1) Ethiopia has high potential for e-commerce growth given its large population and rapid infrastructure development, but card-not-present transactions present security risks. 2) 3D Secure is a global standard that adds an extra authentication layer for online payments, reducing fraud liability for merchants. It works by requesting additional identity verification from the cardholder during checkout. 3) While 3D Secure reduces fraud, some countries still experience high costs of billions from card-not-present fraud each year, showing the ongoing need to implement secure online payment solutions.

1. The potentials for e-commerce payments'
growth in Ethiopia and the need for secure
CNP (Card-Not-Present) transactions
Bizuneh Bekele
ePayment and FinTech Development Consultant
Founder, DigiFinance Africa
Founder and Ex-CEO of EthSwitch S.C.
The 3rd East Africa Finance Summit: Dec. 18, 2018
Addis Ababa, Ethiopia

2. Ethiopia - Basic Information (2018)
Indicator Size
Total Population (2018 est.) 105 million
Adult Population (Age 15+) 60 million
Total Mobile Subscribers 65.7 million
Active Mobile Devices on the Network 40.4 million
Internet and Data Subscribers 17.87million
Commercial Banks 17
Microfinance Institutions 37
International Money Transfer Operators 40

3. Financial Services Level (2018)
Indicator Size
Financial Institutions Account Ownership 34.8%*
Mobile Money Account Ownership (2017) 0.3%**
Total Number of Bank Branches 4,587
Number of ATMs 3,417
Number of POS Terminals 10,267
Number of Cardholders 7 million
* Percentage out of the adult population
** Source: World Bank’s, Little Data Book of Financial Inclusion (2018)

4. Country Global Rank Download Upload
Kenya 95 15.11 Mbps 10.18 Mbps
Ethiopia 110 11.04 Mbps 14.18 Mbps
Nigeria 111 10.34 Mbps 8.87 Mbps
Source: https://www.speedtest.net
Country
Rank in
Africa
Internet
Users
Internet
Penetration
Nigeria 1 98.4 M 50.2%
Kenya 3 43.3 M 85%
Ethiopia 9 16.4 M 15.3%
Source: https://www.internetworldstats.com
Note: The current number of internet subscribers as reported by ethiotelecom is
17.87 million.
Internet Speed
Oct. 2018
Internet
Users - 2017
Internet Services Level Comparison

5. Country Rank in Africa Facebook Users
Nigeria 3 17 M
Kenya 6 7 M
Ethiopia 10 4.5 M
Source: http://www.internetworldstats.com
Social Media Users Comparison

6. Source: http://www.ethiotelecom.et
Mobile Devices

7. Smartphone Operating Systems

8. Country Global Rank Smartphone
Users
Smartphone
Penetration
Nigeria 24 26M 13%
Ethiopia 38 12M 11%
Kenya 41 11M 21%
Source: Global Mobile Market Report 2018, Newzoo
Smartphone Users Comparison

9. Ethiopia
Kenya
Rwanda
Tanzania
Uganda
0 5 10 15 20 25
0.2
20.8
2.2
11.7
10.9
21
15.9
2.6
6.4
7.1
Mobile Money
Accounts
Financial Institution
Accounts
Mobile Money vs. Financial Institution Accounts
in 5 East African Countries - 2017 (millions)
Note: Compiled based on the Little Data Book on Financial Inclusion 2018, World Bank

10. Six out of the ten fastest-growing nation
brands in the world are from Africa!
Published by

12. 5. Fastest growing economy in the region:
• Economy experiencing strong, double digit growth (averaging
10.3%) a year in the last 12 years, compared to a regional
average of 5.4% (Source: World Bank)
6. Growing B2C and B2B businesses:
• Suitable demography to the growth of FMCG
7. Growing Telecom and Electric Power Infrastructure:
• Huge public investment on infrastructure for the last more than
20 years
8. Growing number of ePayment users:
• 7 million cards, 3.1 million mobile banking, 3.6 million mobile
wallet, and 190,000 internet banking users.
10 Factors ….

13. 10 Factors ….

14. • Some local entrepreneurs starting fintech enabled
processes which use or are ready to use e-commerce
payments
– e.g. restaurant, logistics (delivery), transport (taxi, bus, air ticket,
etc), bill collection, and other businesses
• Expressed interest by Ant Financial Services Group (an
affiliate company of the Chinese e-commerce
conglomerate, Alibaba Group) to bring its technology and
money supply to Ethiopia
• The recent expressed interest and intent by many Banks to
adopt processing e-commerce payments in the near future
Market Responses

15. • Some Chinese Restaurants in Addis Ababa accepting
payment from their Chinese customers using WeChat or
Alipay
– The following LinkedIn post is an instance of this:
Market Responses (Cont’d)

16. Market Responses (Cont’d)
A Chinese e-commerce company, called Kikuu is currently
operating in 11 African countries including Ethiopia. The
following is its page for Ethiopia.

