Competition in the Branchless Banking Agent Market: Effects and Strategic Responses

The fast expansion of branchless banking has provided millions of Indonesians with access to financial services in their own villages. Branchless banking is likely to develop as regulations mature and market incentives improve, resulting in increased agent competition. To shed light on issues surrounding the increase of competition among agents, throughout 2022, researchers are continuing their collaboration with one of Indonesia's largest state-owned banks, which manages over 100 thousand agents around the country, to conduct surveys on their branchless banking agents and general clients of branchless banking services. These surveys allow the research team to further develop experimental design which will be further implemented and evaluated with the bank partner.

The findings from the exploratory surveys suggest that there is a mismatch between clients’ expectation and agents' understanding. A survey with bank agents shows that only a small number of agents think that clients value transparency and, consequently, more than half of agent respondents do not display the official price list to clients, even though the bank requires its agents to post the official prices at their point of sale. The widespread expectations of agent misconduct may pose a significant barrier to financial inclusion, as they may reduce customers’ willingness to interact with financial service providers or deter low-income households from using formal financial services altogether.

To better understand the effect of competition on price transparency and financial agent misconduct, researchers are designing a randomized evaluation in collaboration with the bank partner, and have received funding from IFII to move forward with the RCT project.