Today we dive into the evolution of agent networks in China and how other countries may benefit from that journey. This article is inspired by CGAP Agent Network Journeys: Country Deep Dive.

In 2014, Chinese e-commerce leaders like Alibaba and WeChat expanded their reach into rural areas, leveraging a 74% rural bank account penetration rate due to previous government investments. They aimed to enhance access to digital services for cash-dependent rural residents by partnering with local entrepreneurs through public-private collaborations. These agents, trained by e-commerce firms, facilitated cash transactions and connected rural businesses to digital platforms.

This initiative significantly increased rural service points, rising from 88% to 97% between 2014 and 2018. E-commerce agents pioneered the expansion of revenue by offering diverse financial and nonfinancial services through digital platforms, benefiting both producers and consumers. Service aggregation allowed providers to finely segment customers and agents by location, enabling tailored services for various groups. Pioneers like Pinduoduo specialized in capturing niche customer segments, illustrating the potential of inclusive growth through service aggregation.

Chinese regulators have actively monitored providers and agents reaching rural residents, while banks have partnered with e-commerce groups to expand rural account ownership. The success of e-commerce agents in larger rural villages has reduced the need for government subsidies, enabling resources to be redirected to unserved remote areas.

Let’s zoom-in on how the development of demand for agents has been a critical factor as we drill down into some of the case studies from the paper.

Cash-Out serves as Infrastructure, not a feature

It’s evident from the Chinese experience that a broader demand for agents is what truly completes the digital commerce ecosystem, not only CICO. Cash-out services, rather than being just a feature, serve as a foundational infrastructure. Cash-out has been perceived as a resolved issue, leading service providers to not worry about customers’ cash-out concerns. Often, they rely on the informal economy to handle cash-out needs. For example, when agents sell goods from multiple farmers on platforms like PinDuoDuo, they manage who requires cash and who prefers digital payments. Cash-out becomes an opt-in choice for payments such as Government-to-Person (G2P) transactions or platform sales. Defaulting to topping up accounts with each subsidy or sale fosters digital commerce once trust is established, highlighting that the prevalence of Cash-on-Delivery (COD) in the early days of e-commerce was primarily due to trust issues with the platforms.

Agent segmentation and portfolio matter

The costs associated with last-mile agents in China pose a significant challenge, making it imperative to broaden the demand for agents. In many instances, these agents also serve as cash-out points out of social responsibility. They often have a subsidy limit and can justify offering this service only when combined with increased foot traffic to their existing brick-and-mortar stores or when it enables them to boost their incomes through e-commerce platforms. The conventional notion of a fixed-point agent is being reconsidered due to the expenses involved in maintaining a physical location.

Source: DFS Labs & Caribou Digital

Pro tip

Diversify Microcredit Providers: Move beyond traditional microfinance by diversifying microcredit providers. Engage local rural commercial banks, city commercial banks, county-level local banks, local-level mutual aid funds/societies, savings clubs, and internet financial companies like Alipay. Think of these providers as the “capillaries” that can reach those whom mainstream banks cannot.

Use tools like Last-mile Banking toolkit, which are user-friendly software platforms, to make it easier to expand your microcredit services. These tools provide a variety of ways to connect with different companies through APIs (like plugging in different parts of a machine). This way, more people, including groups, farmers, livestock owners, and those in need during specific times or emergencies, can get microloans. These tools also offer specialized products designed to match the needs of specific types of customers, which helps boost economic growth in rural areas.

Increased demand aligns incentives

Increasing the demand for agents brings about alignment in incentives across various stakeholders. In China’s last-mile areas, agents continue to play a pivotal role in aggregation. They not only consolidate logistics for local producers, as seen with platforms like PinDuoDuo, but also address the historical fragmentation and management challenges associated with rural demand, as exemplified by Shihuituan. Agents experience income growth as they take on more responsibilities such as marketing, customer service, and logistics. For banks, this translates to the preservation of customer touchpoints in remote areas and the encouragement of rural account ownership. Meanwhile, governments can digitize G2P payments and promote rural development through e-commerce platforms, further emphasizing the importance of increased demand for agents in advancing digital commerce and economic development.

Source: DFS Labs & Caribou Digital

These lessons from China’s experience emphasize the importance of developing a strong agent network and leveraging technology to promote financial inclusion and economic development in rural areas, and they can be applied to other countries interested in developing their own last-mile e-commerce ecosystems.

If you are considering learning more about these strategies and how they can help improve your technology at last-mile, please let us know. I would be happy to set up a meeting to discuss this in further detail.