Editor’s note: This article was first published in May 2010. It describes bank agent arrangements in Spain in 2010: an initial outlay of about 2,500-3,000 euros, start-up subsidies taking a year to a year and a half, forms sent by fax and commissions paid up to six months later. Conditions have likely changed since.
People often ask me whether becoming an official agent for a bank is a good business idea, or a profitable business. Like any business, it has its advantages and disadvantages. It’s a business I know quite well, so let’s look at whether it’s really the kind of business you’re looking for.
First of all, bear in mind that under this system the bank will always come out on top. The bank is the party that takes the least investment risk.
Advantages of being a bank’s agent:
- You become part of a solid, solvent company.
- They give you information about the subsidies you can get as an entrepreneur.
- They help you financially during the first year. They give you a small allowance that will only cover the office expenses, electricity, water and little else.
- You don’t need a large investment, given the subsidies you can apply for. The initial outlay is usually around €2,500–3,000 for refurbishing and decorating the premises.
- The office is yours if you decide to end the partnership and start another business in the same space.
- It’s easy to land your first customers, who may be family and close friends.
Disadvantages of being a bank’s agent:
- Even as an official agent, with the bank’s signs and posters on your premises, you depend on another branch for many of the transactions you need to carry out.
- You’re not a bank, and people know it, so winning customers will be hard.
- When it comes to granting mortgages or loans, you’re at a disadvantage:
- All the forms go through by fax. This can drive a customer to despair if the branch that is supposed to support you is slow to process things.
- You’re paid in commissions on the transactions you bring in, so when you arrange a loan or a mortgage, the interest rates will be higher for the customer, which means you won’t be competitive on these products.
- Answers on whether a mortgage is approved or turned down come late, which gives your customer plenty of time to lose patience and go to another bank.
- You provide the premises, and you pay for the refurbishment, the decoration and your own self-employed (autónomo) insurance.
- The subsidies you can apply for can take between a year and a year and a half to arrive. If you leave the partnership halfway through the process, you get absolutely nothing.
- They ask for a guarantee from your family, which puts your family’s money at risk.
- They pay you in commissions, and when they pay is what really matters. Some banks may take as long as six months to pay your commissions.
What to look at before becoming a bank’s agent
- Read the contract they offer you carefully, because many of them require you to work with them for a year or two, whether it goes well or badly. If it goes badly, you’ll have to keep the office open and keep serving customers while the bank considers bringing in a new agent in the area. If it goes well, they can always do without you and put in your place some bank manager whose branch has been closed.
- Make sure they don’t tie you to their products exclusively: In the past, this kind of partnership was offered to offices that already ran an estate agency, travel agency, insurance agency and so on. Nowadays most banks require you to work exclusively on banking business, with heavy penalties if you breach that part of the contract.
With all that said, it’s up to you to decide whether this is really the kind of business you want to set up. Some people have done well, but others have never got back on their feet after investing their savings in this idea without getting proper support from the bank.
This is a good business idea, above all for the bank. It doesn’t have to invest in a large infrastructure, it has people working for it without having to pay them, and if things go badly it closes the office, which it never paid for in the first place. It gets customers through the agent, many of whom end up staying with the bank, and on top of that it enjoys constant advertising and a presence in every town and village.
This system has put Spanish banks among the top banks in the world. I don’t need to name the bank that has been using it for a long time, because we all know which one it is.
So tell me: is this the business you were looking for?
Featured image: Blogtrepreneur, CC BY 2.0, via Wikimedia Commons.
