Key takeaways:
- There's one PoS agent for every 80 Nigerians and one bank branch for every 27,000.
- According to the Nigerian Financial Service Market report, one of the leading reasons why people do not have a bank account in Nigeria is access to a financial institution.
- While agency banking or PoS agents could solve this problem, they still have the same problem as banks.
In the Nigerian Financial Service Market report, one of the leading reasons why people do not have a bank account in Nigeria is proximity to a financial institution.
Nigeria has a population of over 120 million people that are over 15 years old and a total of 4,437 commercial bank branches. This means one bank branch will serve over 27,000 people.
Although financial regulators have tried to promote digital finance systems to make up for the low number of physical bank branches, many financial institutions have not been successful at developing low-cost digital finance systems outside their core markets.
According to the National Financial Inclusion Strategy 2022 (PDF), adults with bank accounts in Nigeria increased from 33% to 45% between 2012 and 2020.
While this is progress, it is very slow. Agency banking or PoS agents could be a way to accelerate financial inclusion in Nigeria as it has more reach than commercial banks, — there's one PoS agent per every 80 Nigerian —however, it also has its issues.
Why PoS agents can't drive financial inclusion
When the CBN released the guidelines for agency banking in 2013, the goal was to improve financial inclusion in the country.
While one bank branch has to cater to 27,000 people, one PoS agent has to cater to only 80 people. This is because while we have only 4,437 bank branches in the country, there are 1.5 million PoS agents.
With figures like this, it is a no-brainer that PoS agents or agency banking should be the key to financial inclusion in Nigeria. However, these PoS agents have the same problem bank branches have — location.
Like banks, PoS agents are overwhelmingly presented in places where people already have bank accounts. 70% of people without bank accounts are located in rural areas while many PoS agents and banks are in the cities.
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Out of the 4,437, bank branches in Nigeria, about 30% are located in Lagos. For context, about 30 out of every 100 bank branches are located in Lagos.
Likewise, the top states for PoS agents are Lagos and Abuja. Lagos has 322,266 agents, 21% of the total agents in the country.
Why most PoS agents prefer cities
Profitability is one of the key reasons why PoS agents prefer cities. In the CBN's National Financial inclusion strategy of 2022, it noted that these agents have no incentive to set up shop in rural areas.
While PoS agents prefer to be in cities, there is still a good number of them in rural areas who can include people financially. This is because 75% of people who don't have bank accounts have used a PoS agent before.
So, why don't they have bank accounts?
PoS agents can provide financial services including deposits, withdrawals, bill payments and account opening, but they are known popularly to provide, cash-in and cash-out services alone. The Nigerian Financial Service Market report also points out that many who use these agents use them either to send or receive money.
This is why the CBN admits that one of the biggest barriers to financial inclusion is financial literacy. If PoS agents will help financial inclusion in Nigeria, there needs to be an incentive for them to set up shops in rural areas. Their users in these areas also need to know the agents offer more services beyond deposits and withdrawals.
