Thriving amid changes: Agents in Indonesia’s evolving digital financial services landscape

• by Singgih Pangestu and Manoj Nayak
• May 1, 2024
• 5 min

Over the years, Indonesia’s agent network landscape has undergone significant changes. Service providers have proliferated while different business models have emerged. Moreover, events such as COVID-19, alongside regulatory and policy changes, have shaped the network’s growth. Indonesia’s agent network landscape needed further investigation into the changes underway and their impact on agent sustainability.

Rizal is a 35-year-old DFS agent in a peri-urban area of Padang city in West Sumatra. He offers services from multiple providers and switches seamlessly between different apps on his smartphone to handle various customer requests. He rebalances his account through a third-party provider that delivers cash or float at his outlet.

Rizal has been an agent for more than five years and manages around 30 daily transactions across one bank and four nonbank providers. This enables him to offer more competitive pricing as he can curate services across providers to match customers’ needs. This attracts a diverse customer base and leads to higher transaction rates.

In contrast, Amir is a dedicated agent who offers his customers a single bank’s services. His kiosk is located in a rural village not far from where Rizal operates. It features the bank’s marketing collateral and mimics the look and feel of a bank branch. Amir took advantage of the high demand for financial services and low agent concentration in the area to expand his business and added three additional outlets in the vicinity. Amir travels to the nearest ATM or bank branch to rebalance his accounts.

Rizal’s non-exclusive provider approach contrasts with Amir’s dedicated and exclusive focus on one provider. However, both arrangements earn profits. Indonesia’s agent network has evolved to enable multiple business models and diverse practices to offer financial services to the last mile. This diversity enriches the market, offers consumers different options, and fosters innovation and accessibility to DFS.

Rizal and Amir are among thousands of agents in Indonesia who provide financial services to the last mile and play a crucial role in Indonesia’s financial system.

Over the years, Indonesia’s agent network landscape has undergone significant changes. Service providers have proliferated while different business models have emerged. Moreover, events, such as COVID-19, alongside regulatory and policy changes, have shaped the network’s growth. Indonesia’s agent network landscape needed further investigation into the changes underway and their impact on agent sustainability.

This need spurred MSC to undertake the third phase of the Agent Network Accelerator (ANA) research in 2023 with funding from the Bill & Melinda Gates Foundation. It serves as a crucial benchmark that compares the agent network’s growth in 2023 with the last ANA research in 2017. The ANA 2023 research also included the biggest-of-its-kind survey of agents in Indonesia, with participation from 2,644 agents countrywide.

The following section highlights key trends in Indonesia’s agent networks in 2023.

The agent network in 2023 was more diverse, although still dominated by banks

Indonesia’s agent network has doubled since 2017, with more than 1.5 million bank agents in 2023. Public sector banks, such as BRI, BNI, and Mandiri, dominated the agent network, while FinTech companies and e-commerce players also established their agent networks.

Women continued to constitute the majority of agents in 2023, which mirrored the trend observed in 2017

Indonesia’s agent network continued to be gender-balanced. 55% of DFS agents in 2023 were women, compared to 59% in 2017. Per ANA 2023 findings, male and female agents did not have performance or income disparities. The operating hours of the agent outlet also had no gender disparity.

Agent retention rose in 2023, which implies reduced turnover

In 2023, 30% of agents were working as an agent for more than five years, while 51% worked in the agency business for more than three years. This marks a shift from 2017 when 75% of agents had less than two years of experience. This indicates reduced agent churn in the agent network.

Agents were more profitable, which enhanced the agent network’s sustainability

The median daily transactions for agents increased fivefold between 2017 and 2023. Services, such as top ups, bill payments, money transfers, and cash-outs, drove this growth. Improved stability in the agent network after the pandemic and the slow growth of new bank branches and product use cases contributed to this growth.

ANA 2023 revealed that agents outside Java experienced more daily transactions than agents in Java due to a sparser agent network and high demand in non-Java areas. Additionally, non-exclusive and dedicated agents achieved higher median transaction volumes, as depicted in the graphs below.

The study shows that increased transactions have made 95% of active agents profitable. The median monthly profitability had grown from USD 6 in 2017 to USD 134 in 2023, which represented a CAGR of 68%. Bank agents were three times more profitable than nonbank agents because they handled more high-value transactions, such as money transfers and cash withdrawals.

Non-exclusivity among agents grew while the proportion of non-dedicated agents declined marginally

Exclusivity, as calculated by the number of agents who offer the services of more than one service provider, decreased significantly from 97% in 2017 to 75% in 2023. However, the Laku Pandai regulations on exclusivity, which prohibit agents from offering services from two different banks, reduced exclusivity among bank agents by only 5%.

Most agents in Indonesia are non-dedicated. However, the proportion of dedicated agents has increased significantly, especially outside Java, which has risen 8% since 2017. A high demand for financial services and low agent concentration in islands outside Java make it profitable for agents to remain dedicated.

Agents, especially bank agents, offer more products and services through their outlets

More bank agents have expanded their services to offer insurance and online virtual (VA) payments. Increased access to public insurance (BPJS) and the growing use of online platforms in rural and urban areas drove this shift. However, nonbank agents continue to rely on top ups and bill payments for their transactions.

ANA 2023 also found that about 20% of all agents adopted QRIS payments. Although DFS agents are the ideal target segment for QRIS adoption, the adoption rate is low due to the long settlement times for QRIS transactions.

Meanwhile, the adoption of e-commerce among agents remained limited to personal consumption and did not expand business revenues.

During the 2017 ANA survey, agents expressed strong optimism about their agency business’s potential. This optimism translated into remarkable success in 2023 as agents became more profitable and sustainable.

In our next blog, we will discuss the challenges in the agent network and propose recommendations for different stakeholders to strengthen Indonesia’s agent network.

For a complete overview of the recent findings, you can view the full Agent Network Accelerator (ANA) Research – 2023 report here