent, and card for the customer may well fill the needs of the consumer for banking access.

  3. Even if anecdot6al in its evidence, it does go to show that there are great access to finance issues in a county that features a large % of so called banked, purely arising out of G@P payments into a bank account. It also brings us back to the question: is someone who receives money into an account actually banked? Does the distinction between unbanked and underbanked make any sense?

  4. I agree Margarete. What use is a bank account if you can't actually use it? There are millions of savings accounts in emerging markets I am sure that lay dormant, but enable us to tick off 'financially included' as a metric. And as you say, if you add those accounts which are just temporary receptacles for salaries or government payments, the number of unbanked is even higher.

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  6. Amazing story Brad. I believe same situation also in Indonesia mostly in remote villages in big islands like Sumatra, Borneo or Papua.
    We see great potential market for m-money/branchless banking service with agents in Indonesia. But as you know regulation is slow in responding this.

  7. Very useful information.
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