Why do so few people have accounts with formal institutions? One key constraint is the sheer cost to banks of building and maintaining branch networks to reach dispersed or low-income populations.

On July 22 at a CGAP lunchtime event in Washington, Ignacio Mas talked about how networks of agents can be used to optimize access for poor clients, basing his presentation on the recent CGAP Focus Note “Banking Through Networks of Retail Agents.” He began the discussion by drawing an analogy with Coca-Cola. Why is Coke sold in every tiny village around the world, while financial services are not? The obvious response is that Coke leverages retail stores in these locations to distribute and sell its product on its behalf. In a similar way, the logic of branchless banking as a low-cost transactional channel is to use existing retail infrastructure to provide financial services everywhere, literally. By deploying technology that already exists in SIM cards and mobile telephones, transactions can be made at retail agents that then clear with a customer’s bank.

There are various objectives of agent networks from a bank’s perspective. They can be used to simply offload transactions from branches; they can target a different customer profile such as low-income people; they can serve as a branch substitute to extend geographic coverage; and finally they can serve as a branchless banking mechanism to minimize fixed costs and accelerate scale.

Globally, the use of banking agents is still in its early stages. Brazil is a leader with about 55,000 agents nationwide, followed by South Africa with 6,500 agents. In all, fewer than a dozen countries have begun using retail agents for banking services.

This low uptake may be explained by the three biggest challenges with branchless banking. First, the “perfect” business model is still being worked out. How can agents be sufficiently incentivized to carry out cash transactions? How can transaction volume, which has so far been quite low, be increased? Second, while most banks do not seem very interested in using agent networks to cater to new customer segments, most microfinance institutions do not have the capacity to take advantage of technology-based channels. Third, branchless banking presents new challenges in regards to regulation.

None of these challenges are insurmountable. With a bit of innovation and creativity, the potential for banking through networks of retail agents remains strong.