Transcript Lecture 23 (1).pptx

PARTNERS AT THE LAST
MILE: RETAILERS,
BANKING AGENTS, AND
INSURANCE COMPANIES
Summary of the Last Lecture
• Instore Banking, banking Agents, Retailers
become bankers, variations
Overcoming the Core Challenges
• Given the triple win nature of the banking
agent proposition, there is an enormous
opportunity not only for financial institutions
and retailers, but also for auxiliary businesses
Overcoming the Core Challenges
• such as POS suppliers, technology designers,
agent managers, or market research firms to
assist in design, implementation, and ongoing
support, provided key challenges are
addressed.
Technology.
• Specialized technology is needed to equip
banking agents: computer, printer, scanner,
POS devices, and communication devices such
as a fax or modem.
Technology.
• For models in which the financial institution’s
and retailer’s systems need to communicate,
selecting the right technology interface and
ensuring quality data synchronization are
perhaps the trickiest issues to resolve.
Technology.
• The latter, in particular, usually hinges on a
robust core banking platform that may not
always be present, particularly in smaller scale
financial institutions.
Marketing.
• It is still unclear what type of clients will prefer
using banking agents and how they feel about
interacting with a retailer rather than a
banker.
Marketing.
• Will they trust the retailer with their banking
transactions? Financial literacy programs
devoted to building trust and informing clients
on safe use of credit and debit cards may help.
Marketing.
• Market research and segmentation are
needed so that both the financial institution
and retailers can make informed decisions
about where to open banking agents (versus
branches or ATMs) and what products to offer.
Marketing.
• Branding is a concern, particularly when the
financial institution leverages the retailer’s
employees.
Marketing.
• Lemon Bank, a completely branchless bank
that offers mainly bill payments in Brazil
through a network of over 6,500 locations, has
low brand recognition, owing to the
restrictions placed by the regulators on brand
prominence when using agents.
Marketing.
• This may limit higher margin cross-sell
opportunities for Lemon Bank in credit and
especially savings, where brand confidence is
essential.
Agent Network
• Managing a network of retail agents is a
significant undertaking for any financial
institution, whether the agents are employees
of a single chain or a series of small,
independently owned stores.
Agent Network
• Agents, who may see provision of banking
services as their second or even third priority,
must provide adequate customer service, and
problem-resolution mechanisms must provide
back-up support.
Agent Network
• Training manuals and incentive programs for
agents are essential, as are customer
satisfaction metrics. Financial institutions also
need to provide their own direct link to
customers, preferably through a call center, to
handle questions, disputes, or complaints.
Agent Network
• In response to the complexity of developing
and managing many agents, network agent
managers have emerged. These managers
simplify the task for banks, but reduce its
revenue stream.
Agent Network
• Network managers identify agents, supply
them with the necessary equipment and
training, and “own” the relationship with
them. Most of these are in Brazil, such as
Netcash and Pague Facil, though they are
starting to emerge in other countries, too.
Insurance Companies Face the
Channels Challenge
• Finding cost-effective distribution channels is
also at the heart of insurance for the BOP
market. Insurers look for aggregations where
groups of clients can be insured at once,
especially in the BOP market where premiums
must be small.
Insurance Companies Face the
Channels Challenge
• They turn to churches, labor unions, schools,
and employers—any form of association with
a stable, predictable membership. One of the
most used channels involves sales through the
existing customer relationships of other
businesses.
Insurance Companies Face the
Channels Challenge
• The ideal distributor will handle money and
process transactions. For this, the distributor
must be financially sound and have strong IT
systems.
Insurance Companies Face the
Channels Challenge
• The distributors look to insurance to enhance
customer loyalty as well as for the
commissions it provides.
Insurance Companies Face the
Channels Challenge
• Microfinance institutions have become a
favored entry point for insurers trying to reach
BOP clients who have few other contacts with
large, well-organized institutions.
Direct Sales
• The simplest but not necessarily best channel
for insurance is direct sales through the
insurer’s own network.
Direct Sales
• Birla Sun Life Insurance, a joint venture
between Canadian insurer Sun Life and Indian
insurer Aditya Birla, has been providing term
life insurance in rural India since 2001, using a
very simple and traditional approach based on
direct sales through its branch offices.
Direct Sales
• In order to cut costs so premiums are
affordable, Birla stripped down
documentation requirements and eliminated
medical exclusions.
Direct Sales
• The result is a simple policy with limited
payouts; the maximum is about $130, about
one-third the per capita income of rural India.
Direct Sales
• It is highly doubtful whether Birla would grow
this product if not for regulations requiring it
to devote a small percentage of its total
business to the poor and disadvantaged.
The Partner-Agent Model
• A more cost effective way to bring insurance
to low-income people is a piggybacking
model.
The Partner-Agent Model
• American International Group was among the
first to develop this approach, in Uganda. With
more than 20 years in Uganda, AIG dominated
the mainstream insurance market in the
country.
The Partner-Agent Model
• In 1996, FINCA Uganda, one of several large
MFIs, asked AIG to create a partnership.
Together, the partners designed group life
insurance and accident policies that covered
clients and their families in case of death,
disability, or hospitalization.
The Partner-Agent Model
• FINCA loan officers distributed insurance
certificates, collected premiums (folded into
loan repayments), and helped process claims
in the course of their weekly rounds to
borrower groups.
The Partner-Agent Model
• Because coverage was mandatory for all
borrowers, there were no costly individual
negotiations or sales, and no problem of
adverse selection (in which only the riskiest
people choose to buy insurance), which is
especially important in a country with a high
HIV infection rate.
The Partner-Agent Model
• Based on the success of the two-year pilot,
AIG refined the product and expanded it to
other microfinance institutions and other
countries in the region, finding ways to reduce
premiums over time.
The Partner-Agent Model
• AIG’s ability to rely on a trusted MFI partner
was critical to profitable entry into the lowincome market.
The Partner-Agent Model
• By 2003, microinsurance generated 17 percent
of AIG Uganda’s overall profits, and MFIs
earned significant income by charging small
fees for administration.
The Partner-Agent Model
• By 2005, AIG’s product covered about
• 1.6 million people through 26 MFIs in
Tanzania, Malawi, and Uganda.
The Partner-Agent Model
• AIG’s work with FINCA helped create demand,
in effect developing a new market. FINCA’s
clients, most of whom had no experience with
insurance, told their friends about the
coverage,
The Partner-Agent Model
• and over the next several years clients of
other MFIs began demanding insurance, too.
Eventually, nearly all MFIs in Uganda tied up
with insurance companies.
The Partner-Agent Model
• The model AIG created in Uganda is now
widely applied by insurers using microfinance
institutions as distribution channels.
The Partner-Agent Model
• Compartamos Banco in Mexico, for example,
is a conduit for Banamex Seguros insurance. In
one program twist, Compartamos combines
mandatory basic life insurance coverage with
voluntary additional coverage available on
demand.
In the next Lecture
• The Microagent Model: Barefoot Agents
Summary
• Insurance Companies Face the Channels
Challenge
• Direct Sales
• The Partner-Agent Model