LIQUIDITY MANAGEMENT IN

AGENT BANKING
 Defining Liquidity Management
What is Liquidity management?
 It is all the activities involved in maintaining sufficient e-float and
physical cash at the agent outlet, to perform cash-in/cash-out
transactions.
 E-float refers to the balance of electronic money (e-value) present in
an agent’s wallet or account that is used to process customer
transactions.
 When a customer makes a deposit (cash-in), the agent transfers
e-value from her wallet or account to that of the customer in
exchange for an equivalent amount of physical cash.
 When a customer withdraws money (cash-out), the agent issues
physical cash to the customer in exchange for an equivalent
amount of e-value.

 E-float management is the process of ensuring that the amount

of e-value present in the agent’s wallet (on the agent till) is
sufficient to process customer deposits.
 Cash management refers to the steps involved in obtaining  This is commonly referred to as ‘re-
physical cash, either in exchange for e-value or as an amount balancing.
dedicated to the agent business, used to perform customer
withdrawals.
 Reasons for Effective Management of Liquidity by Agents
 It ensures the maintenance of float levels, to handle any
unexpected surges or demands for float.
 It takes care of seasonality issues (such as festive
seasons).
 It helps reduce risks, because it alleviates the need
to keep excess cash on hand.
 No e-float means that customers cannot deposit
cash, because agents cannot give them e-money in
exchange for cash.
 No cash means that customers cannot withdraw
cash, leading to disappointed customers.

 Partial deposit or partial withdrawal means that

agents do not have enough float or enough cash.
 Components of Liquidity Management
Liquidity Management: Electronic Value
 Mobile money transactions between a retail  It is becoming more common for electronic
agent and a customer requires that the retail liquidity to be handled not only by the
agent has cash value in their mobile wallet. retail agents, but also by the super agents.

Typical Liquidity Management process; e-wallet

 As agents provide financial services
throughout the day, the cash amount on their
e-wallet (account) fluctuates up and down,
depending on whether they are accepting
funds or paying out.

 When the amount in the retail agent’s e-wallet

(account) is used up, the agent cannot perform
additional services and needs to refill their
account.

 If the agent does not have a bank account

linked to their mobile wallet, this means they
need to make a trip to the bank to transfer cash
into electronic value.
 Components of Liquidity Management
Liquidity Management: Physical Cash
 Customers who are seeking to make cash
deposits into their accounts/e-wallets or to
withdraw cash from their accounts will go to
retail agents.

 With cash-in transactions, customers

deposit their money with retail agents.
While cash-out transactions result in
customers seeking to withdraw funds via
retail agents.

 Depending on the relative volumes of cash-
in or cash-out transactions in any given
day, the retail agent can become either
cash-rich, with too much cash on hand, or
cash-poor.
 In the latter case, the agent does not have
enough cash to provide the customer with the
full amount of their withdrawal request.
 Unlike electronic liquidity issues that can be
managed remotely via bank transfer or master
agent transfers, cash liquidity can only be
managed physically.
 Impacts of Failed Liquidity Management
Denial of Transactions and Reputational Risk
 Agents who fail to manage liquidity effectively are
forced to deny transactions when they do not have
either e-float for customer deposits or physical cash
for withdrawals or both.

 Non-exclusive agents have a harder time managing

liquidity across the different providers they serve,
thus denying customers of transactions.
Reduced Agent Profitability
 More frequent rebalancing is associated with higher
agent business turnover

 Agents who deny a higher percentage of their

transactions are mostly less profitable.

 Transaction volumes drive agent profitability, liquidity

outages have a negative impact on the sustainability of
individual agent businesses and the agent network as a
whole.

 The more transactions an agent denies, the less profit

he receives, which in turn undermine the agent value
proposition.
 Impacts of Failed Liquidity Management
Loss of Customer Trust
 When an agent who does not have enough cash or e-
value turns away customers, it undermines the
customers’ trust in the system.

 Repeated denials lead customers to avoid ill-reputed,

illiquid agents, who then fall dormant due to insufficient
demand.
Agent Workarounds
 Agents who witness huge patronage often have problems
managing liquidity.

 Some agents resort to transaction revenue honing and

transaction pooling.

 Agents practice transaction revenue honing where

commissions are tiered into bands. They encourage
customers to transact at the lower end of each
commission-based tier – thus maximising their
commissions.

