History of Front office services Activity

Front Office Services Activity

Traditionally Savings and Credit Societies facilitated provision of affordable loan facilities to its members. Majority of these Savings and Credit Societies usually loan their members three times the shares they hold with the society. These types of loans are categorized as school fees loan, emergency loans or quick loan and development loans. The loan repayment period is usually between twelve and thirty six months.

The idea of Front Office Services Activity was birthed in these Savings and Credit Societies. AT that time, banking services were out of reach for the middle and low class income earners due to the high account maintenance commission and minimum account balance.

The main purpose of this Front Office Services Activity was to enable members open accounts and operate them. Even though this was a good idea there are some un-scrupulous members of Central Management Committee membership who were determined to swindle their members of their hard earned income through this Front Office Services Activity.

 Challenges of managing front office services activity

Front office services activity is a savings and deposit taking enterprise. this attracts unscrupulous people. They are supervised by the Ministry of Co-operative Development. The Ministry does not have or seem to have capacity to adequately supervise the FOSAs.

Due to loopholes created by inadequate supervision, corrupt Committee members embezzle funds from the front office services activity account-holders’ savings accounts.

Central Management Committee members are elected into office. Majority of them do not have qualifications to manage this Front Office Services Activity.

 Measure that can used to protect front office services Activity members

In order to protect members deposit and save the Front Office Services Activity, the following should be put in place:

• A regulatory body should be establishing to monitor the activities of each Front Office Services Activity. This body should also vet the Savings and Credit Societies who intend to start offering these services.
• Qualified personnel should be engaged to effectively run these services. These staffs will be tasked with making sensible business decisions, formulating policies and controls, and taking responsibility of  financial performance of the front office services activity.
• The deposit protection fund should be expanded to include the front office services activity, to protect the members from losing their hard earned monies.
• The services of independent auditors should be obtained as opposed to the Ministry of Co-operative Development auditors. Final accounts should be availed to all members and the public at large.
• A Board of Management should be constituted to ensure that the  Front Office Services activity are professionally managed.

The critical role played by front office services activity in the economic development should be recognized and encouraged. Countries should adopt this kind of banking channel to ensure financial inclusion for its poor and marginalized citizens. Front office services activity could be considered as a type of Agency banking.

Most of the major Banks in Kenya and parts of South America have embraced Agency Banking as a way of improving their services to their customers and cutting a niche for themselves in an ever competitive market.

 Why Banks have embraced Agency banking

Agency Banking

Agency banking has enabled bank customers to access the basic banking services, for example, cash deposit, cash withdrawal and bank balance inquiry conveniently or what would be termed as within the comfort of their neighbor-hood. The convenience of access to banking services and the extended hours that the agencies work has been the most attractive features to the customer (as most agencies work between 8am up to 8pm). The rural population especially has heartily welcomed this idea since they have had to sometimes go through Vexing experiences to access banking services due to the poor road infrastructure and high costs.

 Benefits of Agency banking to Banks

It is not only the customers who have benefited from Agency Banking. Banks too have benefited a great deal at a time when most banks are working towards cost management. Some of these benefits are listed below:

• Huge savings on cost of construction of bank premises and leasing costs when banks are using the Agency premises.
• Human Resource expenses have reduced. The banks do not have to employ new staff to manage the agency and the cost of training if any is to the bare minimum.
• Savings on equipment like furniture and computers.

 Challenges of Agency banking for Banks

There are of course challenges that the banks need to address to avoid losing customers and maintaining the Banker- Customer relationship. The customer is still the responsibility of the Banks and the same has not been delegated to the Agency. Some of the challenges that need to be addressed are:

• Confidentiality – Every year Banks ensure that their staff members sign secrecy forms and maintain confidentiality for all customer information. This should be looked at as these agency employees are not bank employees.
• Security – Most of these agencies are in areas that are what would be considered ‘high Risk’. The Bank needs to audit the security measures being taken by the agencies to ensure the customer can transact confidently without having to look behind their backs.
• Customer service to the bank customer – Service is a huge challenge for the banks as they need to train and retrain the Agents so as to maintain high levels of customer service..
• Issues of Fraud – The agency staff will be a target by fraudsters as they are aware that they will not be able to easily identify fraudulent transactions for example identification  of documents for originality or if they are fake.

