Pilot Banking Agents in Chongqing and Yunnan

Leesa Shrader, Eric Duflos, Mingyao Zhou

April 2014

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Presentation Contents

1. Background, Summary Findings and Methodology

2. Agent Research Findings

3. Client Research Findings

4. Conclusions and Recommendations

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CGAP has engaged in exchanging knowledge on financial inclusion with China for several years. In 2012 it published a report on financial inclusion in China. In 2013 CGAP began a review of branchless banking in China given the recent launch of banking agents by PBOC.

In March 2013, a CGAP team conducted initial desk and field study, which culminated with a workshop on branchless banking organized with IFC and PBOCTo complement this information, the team visited pilot agents in Yunnan and Chongqing in August 203 , with a follow up work in Yunnan in October. This presentation details field research on agents and clients

In March 2014 CGAP published , “China: A New Paradigm in Branchless Banking?” with full learning from this research effort.

Background – CGAP’s work in Branchless Banking in China

Maps of Yunnan (left) and Chongqing (right) from Wikipedia

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Agent banking pilots have been ongoing for more than two years, so there is clear ability to learn. Both commercial banks and Rural Credit Cooperatives (RCCs) play important roles.

Transaction volumes are low, compared with other countries, but the scale and opportunity for agent banking is immense, given high bank account penetration and ease of account opening.

Summary Findings from Agent and Client Interviews

Yunnan agents have higher transactions than Chongqing agents, most likely due to the interoperable approach, but likely also linked to agent fees which incentivize transactions.

Agents are not earning significant fees on agent banking at this point, but increases in foot traffic to their stores may provide the incentive they need to stay engaged as business increases.

While target clients are rural populations, most clients appear to be migrant and factory workers, indicating that there may be broader use cases for the service beyond the rural poor.

Smart phone penetration is very high and could be a low cost alternative to current POS model.

Both agents and clients indicate clear interest for deposits and other services and have smart phones that could drive lower cost implementation models and growth of the service.

KEY AGENT INDICATORS (sample of 12) % or #Percentage of rural agents 58%Percentage of female agents 67%

Average number of bank accounts 5Percent of smart phones used by agents 90%Percent of agents making online purchases 90%

Average percentage increase in foot traffi c as agent 26%

Average number of transactions per day 5Average monthly income from agent business 70.83$ Percent of agents citing issues with system downtime 90%

Percent of agents citing demand for deposit services 75%Percent of agents citing demand for account opening 50%

Snapshot of Pilot Agents in China:Mission to Yunnan Province and Chongqing

Pictures on slide 5,8,9,10,11,13,14,16,17, 18 by Eric DuflosPictures on slide 7,8,,12,15,and18 by Leesa ShraderPictures on slides 22, 23 by Mingyao Zhou

Field Research Approach

As of early 2013, there were an estimated 500,000 pilot banking agents in China using bank cards and point of sale devices to process cash out and basic payments focused on rural areas across provinces with high unbanked populations

This presentation summarizes in-depth interviews with twelve agents in Chongqing and Yunnan, as well as twelve clients in Yunnan. It provides interesting information but the results are anecdotal and therefore cannot be extrapolated.

The mission was organized in collaboration with the IFC and with excellent support from China Union Pay in Yunnan and the Postal Savings Bank of China in Chongqing.

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Agent Research Findings

Chongqing MunicipalityAgents for the Postal Savings Bank of China (PSBC)

Chongqing is a major municipality in Southwest China situated on the Yangtze River and one of the PRC’s four direct-controlled municipalities, with 19 districts, 15 counties and 4 autonomous counties, with 32 million population, half rural and half urban. Chongqing is one of 13 emerging megacities in China. 20% of its population is unbanked.

PSBC invited CGAP to visit its farmer-focused agent banking pilot which operates exclusively for PSBC clients. PSBC banks nearly half the population of Chongqing, with 16 million cardholders. Half of its branches are in rural areas. PSBC partners with the Post Office to drive agent formation through Post Office franchise businesses distributing subsidized agricultural inputs for farmers. 200 out of 2,000 agri-franchises are providing agent services.

ChongqingMr. Ma Luosong, agent for PSBC in Jielong Town

Mr. Ma Luosong is the owner of an agribusiness franchise in Jielong

He is also paid as an agent trainer by Post Office

He has been a client of PSBC for 13 years and has 3 bank accounts

Main banking customers are farmers He provides cash-out services (e.g.

farmers subsidies), payment and transfers

Business only sells a limited range of special inputs and goods for farmers on pre-order

He is only open 2-3 days per week from 08:00 to 17:30

Main problem is that he sits next door to an expanded PSBC branch, so clients prefer to go there.