 Transaction pooling is a practice where agents will pool

among themselves and provide each other either float or
cash, or both, when required.
 Liquidity Management Concepts
Liquidity planning:
 Enables an agent to predict and respond to
fluctuations in the need for liquidity, so there
is enough cash/float to meet customer
demand.

 Agent tracking of agency business trends is

crucial to enable an agent to know whether
they are in a deposit or a withdrawal zone.

 Tracking of transaction trends in a month

helps agents know the time/days to have
what type of liquidity to cater to their
customers’ demands.
Liquidity monitoring:
 Entails taking stock of an agent’s float and
sending out alerts for rebalancing once a
certain limit is reached.

 This can encourage better float management.

 Liquidity Management Concepts
Liquidity rebalancing:
 Refers to the act of replenishing agents’ cash
drawers and e-wallets when necessary.

 The less money agents have available to settle

customers’ transactions, the more frequently they
will need to rotate those monies, resulting in more
rebalancing trips.

 Agents that seek to minimize the number of trips

they make by carrying large cash and e-float
balances incur a higher cost of capital.
 How do agents determine the right amount of liquidity?
 The cash required at the agent location should be a little more than the
total value of withdrawals expected through the day (when no deposits
are anticipated).

 Similarly, the value of e-float should be (at the start of the day) more than
the total deposits expected throughout the day (when no withdrawals are
expected).

 However, both deposits and withdrawals happen at each agent location,

and thus the liquidity requirement is less than the value of total
transactions expected throughout the day.

 The mobile money provider field staff can provide an initial estimate for
the liquidity (cash and e-float) that an agent will need by providing the
numbers for other existing agents in the area or district.
 Liquidity planning: Tips for Agents
Teaching agents to plan
 A useful method for agents to plan their cash  Cash and e-float levels are sufficient, so
and float levels is the ‘1.5-times’ stock rule. surges in demand can be handled;

 According to this rule, at the start of each day,  The right balance of cash/e-float is
agents should have sufficient cash and e-float in maintained, so resources are managed
stock to cover one and a half times the previous efficiently; and
days’ total of deposits and withdrawals.
 The level of cash held is not higher than
 For example, if on a given day, an agent necessary, so risks are minimised.
facilitates cash-outs of N100,000 for
withdrawals, and facilitates cash-ins of
N200,000 in deposits, the next day s/he will
need to have N150,000 (100,000 x 1.5) in cash
and N300,000 (200,000 x 1.5) in e-float in order
to effectively serve customers.

 The ‘1.5-times’ stock rule is a good way to help

ensure that:
 Liquidity planning: Tips for Agents
The ‘1.5-times’ stock rule as applied to agent liquidity management
Agent Liquidity Management Form

Agent e-flow Account Month

Day of E-float at Cash at Daily Daily 1.5 times float 1.5 times float rule
the the start the start Deposit Withdrawal rule (e-flow (Cash needed the
month of the of the Actual Actual balance needed next day)
day day the next day)

1 200,000 120,000 200,000 100,000

2 300,000 120,000 220,000 110,000 300,000 150,000
 Liquidity Monitoring
 Financial Service Providers (FSPs) often have a way of
taking stock of agents’ float and sending out alerts
for rebalancing once a certain limit is reached.

 Agents are nudged to rebalance once their e-float hit

a particular set level below which it must not fall.

 Cash monitoring is done at the agent levels of

liquidity.
 Agents use transaction logs in which transactions
made are recorded with the e-float and cash balance
are matched to every transaction. In this case you do
not need to rely on your Financial Service Providers
to nudge you to know you are low on liquidity.

 In some instances, FSPs provide agents with liquidity

dashboard to monitor their liquidity level.

 As an Agent, you have to be on top of liquidity level

to avoid disappointing your customers
Key Performance Indicators (KPIs) for Agents

• Completion rate (opening account)

CR

• Time to funding (loan application)

TTF

• Turn Around Time (asset finance)

TAT

• Average Handling Time

AHT
 Key Performance Indicators (KPIs) for Agents

• Conversion rate (digital tech i.e. sales cycle)

CR

• On boarding rate (Unnecessary delay)

OBR

• Abandon rate (cumbersome process)

AR

• customer touch point (Single/complex

CTP channels)