One of the biggest news from Nigeria’s startup scene over the last week was that Kippa shut down its agency banking business and laid off 40 employees. At its core, Kippa is a bookkeeping and finance startup serving small businesses. But in September last year, it obtained a Super Agent License and started operating KippaPay. In the same month, Kippa raised $8.4 million. This move put it in competition with big players like Opay and Moniepoint. These two account for 57% of agents in the Nigerian market, according to TechPoint. Yet there was a seemingly clear-cut case for Kippa to break into the market: it had a springboard of 500,000 merchants who used Kippa for bookkeeping and inventory management.

So, the shutdown of this business arm was surprising to most people. And now, there’s a broader conversation about the future of agency banking in Nigeria. Kennedy Ekezie, Kippa’s CEO, thinks the future of agency banking is bleak. On Thursday, October 19th, he replied to a post on X (formerly Twitter) saying they were not backing out because of competitor dominance but that agency banking’s big players “will eventually make the same decisions.”

An expensive venture

Kippa’s decision to retreat, according to Ekezie, is primarily because of profitability. “Our projections changed significantly in the past six months due to changes in the macroeconomic conditions in Nigeria,” he told WeeTracker. KippaPay’s struggles came down to three causes: small business struggles, naira devaluation, and the market’s evolution. “These past two quarters, the cost of doing business in Nigeria went up significantly, and 9% of our customers shut their business down in the past three months,” Ekezie said.

Nigeria’s GDP shrunk to 2.51% in the second quarter of this year because of inflationary pressures and a hard-knock fiscal regime. The naira has plunged nearly 40% in the official market since the CBN’s covert devaluation in June. This plight has squeezed several small businesses, including POS agents.

In July, the Lagos chapter of the Association of Mobile Money and Bank Agents In Nigeria (AMMBAN) proposed controversial fee hikes due to surging operational expenses. Many consumers, as well as fintech operators, kicked against this move. A Facebook post from the official OPay account said, “Any agent found overcharging will be blacklisted and may face legal consequences.” But they weren’t the only ones under pressure: Kippa also tried to raise prices in June to grow margins but backtracked when the market resisted. “We tried to increase our prices to ₦35 to grow margins when devaluation kicked in. But the amount of backlash the price increase was met with and the threat of user churn made us revert to ₦25,” he told TechCabal. And that brings us to the next point: agency banking might be plateauing.

A declining market?

Agency banking is becoming a saturated market in Africa. According to GSMA, the number of global mobile money accounts per active agent dropped from about 113 in March 2017 to 85 at the end of 2021. By 2022, the number of active mobile money agents in Sub-Saharan Africa grew by 39%. In that period, the number of active accounts and the value of transactions grew by 21% and 15%, respectively. That means the number of agents is increasing faster than the number of customers.

The POS agent model has never been the ultimate goal for Nigerian fintech. Aside from profit, its fundamental benefit is to aid the distribution of financial services. But that wide distribution gap has narrowed over the years.

Agency banking today somewhat mirrors the story of airtime recharge cards by telcos in the previous decade. In both cases, agents seeking new sources of income opened kiosks or umbrella stands in hopes of accumulating marginal profits into lump sums. Recharge card agents aided smartphone penetration by distributing these cards. But now, their market activity has dwindled as banks and fintechs have become distributors for airtime and mobile data.

Cash is king in Nigeria, but there’s a race to dethrone it. And that dethronement would fizzle out agency banking as we know it. That’s why the former CBN governor enacted measures such as launching a CBDC, limiting OTC cash withdrawals, and even forcing artificial cash scarcity. The last one gave a short-lived victory, and people have returned to their cash-heavy lifestyles. But the CBN is not alone. Fintechs and telcos are doubling down on making digital payments a lifestyle. Top agency banking distributors like Opay, MoniePoint, Paga and PalmPay have intensified selling their POS models in their original medium: a means for businesses to receive payments. Meanwhile, telco giants like MTN and Airtel want to recreate their success in the Nigerian market. Every big player is pursuing a time when cashless transactions become normal.

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