The bank must address the challenges that are posed by having agency banking while at the same time taking advantage of all the benefits of having this channel of banking. Agency Banking may eventually lead to financial inclusion in the countries where it has been adopted.

Credit and Debit Cards associations

Both MasterCard and VISA are in the process of opening Regional Offices in Kenya for Credit and debit cards.  Is this move by both organizations a sign of commitment to the region after years of neglect, or a response to the threat of their business model posed by mobile commerce? Mobile banking has taken over the day to day transactions of both individuals and corporations in Kenya.

The Kenyan market is unique in the payment space as mobile has leap frogged over all other money transfer and banking channels. Poor communications networks and infrastructure, coupled with the non availability of simple acceptance devices has been the cards’ down fall in many countries especially in Africa. The Automated Teller Machines and Point of Sale are expensive leading Mobile transactions taking over and to fill that void.

Many transactions in Kenya happen on a meal by meal basis with the corner shop and the informal sector have helped mobile commerce to outpace cards. The volume and value of transactions the mobile environment handles daily cannot be equaled by any other payment channel.

credit and debit cards’ have suffered declining competitive edge

The decision of whether this is a good thing for the banking industry depends on where one stands? Maybe not if you are a banker, while the consumers have a totally different view.  The flow of fees earned in the mobile space is also different to the card model. Corner shops prefer the mobile model as they earn revenue instead of lose it in the card model due to commissions paid out for card usage.

Unless the two giants in the card space rethink their model and come back with pricing and rules and policies that suit the local market, the future of Credit and debit cards looks bleak. Credit and debit Cards will become prerogative for the middle to high income people that travel and for tourists.

decision time for credit and debit cards’ business

The big guns need to urgently relook their Africa Strategy to ensure a brighter future. We wait to see how the payment industry will change and if the card associations realize that one size does not normally fit all. Credit and debit cards issuers and acquirers must customize the products to suit their corporate needs.

credit and debit cards

credit card collections

Delinquency of the cardholder accessed by the credit card collections team

The credit card collections must assess the delinquency of the cardholder. A delinquent cardholder is one who has missed on at least one repayment on their credit card bill. The credit cards have a date on which a cardholder must make payment by or before. Where a cardholder misses the deadline, they are said to be delinquent.

Credit card collections teams collections options

The credit card collections team makes the decision on which collection option they will take to collect on the delinquent cardholder.  The collections team makes a decision to either collect the debts in-house or to outsource the debts. Outsourced debts are those that are given to a different debt collection company to collect on behalf of the card company. The debt collection company is paid a commission of the collected debts. The credit card collections team may decide to debt collect using the debt collectors employed by the card company.

The decision to outsource debt collection is usually due to the time it takes to collect the debts and the expertise that is required, which the card company may not be willing to engage. The card companies mainly outsource the debts that are past six months old, where interest can no longer be recognised as profits for the card company.

Account sorting decision by the credit card collections team

The collections team sorts the cards using various criteria depending on the credit card collections team. The accounts may be sorted according to accounts that are ranked as high risk and are likely to end up delinquent. Sorting decisions are not always time based. Where the amounts are large, the period of delinquency becomes irrelevant. The huge debts must be collected first and most effort is concentrated on this option.

Like all credit card collections decisions, the methods and ways of ensuring that cardholders do not eat up all the profits by being delinquent is key. The card companies must engage the right methods and decisions in order to maintain a healthy balance between the credit they give out and the collections they make on the same credit. When credit card collections teams make wrong decisions, card companies make untold losses and are sometimes forced to close down.