Key Results for This Agent Business: 10% increase in foot traffic 4 transactions per day (only open 2-3) earning $.27/day in fees + fixed salary

ChongqingPSBC Agent in Xinwan Village

The second agent visited in the rural areas of Chongqing was in a small farming village of approximately 1,000 inhabitants, with 3,000 population in the immediate surroundings with no bank branch.

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Chongqing – PSBC Village AgentMr Zhu Shenghai

Mr. Zhu Shenghai is the owner of an agribusiness franchise from the Post office in Xinwan Village- 45 minute drive from district town

A leading local figure he has an adjacent café and a successful small construction business, while also renting out farming equipment in the local area.

Chongqing – PSBC Village AgentMr Zhu Shenghai

Mr Zhu Shenghai owns a café, as well as construction and agricultural equipment rental businesses

He has been a client of PSBC for 15 years and has 12 bank accounts + credit cards

He provides the following services to clients: cash out of payment of subsidies, transfers, payment

Main banking customers are farmers Open every day, 12 hrs/day He notes client need for cash in and also

increasing daily withdrawal maximum Clearly not earning any revenue from agent

business, but key service in town

Key Results for This Agent Business: 100% increase in foot

traffic 20 transactions per

day earning $1.33/day in

fees – but receives fixed salary from PSBC of $100/mo.

Chongqing – Agent Findings

Based on PSBC Interviews:• PSBC and the Postal Office have

jointly built a highly subsidized model which pays agents a flat salary, with extremely low fees

• The service is free for clients, although agents are given discretion to charge “strangers”

• The model also provides services only for PSBC clients, although China Union Pay POS devices can service all cards

• Clearly transactions grow in more rural areas away from bank branches

• PSBC notes the difficulty of finding literate agents, but aims to cover all villages within the next years – growing from 200 to 2,000 agents

Chenggong District – Yunnan Province

An agent of a Rural Credit Cooperative in a peri-urban area, near the capital of Kunming

Yunnan province is located to the far southwest of the country, with a population of 45.7 million of which 1.3 million are unbanked.

Situated in a mountainous area, it is considered one of the poorest areas in China. In Chenggong district 45% of the population is rural.

With most families having a bank account, rural populations still tend to use passbooks and resist movement to bank cards.

Chenggong District – YunnanMrs. Li Yunzhen – RCC Agent

Mrs. Li Yunzhen is the owner of one shop and a small side business selling flowers

As an agent for the RCC she can provide cash out, transfer and payment services to her clients

She has been a client of the RCC for 24 years and has 5 bank accounts

Main banking customers are migrant workers and farmers

She sells air time for China Mobile

She is open every day from 7am to 10pm

Main problem is making frequent trips to the RCC for liquidity and waiting in queue.

Key Results for This Agent Business: 50% increase in foot traffic 15 transactions per day earning $3.75/day in fees

• Client is a steel pipe factory worker, living with mother and sister

• Earns around $500/month• Has Nokia smart phone • Has three bank accounts at RCC,

ICBC and BOC• Sees the agent as a convenient

way to make payments without waiting in bank queue and to cheaply access bank accounts with branches far away

• Would like to be able to make deposits at agent, but notes that there are few agents

• Family makes online payments for personal goods like clothes, using ICBC wallet

• Very satisfied with fees

Chenggong District – YunnanInterview with a client of Mrs. Li Yunzhen – RCC Agent

Chenggong District – Agent in semi-rural areaNew Economic District of Kunming

The second agent visited in Yunnan’s Chenggong District was in a semi-rural area near the capital where a new university has been constructed

The agent is located close to a small outdoor market in a community of approximately 3,000 people, with no bank branch or ATM in the immediate area

Chenggong District – YunnanMr He Shaolong – Agent for RCC

Mr. He Shaolong owns a grocery shop

He has been a client of the RCC for 15 years and has 4 bank accounts at 4 banks

He provides cash out services (e.g. farmers benefits) payments and transfer services

Main banking customers are migrant workers, university students and farmers

He also sells air time for China Mobile using laptop

He is open every day from 7am to 10pm

He sees client demand for account opening, deposits and higher maximum withdrawal limits.

He would like more marketing support from RCC.

