Agency banking and ATMs in Africa: Complementary channels or competitive substitutes?

By Ebenezer YALLEY

The proliferation of agency banking as a convenient form of banking has been widely touted as a major financial inclusion tool tailored toward integrating the financially excluded population into the formal financial system.

The model is characterized by the opening and activation of digital accounts and wallets with relatively low Know Your Customer (KYC) requirements, typically targeting the lower end of the retail customer segment.

In Africa, the rise of mobile money driven significantly by mobile money or electronic money issuer platforms has heralded the birth and rapid expansion of agency banking.

This development has become a major driver in mobilizing low-value, high-volume deposits for banks. Agency banking extends financial services beyond traditional brick-and-mortar branches and provides a cost-efficient means of reaching the underbanked and unbanked populations.

Among the services offered by agency banking is the cash-out feature, which operates alongside a long-established digital banking channel: the Automated Teller Machine (ATM). ATMs provide a convenient digital infrastructure for cash withdrawals and have, without doubt, become a dominant digital banking channel for many years prior to the emergence of agency banking.

While modern ATMs now offer value-added services such as cash deposit acceptance and bill payment vending, their primary selling proposition in most African markets remains the provision of cash-out services. This enables customers to access funds in their bank accounts without visiting bank branches, particularly through remote or off-site ATMs.

Agency banking, through its own cash-out offering, presents a potential alternative to ATM withdrawals. However, the operational characteristics of the two channels differ significantly. ATMs typically operate 24/7, independent of banking hours, whereas agency banking services are usually constrained by the operating hours of agents.

It is therefore important to juxtapose the functions of both channels and assess whether they are complementary or competitive in the delivery of financial services. A critical issue is whether the rise of agency banking services will eventually lead to a decline in ATM usage, given that agency banking offers a human-touch service in remote areas where ATMs are often absent due to high installation and maintenance costs.

The deployment of an ATM is typically preceded by a cost-benefit analysis that considers projected footfall and transaction intensity. Although this analysis is conducted using scientific and data-driven methodologies, it remains based on assumptions about future usage patterns.

The inherent risk in such assumptions is the difficulty in accurately predicting transaction volumes, which may not translate into the anticipated transaction intensity required to justify the investment.

Given the high capital expenditure involved in ATM deployment including rental of space, procurement of hardware, security arrangements, and cash logistics the return on investment is often marginal or breakeven. As such, ATMs may be regarded as a strategic necessity for customer convenience and brand presence rather than a significant revenue-generating asset.

Nevertheless, ATMs remain a robust digital banking channel. Provided there is minimal system downtime, they offer reliable financial transactions over extended hours and have consequently become a mainstay of banking infrastructure.

However, ATM coverage is inherently limited by infrastructure costs. As a result, it cannot effectively serve as a comprehensive retail expansion strategy, particularly in low-density or rural areas. This is precisely the void that agency banking fills.

As a branchless banking initiative, agency banking is not constrained by the same infrastructure limitations and can extend services into the remotest communities.

A defining distinction between the two channels lies in human interaction. Agency banking relies fundamentally on human intermediaries to deliver services, whereas ATM usage is entirely self-service.

Research in financial services consistently demonstrates that human interaction remains an important factor in building trust and driving adoption, particularly among first-time users of formal financial services. Agency banking therefore leverages the importance of human touch in financial service delivery.

That said, agency banking also requires investment. Its delivery model necessitates both a digital platform (usually an application-based system) and a network of human agents. Although the capital investment differs significantly from ATM infrastructure, it still requires strategic investment in technology, training, supervision, and liquidity management.

The major differentiator, however, remains coverage. Whereas ATMs are limited by physical infrastructure and capital costs, agency banking offers wide geographical coverage and can penetrate underserved and remote markets at relatively lower cost.

The critical question remains: will the adoption of agency banking cash-out services completely erode ATM cash-out services?

Customer preference provides insight into this issue. ATM cash-out services for “on-us” transactions are generally free of charge, whereas cash-out services via agent networks typically attract a fee.

The rationale for agent banking charges similar to mobile money models is that services are delivered through human intermediaries who are compensated through commissions. Agents often bear certain operational costs, and fees serve as remuneration for their role in representing financial institutions.

For price-sensitive customers, this fee structure may limit adoption of agent banking services despite their convenience and proximity. Thus, pricing is a significant determinant in channel preference.

However, pricing is not the only factor influencing adoption. Platform stability is equally critical. The reliability of agency banking platforms both online and offline directly affects customer confidence and usage levels. Frequent system downtime, transaction failures, or agent liquidity shortages can significantly undermine trust in the channel. In contrast, ATMs, though susceptible to technical faults, often benefit from more centralized infrastructure control and standardized operational management.

Ultimately, the debate centers on whether agency banking and ATMs are substitutes or complementary channels. The concept of parallel deployment has strong appeal to executive management within banks. Both channels serve distinct customer segments and operational contexts. ATMs offer round-the-clock self-service convenience, while agency banking provides geographic reach and human engagement.

Over time, empirical data on transaction volumes, cost efficiency, customer behavior, and profitability will determine the optimal balance between the two channels. The rise of agency banking represents a low-cost branch expansion model, but it does not automatically negate the structural advantages of ATMs.

Agency banking and ATMs are best understood not as outright rivals but as strategically complementary components of a bank’s distribution architecture. Agency banking enhances financial inclusion through geographic expansion and human-centered service delivery, particularly in underserved communities. ATMs, on the other hand, provide standardized, round-the-clock access to cash and remain highly attractive to price-sensitive and urban customers.

While agency banking may reduce the need for ATM deployment in low-traffic or rural locations, it is unlikely to completely replace ATMs in the foreseeable future. Instead, the future of retail banking in Africa will likely be defined by an integrated, data-driven approach in which both channels coexist, each optimized for its comparative advantage.

Only time and sustained operational performance will ultimately determine whether agency banking matures into a dominant cash-out channel or continues to function as a complementary extension of traditional ATM infrastructure.

>>>The author is a Digital Financial Services, Fintech, and Payments expert with hands-on experience in drafting Agency Banking and Electronic Money Issuer (EMI) policies and deploying agency banking modules across two African markets. He is the Founder of the Center for Inclusive Finance Ghana (CIFG), a volunteer-driven organization committed to promoting inclusive finance. Ebenezer is also a career banker with specialization in product development, retail banking strategy, and digital banking transformation. . E-mail: [email protected]

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