We’re at a banking conference in Sao Paulo, where I had a chance to present on agents and our work in Colombia. In terms of using banking agents to reach remote areas and poor clients, the Brazilian financial system represents probably the future of many Latin American markets. Whereas countries like Colombia are just starting to develop such outlets, in Brazil they already make up 56% of all financial system points of sale are, reaching all municipalities.

Since our last visit in June 2006, the atmosphere has changed a lot. Whereas last year, banks were still experimenting with different approaches and were not yet convinced that banking agents were viable, today everybody we asked during our last week in Sao Paulo, considered banking agents a profitable channel. Banking agents move clients which are high cost for the bank (small ticket size, often only limited usage of products) to the low-cost agent channel, and free space in branches for clients which generate more revenue for the bank. Before branches were full of people just paying their bills.

The biggest take away from our trip and visit with a long list of market players is that banks have learned a lot how to best acquire and manage agents, annual agent turnover rates have come down to 15% for Banco Popular from previous 80%. They also have understood how to best adapt their internal structure to operate this new channel and the general rule is that you need an own department (”Banco Popular” of Banco do Brasil or “Banco Postal” of Banco Bradesco) or subsidiary to take care of product development, network growth, etc. As Frederico Queiroz Filho, the coordinator of the banking association’s FEBRABAN banking agent roundtable, put it “It is a completely different way of doing business and with a completely different clientele. Banks have to completely change the way they work, especially product development.”

Having understood how to set up a network and manage it, banks are now thinking of taking the next step: How to best extend credit through the agent network? Lemon Bank conducted a small pilot project giving 3,500 of their SuperGrana loans based on clients’ payment history with the bank. Banco Popular is more interested in productive microfinance loans and currently offers average loan sizes of R$122. Some banks are also thinking of transactions conducted over the mobile phone.