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Key Results for This Agent Business: 20% increase in foot traffic 15 transactions per day earning $3.75/day in fees

Yunnan Province – Broader Agent Findings

Based on Province-level data and interviews:• Yunnan has interoperable agents

across a number of banks and RCCs supported by China Union Pay

• Our Yunnan agents were top performers with 15 txns/day

• On average, 11,720 Yunnan agents have 1.46 transactions per day, with high agent dormancy

• Clear and standardized fees• High frequency of bank visits • High degrees of client interest in

deposits• Increasing foot traffic and convenience

for clients are major drivers for agent participation

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Yunnan Agent-Based Transaction Highlights: 2010 to 2013

Over the course of meetings with implementing banks, RCCs and the PBOC in Yunnan, CGAP collected the following high level information on the Yunnan pilots:

Data based on 11,800 agents in Yunnan from June 2010 - June 2013 Agents are allowed to complete transactions for any bank account holder

utilizing China Union Pay POS devices Over the period 4.5 million transactions with value of $278 million Data shows a growth in monthly average transactions, from 1.4 per month

per agent in 2010 to 10.6 monthly transactions in June 2013 Still, transaction levels are low compared with international norms Based on interviews with PBOC, up to 60% of agents do not transact While early transactions concentrated on cash out, overall transactions now

reflect a more balanced mix of banking needs, particularly payments and transfers

Cash withdrawals now make up less than half of the number and volume of transactions.

Summary Agent Statistics of Interest

Despite the small sample size, there are interesting findings from the field interviews with agents

Average transactions and income per agent still very low26% average increase in foot traffic may compensate for low agent feesAll have multiple cell phones – 80% are smart phones which could be used for lower cost agent modelsHigh degree of banking experience among agentsWhile the program is targeted at farmers, migrant workers are clearly also using servicesHigh demand to make deposits, which could further drive business volumes and impact

KEY AGENT INDICATORS (sample of 10) % or #Percentage of rural agents 58%Percentage of female agents 67%

Average years of education 12% self employed 75%Average number of years banked 18

Average number of bank accounts 5Average number of years in business 12

Average daily (non-agent) business 2,160.00¥ 360.00$

Average number of phones used by agents 2

Percent of smart phones used by agents 90%Percent of agents making online purchases 90%

Average number of months working as agent 21

Average percentage increase in foot traffi c as agent 26%

Average number of transactions per day 5Average daily fees from agent transactions 16.56¥ 2.76$ Average monthly income from agent business 70.83¥ 11.81$ Average number of hours in training as agent 5.15 Percent of agents citing issues with liquidity balancing 40%

Percent of agents citing issues with system downtime 90%

Percent of agents citing demand for deposit services 75%Percent of agents citing demand for account opening 50%

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Client Research Findings

12 Clients in Yunnan: A Snapshot of Interview Highlights

All respondents had between 2-6 bank accounts per household and 30% reported having credit cards.

100% opened bank accounts to make basic payments and 70% use their bank accounts to save

On average, bank branches were 5.8 km away

High overall satisfaction with agents, but indicated that withdrawal limits should be higher.

90% of the clients use agents mainly for withdrawal, although a few use for bill pay and bank transfers. 

High correlation between frequent use of online payments and frequent use of agents

High degree of literacy around use of PINS as well as clear understanding of fees, recourse and trust for agents

60% of the respondents would like to be able to make deposits at agent, while 30% would like to have account opening services

12 Clients in Yunnan: Client Characteristics

 

Clients from highly varied professions: self-employed, civil servants, factory and farm workers, migrant workers, students, etc.

Average monthly family income of 2,900 RMB or $422 USD

80% owned their own home 100% of those interviewed had a smart phone 50% make online purchases 20% used a mobile wallet   40% of respondents noted security concerns

related to mobile payments. 60% reported saving in cash as a financial tool

to protect from shocks 20% had savings goals related to an enterprise

and 30% had savings goals related to their children

Clients in Yunnan: A Snapshot of Poor Users

The poorest respondent (living on less than $193 per month) was a young woman working as a waitress/teller at a restaurant, which is also her banking agent.  She aspires to open her own clothing business someday.

She lives with her parents and the family of four has three bank accounts in total.  While she doesn’t use online or mobile payments, she does have a smart phone.  She is paid in cash at the restaurant and opened her new bank account to make basic payments – not for cash withdrawal. She has never used an ATM or any other bank functionality on her account.  She says she would also use the agent to make deposits, if that facility were available.

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Conclusions & Recommendations

Conclusions and Recommendations

While CGAP’s field work in Yunnan and Chongqing was limited, it yielded interesting insights for Chinese regulators and financial institutions contemplating the future for agent banking:

Allowing deposits at agents would provide a significant boost to the agent model and meet clear client demand

Using smart phones as a transaction platform rather than expensive POS devices could significantly reduce costs and expand utility for future implementation to drive viability

Interoperable models as seen in Yunnan provide higher utility for a population that is highly banked across a range of institutions and should likely be mandated

The agent model clearly is of use to more than rural populations and should be understood as a channel for all clients, allowed to expand to fit full client needs, particularly migrant workers

Agent fee structures have a significant impact on agent activity levels and should be better understood. Flat fees appear to have a negative effect on higher transaction volumes.

Advancing financial inclusion to improve the lives of the poor

www.cgap.org