Presented by Getahun Nana at the 4th Annual East Africa Finance Summit
Modernization of Ethiopian payment system needs disruptive changes
Digitization offers disruptive and a transformative solution to modernization of payment systems
3. Introduction: Elements of Payment
System
Payments are processes by which monetary instruments are transferred from payer to payee
The main elements of a national payment system include:
Payment instruments (currency, electronic money, checks...)
Payment infrastructures (ICT, technology systems etc)
Financial institutions (payment services providers)
Market arrangements (agreements, etc)
Laws, standards, rules and procedures
4. Introduction: Broad Classification
•Inter-bank and Retail payments
•Interbank payments are large-value and time critical
payments
•They are settled on the books of central banks
•Retail payments are made among consumers, businesses
and government
•Usually small in value but large in volume
6. Current Payment Landscape
• Ethiopia’s national payment system is evolving, yet largely traditional
• In 2008 the NBE initiated a payment system modernization Project
• First, NPS law was issued in 2011
The law aims to modernize NPS and ensure its soundness, safety and efficiency
It provides the legal basis for electronic processing, netting and settling of payments
It sets admissibility of electronic signatures and documents as evidence in the court of law
Non-banks are allowed to offer payment-related services as agents of financial institutions
7. Current Payment Landscape...
NBE implemented state-of-the-art interbank electronic funds transfer system
NBE encouraged (at times forced) banks to upgrade their banking technologies, and expand
access points (branches, ATMs, POS-terminal network)
The response was great, between 2008 and 2019 :
◦ All banks established state-of-the are Banking technology
◦ Bank branch network expansion was fast from 500+ to 5000+
◦ ATMs also increased from close to zero to 3000+
◦ POS from close to zero to 9000+
In 2016 , EthSwitch went live in making ATMs interoperable
8. Current Payment Landscape...
562 636 681
970
1289
1724
2208
2693
3301
4257
4757
5389
0
1000
2000
3000
4000
5000
6000
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
NUMBER
YEAR
Growth in Number of Bank Branched
10. Current Payment Landscape...
In spite of considerable efforts and achievements summarized above, the country's payment
system remained inefficient, unsafe, and unsound.
Cash continues to dominate
17.6 19.7 24.2
32.6
38.6
45.7
53.2
60.5
66.7
73.9
84.4
97.1
0
20
40
60
80
100
120
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
BILLIONSOFBIRR
YEAR
Currency outside Banks
11. Current Payment Landscape...
• Financial markets are nascent and thus they cannot facilitate payments and
flow of funds in the economy efficiently.
No formal secondary money and capital market in the country
Little or no improvement in delays and associated floats in manual cheque clearing system
Existing telecom infrastructure to support the payment system is insufficient and
characterized by frequent network failure.
Frequent breakdowns in electricity is also a challenge.
12. Transforming Ethiopian Payment System:
The Need for Disruption
• Modernization of Ethiopian payment system needs disruptive changes
• Digitization offers disruptive and a transformative solution to modernization
of payment systems
• Digital payments are efficient, safe and secure
• It has the power to transform the economic prospects of the country and
sustainable growth
• Promotes inclusive finance
• greatly improves transparency and traceability of transactions thereby helping
to fight corruption, money laundering and tax evasion
13. Transforming Ethiopian Payment System:
Four Pillars
Modern Payment System
Legal
Framework
Product and
Services
Financial and
ICT
Infrastructures
Customer
Protection and
Literacy
14. Transforming Ethiopian Payment System:
Pillar 1: Conducive Legal and regulatory Framework
There is a need to establish predictable and non-
discriminatory legal and regulatory framework that:
•Promotes competition and innovation,
•Ensures the safety, soundness and efficiency of the
national payments system
•Protects customers funds against misuses and losses
15. Transforming Ethiopian Payment System:
The Need for Disruption...
• NBE’s current restrictive policy approach is under revision
• Since is not promoting competition as well as diversity of service
providers
• The current regulation is a serious barrier for transition from
legacy to digital payment system
• It is hampering rapid expansion of financial inclusion
• It is widely recognized that competition in a market produces
greater value, choice and opportunities for customers
16. Transforming Ethiopian Payment System:
Pillar 2: Customer Centric Payment Product and Services
• A wide range of affordable, convenient and acceptable electronic
payment instruments, accessible anywhere and anytime are
crucial for digitization of payments.
• Electronic payment instruments provided by Ethiopian banks are
limited and evolving
• Ethiopian banks issue debit card but not credit cards
• Mobile money uptakes are very low
• Thus there is a need for further explore use cases and work on
supply side
17. Transforming Ethiopian Payment System:
Pillar 2: Customer Centric Payment Product and Services
Ethiopia considerably lags behind sub-Saharan African countries average in digital payments
Source: World Bank Findex, 2017
Description: Transaction in the last 12 months ; % of adults Ethiopia SSA (AVG)
Made or received digital payments 11.9 34.4
Used an account to pay utility bills 0.0 7.7
Used an account to receive private sector wages 0.7 5.7
Used an account to receive government payments 3.0 7.3
Used the internet to pay bills or to buy something online 0.6 7.6
Used a mobile phone or the internet to access an account 0.4 20.8
Used a debit or credit card to make a purchase .. 7.5
18. Transforming Ethiopian Payment System:
Pillar 3: Enabling Financial and ICT Infrastructures
• Payment service providers should use state of the art technology
• Their systems should be interoperability
• A robust communications/telecom infrastructure
• Reliable electric power
• An effective and efficient personal identification
19. Transforming Ethiopian Payment System:
Pillar 4: Customer Protection and Literacy
•Innovation and modernization in payment services bring
new risks
•Thus there is a need to ensure soundness of the system in
a way that does not stifle competition and innovation
•Create swift out-of-court dispute resolution mechanisms
for consumers
•Enhance understanding in basic information about
payment products and services
20. Concluding Remarks
• Ethiopia’s current payment system is underdeveloped. It is
inefficient, unsafe and risky
• Thus Ethiopia needs to radically transform its national payment
system
• Digitization offers disruptive and a transformative solution
• To this end there is a need to:
• create conducive legal and regulatory framework for digitization
of payments,
• build enabling financial and ICT infrastructures,
• develop and implement customer centric payment product and
services,
• establish appropriate customer protection, and
• educate the public and businesses in finance and payments.