FirstMonie: Our DNA Gives Us Advantage in Agent Banking – FirstBank
#Firstmonie: First Bank of Nigeria has said that its revenue from agent banking accounted expanded significantly in the first half of 2020, accounted for 29% of the group e-business turnover.
At the first half result earnings conference call with analysts, the management said FBN’s history, DNA gives the lender advantage in the agent banking segment more than its peers.
Urum Kalu Eke, the Group Managing Director said agent banking is a major contributor to the lender’s non-interest income at the period. Eke said: “Our agent banking network increased by over 100% year-on-year. So we ended June with 59,000 agents.
“In terms of value of transactions processed, we are glad to report that we were able to achieve about ₦5.71 trillion in value terms compared to ₦1.61 trillion for a prior period in 2019”. The GMD explained to analysts that the group was able to grow that count and value by over 250% just in a year.
Speaking further, Eke said: “We are monetizing the agents banking proposition and its revenue contribution to the total e-business income continues to grow”.
He added that the growth in the volume and value across the e-channels continues to offset the reduction in regulated fees, which has allowed the group to keep the revenues on that line flat year on year.
Patrick Iyamabo, FBN Chief Finance Officer (CFO), while reacting to analysts enquiry on agent banking cost and revenue model said FBN’s history, DNA gives the lender advantage in the agent banking segment more than its peers.
With some 59,000 agents across the country, the CFO said: “Indeed, among most of our peers, you’re not going to find many banks that are willing to make that infrastructure investment in terms of having business outposts in those locations where FBN has built presence”.
Iyamabo said the agent banking model is a fee share arrangement which means a customer gets charged a fee, and the agent gets a portion and the bank gets the balance.
“Agent banking, Firstmonie, contributes about 29% to the group e-business revenue from next to 0, less than 3 years ago.
“I mean we’re excited about it. For us, it’s a low-cost way of growing our branch network and very importantly leverages on distinctive competencies we have to achieve that growth.
“We believe that the advantage is indeed sustainable”, Iyamabo stated.
In its unaudited result for the first half, FBN firstmonie agent banking outposts expanded to about 60,000, contributed significantly to the lender’s non-interest income.
Iyamabo said technically, FBN earns fees on per transaction basis. The greater the transaction volume, the better the fees earned. In terms of risk, FBN CFO said the lender does not have credit products right there. The risk depends on the products that are on the channels.
So, he said agent banking is non-capital consuming and income sources coming through our agent network. Explaining the model to analysts, he said to operate, an agent gets a point of sales (POS) machine, and they also get collateral support from the bank.
He said from a cost perspective, it’s really that POS machine, which is really where through which the transactions are done as well as the collateral support. FBN CFO stated that the other cost element is really the software on which it rides and the IT infrastructure.
“But then again, the infrastructure itself is scalable. So, over a certain threshold, the marginal costs actually keep dropping as you increase your volume”, Iyamabo said.
Iyamabo said the revenue model is scalable, and it grows with business volume.
“The cost model is actually much less scalable because you have a fixed cost component and you continue to drop your marginal cost to sell”, he explained. Speaking further, he said the POS don’t drive FBN’s cost.
“I mean, a POS is, what, 70,000, 90,000, 100,000. So that’s it in total. So which is why our agent banking business has been very interesting. We’ve scaled the business, not only have we seen business deposits grow, but we’ve also earned income. We are able to monetize the income and the deposits”, FBN’s CFO said.
“Now why have we been successful this far and why do we believe that this success is sustainable? First of all, we are a retail bank. We’ve got corporates, commercial, but we understand we’ve got wide distribution.
“We’ve got all these customers, more than any bank in the country. We have the greatest penetration where you have the underserved. So we understand that business plan better than most of our peers”, Iyamabo explained to analysts.
He said: “Indeed, among most of our peers, you’re not going to find many banks that are willing to make that infrastructure investment in terms of having business outposts in those locations today.
“So yes, our history, our DNA gives us that advantage out there”.
He added that to do agent banking successfully and has a strong relationship with the economics, a bank needs to be able to service those agents.
“And so what does that mean? We are going to have cash management requirements. They build cash. They need a bank to put the cash in.
“They need someone that will engage them. So one needs to be speaking with them to identifying the agents that are not the most productive and working with them to improve productivity”, the CFO explained.
He stated that to do that, an operator would need a home for all these agents.
“We have about 59,000 agents right now, and home for those agents’ means you must have outposts in those locations.
“There isn’t any other bank in the country that has outposts in that manner, which is why we, more than most of our peers, have been very successful with the agents because we’re in the position to manage those agents for productivity and for service”, the CFO said.
Explaining the cost of doing that, Iyamabo said it’s really one person from a hub branch who hops around to manage a couple of agents. So again, the contribution to the cost is limited. That cost element is highly scalable.
In total, FBN said it has a business model that is very scalable from a cost perspective. So, it helps drop lender’s marginal cost to serve. He said FBN also have a business model that is very scalable from the revenue perspective because it is riding off the infrastructure.
“As we grew business momentum, we can actually grow revenue. The bulk of what we’re adding to that is really non-capital consuming right now. From a product introduction perspective, we still have lots of opportunities to introduce products and that can be used to customize that, utilize that channel”, he stated. Read Also: FBNH: We Want To Regain Our Leadership in Banking Sector – GMD
FirstMonie: Our DNA Gives Us Advantage in Agent Banking – FirstBank