17. Important Policy Issue
“ Regulating digital super platforms and developing
national marketing platforms is essential for
developing countries to gain from e-commerce.
Without this, linking into existing super platforms
will only provide the companies that run them
with more data, strengthening them further and
facilitating their greater access to domestic
markets.”
UNCTAD’s Trade and Development Report 2018: Power, Platforms, and the Free
Trade Delusion

18. Our Banks Interest/Intent to adopt
Processing of e-commerce Payments
(aggregated by their market share)

19. Our Banks Interest/Intent to adopt
Processing of e-commerce Payments
(aggregated by number of Banks)

20. Proportion of Issued Cards by Banks
(classified by brand type)

21. Proportion of Issued Cards by Banks
(classified by technology supported)

22. EMV
• EMV is a payment method based upon a technical standard for
smart payment cards as well as payment terminals and ATMs that
can accept these cards.
• EMV cards are smart cards that store their data on integrated circuit
chips in addition to magnetic stripes.
• The global rollout of the EMV chip card standard has curtailed point-
of-sale fraud.
• Various studies show that global fraud statistics has shifted from
card-present to card-not-present (CNP), as CNP fraud has increased
since merchants have globally rolled out to EMV chip terminals.

23. Card Present vs. Card-Not-Present Transactions

24. CNP and e-commerce
• Card not present (CNP) transactions are the
primary payment method for e-commerce
sales around the world.
• The convenience of online shopping using CNP
has grown e-commerce sales globally.

25. Risk of CNP Transactions
• In the early days, there was only Authorization process for e-
commerce payments, done by the card issuing bank, i.e., :
–The card details of a cardholder are validated by the card issuing bank
–The account linked to the card is checked to see if it has enough funds
• Based on the authorization only process, anybody could
make purchases using a card as long as he or she knows the
card details and there is enough money in the account.
• This situation opened opportunity for fraud, called CNP
fraud.
• The payment industry created a solution called 3-D Secure.

26. Global Cost of CNP Fraud
“Publicly available estimates of the actual
cost of CNP fraud vary considerably, with
estimates of the global scale of e-commerce
fraud losses ranging from $25 to $40 billion.”
Accenture

27. About 3-D Secure
• 3-D Secure, developed by EMVCo, is a feature which adds
an extra layer of protection to reduce the risk of fraudulent
transactions in e-commerce.
• 3-D Secure supplements authorization by implementing the
authentication process.
• Several globally-known card schemes implement 3-D
Secure.
– Visa - Verified by Visa
– Mastercard - SecureCode
– American Express – SafeKey

28. The 3 Domains in 3-D Secure

29. How 3-D Secure 2.0 works
• Authentication tests the identity of the person making a
payment.
– At checkout, after typing in the card details for a purchase, the person
is asked in an inline frame (next slide) to verify the identity of the
cardholder.
• This is done by using an authentication method:
– Static password
– Dynamic password
– Biometric Feature
– Scanned QR Code
• The authentication method is set by the issuing bank.
• If the authentication procedure is successful, the payment is
approved (authenticated), if not, the payment is declined.

30. How …

31. 3-D Secure 2.0 : Risk Based Authentication
In the latest specification, i.e., 3-D Secure 2.0, risk based
authentication is included, which enables the merchant and
acquiring bank to classify transactions into high risk and low risk.
This enables faster checkout process.

32. Why is 3-D Secure a good feature?
1. Liability shift:
– Without 3-D Secure, when a cardholder disputes a
fraudulent transaction:
• The merchant is liable for the transaction
• The merchant has to repay the money in the form of a
chargeback
– But, if the merchant implements 3-D Secure, the
liability for fraudulent transactions shifts to the issuer.
– This shift applies as long as:
• A transaction is authenticated
• Or attempted authentication took place and the issuer didn’t
respond

33. Why 3-D Secure …
2. Conditional 3-D Secure:
– 3-D Secure can be customized.
– You can request to have 3-D Secure activated for high-
risk transactions or for transactions of specific
amounts.
– Activation of 3-D Secure is usually coordinated
between the merchant, payment gateway, and
acquirer.
– Conditional 3-D Secure, which applies Risk Based
Authentication, has been proven to be very useful in
increasing the number of retained ecommerce
customers.

34. • Visa activation date of 3-D Secure 2.0 in CEMEA
is April 2020
• Merchants accepting MasterCard payments are
expected from the 1st of December 2020 to
use 3-D Secure 2.0 only
International Card Brands:
3-D Secure Activation Dates

35. This presentation is prepared based on a study
supported by Netcetera, a leading Swiss software
company based in Zurich, Switzerland.
https://www.netcetera.com
As Technical Associate of EMVCo, the global standard
body for EMV and 3-D Secure, Netcetera has
technically contributed to the development
3-D Secure.

36. Thank you!
For more please contact:
Bizuneh Bekele
Consultant, ePayment and FinTech Development
bizuneh@digifinanceafrica.com
+251-90-101-9037