Agency Banking vs. Deposit-Banking: Key Considerations for Fintechs

As agency banking continues to expand financial access in Nigeria, a common misconception is that a fintech must obtain a deposit-taking banking licence, often in the form of a microfinance bank (MFB) licence, to fully tap the opportunities in agency banking. In reality, this licensing strategy may not only be unnecessary, but often strategically counterproductive. We highlight a number of considerations below.

1. Regulatory Overkill Without Commensurate Value

Deposit-taking licences come with significant prudential and supervisory burdens designed for institutions that hold customer deposits. These include capital adequacy requirements, liquidity ratios, treasury operations, frequent CBN examinations, internal audit structures, and risk management frameworks. For a fintech whose business model is primarily transaction distribution, not deposit intermediation, this level of regulatory obligation may be significantly disproportionate. Fintechs operating as principals in agency banking transactions often assume the full weight of banking regulation without necessarily leveraging the full scope of a bank’s activities.

2. Cost Structures That Erode Margins

Operating a licensed deposit-taking institution is expensive. Beyond capitalisation, the cost of maintaining compliance departments, risk functions, core banking systems, and regulatory reporting can run into tens or hundreds of millions of naira annually. These costs make sense for institutions whose revenue is driven by lending, treasury operations, and deposit mobilisation. However, for an agency banking fintech whose core value lies in movement, distribution, agent activation, and transaction velocity, these costs can quickly erode margins and weaken competitiveness.

3. Mission Drift

Agency banking is fundamentally a distribution play. Its success is driven by how effectively an institution can deploy agents, maintain liquidity points, manage float, and ensure operational uptime. When a fintech acquires a deposit-taking licence solely for agency banking purposes, it is inevitably pulled into activities that have little to do with its competitive advantage, such as deposit account management, lending operations, or treasury risk. A fintech can easily become distracted by banking functions it never needed in the first place.

4. Operating Through Established Banking Partnerships

Another reason a deposit-taking licence may be unnecessary for fintechs keen to carry on agency banking business is that Nigeria’s regulatory framework already provides lighter, more efficient pathways for fintechs to participate fully in agency banking. A fintech does not need to hold customer deposits to operate a large, profitable agent network. Instead, it can simply function as a super-agent under a sponsoring bank, or partner with an existing MFB or commercial bank that retains custody of deposits. This allows a fintech company to focus on its real strengths, which may include deploying agents, managing point-of-sale infrastructure, driving transaction volumes, and ensuring service uptime, while the licensed financial institution handles the regulatory responsibilities associated with deposit-taking.

Key Takeaways

For most fintechs, pursuing a deposit-taking banking licence solely to participate in agency banking may be an unnecessary and costly escalation. Agency banking in Nigeria is, at its core, a distribution business, not a deposit-intermediation business. The new Agency Banking Regulations reinforce this distinction by treating agents and super-agents as distribution channels, not miniature banks. Before committing to a banking licence, fintechs must critically assess whether deposit-taking truly aligns with their business model, or whether the smarter long-term play is to leverage existing banks while focusing on distribution, scale and customer acquisition.