Onboarding users, while it may seem like a secondary function of agents, is crucial to ensuring that digital financial services remain secure. When they are asked to perform KYC and confirm identities, disruptive fintech, and traditional retail banks place a lot of trust in agents.

The benefits of providing financial services through agents

Undoubtedly, financial agents are pivotal in the African financial ecosystem, reaching communities that traditional banking cannot. They have unquestionably improved financial accessibility.

A comprehensive study by researchers from MIT, focusing on M-Pesa’s pioneering mobile money service, analysed how the rise in service agents impacted households across Kenya. They found that increased agent density (more agents available within a 1-kilometre radius) led to a significant rise in per capita consumption. For instance, households experiencing an average increase in agent density saw a 6% increase in per capita consumption, lifting many above poverty levels.

The study also highlighted a pronounced We I I positive impact on female-headed households, where an increase in agent density led to an 18.5% rise in daily per capita consumption and a notable reduction in poverty levels. Moreover, more agents led to a shift in women's employment from farming to business or retail occupations, facilitated by the ease of managing finances through mobile money. (Source) 

Evidence of financial agents' profound impact on banking access, poverty alleviation, and women's empowerment in traditionally underserved regions is undeniable.

However, as these services expand to reach across the continent, businesses must employ hundreds of thousands of agents to maintain their reach. With this exponential growth and armies of agents to train and watch over, the risks of fraud have also increased.

Source: Techpoint Africa | Safaricom

Risks with Agent Onboarding

In a study by GSMA, fraud was the most prominent risk agent, and nearly 55% cited fraud as a daily risk. However, urban agents seem to see significantly more cases of identity-related fraud.

“Identification-related risks (which can equate to fraud), such as a lack of ID or fake identification, were mentioned by 17% of urban agents but only 3% of rural ones. (GSMA)”

• Duplicate account fraud: Many agents are trustworthy community members looking to provide services to their peers. A few individuals become agents to carry out fraud attacks or abuse the power of account creation for themselves.
  

• Creating accounts for non-consenting individuals: When an agent is onboarding an individual, even while using photo verification, it can be challenging to determine if that individual has consented to an account being opened on their behalf. There are cases where an agent takes photos of unknowing individuals to use for signing them up for an account without their knowledge. (Lynshays example, neer more info)
  

• Coercion of an agent: Opposite of agents using individuals to create accounts for their advantage, in this type of attack, a customer manipulates an agent to help them perform a fraudulent account opening or transaction on their behalf.

Fraud continues after the onboarding process

• Overcharging: Many organisations and even the government have guidelines on what agents can charge, but there are few consumer protections to enforce correct charging.
  
  For example, though concrete data is limited in Nigeria, nearly 40% of agents are estimated to charge more than the maximum fees set by the Central Bank of Nigeria. (Source)
  

• Account takeover: Many agency banking services do little to authenticate a user after opening the account. With weak data protection, agents often have enough information stored from the user onboarding process to easily take over customer accounts and steal available funds. 

Low commissions may incentivise fraud

Agents make their money by facilitating transactions and collecting fees. The CBN has thorough guidelines on how much agents should charge depending on the type of transaction. The fees are already relatively low, often ranging from N50-N500 depending on the type and volume of transaction.

On top of this, competition among financial service providers and rapid inflation in many markets is pushing agent commissions lower and lower. Agents now, more than ever, are feeling the pinch. The economic model for agents, primarily based on transaction fees, is under pressure. The GSMA has reported that more agents than ever are struggling to maintain sustainable incomes with caps on fees and increasing competition.

This financial strain can lead to unethical practices to increase earnings, such as unauthorised transactions or account manipulation.

Challenges identifying agent fraud

Agents hold the keys to account creation. With unique access to financial systems, they can more easily hack systems and abuse account creation. Because of their trusted role in the system, agents can more easily make fraudulent accounts and transactions seem legitimate.

A few factors make agent fraud especially difficult to detect, even with advanced technical solutions.

• Insider Knowledge: Agents' deep understanding of the banking systems can be exploited to bypass security measures.
  

• Trust Factor: The trusted status of agents in their communities can make it difficult to suspect and identify fraudulent activities.
  

• Systemic Weaknesses: Inadequacies in financial institutions' monitoring and audit systems can allow fraudulent activities to go unnoticed.

Conclusion: Weighing the Benefits Against the Risks

Agent banking is a double-edged sword for African financial services. While it dramatically improves financial inclusion and accessibility, it also introduces fraud risks.

A multi-pronged approach involving hands-on training, more robust regulatory frameworks, advanced technological safeguards, and a culture of transparency and accountability can help mitigate these risks, but eliminating fraud risks will be challenging.

Perhaps there must be a balance. As long as the benefits of agent banking continue to grant increasing access to people and benefit financial services companies as they get access to a broader range of customers, some fraud may be tolerable. But we must now ask ourselves when the risks become too much to excuse.