ATM Integration: What will it Mean for Ethiopia’s Banking Sector?

The introduction of integrated automated teller machines (ATMs) means the banking sector is aligning itself with the technological practices of more developed nations. It also represents a logistical quagmire for banks that have established vast ATM networks and now have to share them with newer ones. EBR’s Ashenafi Endale spoke with banking sector insiders to learn more about the nuances of this issue.

On the morning of Sunday, May 22, 2016, Abel Tefera, 28, was inserting his debit card repeatedly into the automated teller machine (ATM) installed under the Wabi Shebelle Hotel building, located around Mexico Square, with no success.
“Try another place, this one does not work some days,” one of the guards of the Hotel told Abel.
“I need money for an urgent matter,” Abel replied to the guard. “I do not understand why they keep the machine if it doesn’t work.”
Abel, who works at a private construction company, wanted to withdraw money from the ATM in order to lend it to his friend who desperately needed cash. Abel was using Berhan International Bank’s (BIB) debit card and trying to insert it at Awash International Bank’s (AIB) ATM. Even though BIB doesn’t have its own ATMs yet, it uses the those installed by Premium Switch Solution (PSS).
Awash, Nib International Bank (NIB) and United Bank (UB) established PSS in 2009, with ETB30 million in paid-up capital. Along with four additional banks – the Cooperative Bank of Oromia (CBO), Addis International Bank (AdIB), Bank of Abyssinia (BOA) and BIB – PSS currently owns close to 400 ATMs.
What Abel did not know was that – as of two months ago – his debit card now works at any other banks’ ATMs, since EthSwitch, a company owned by 18 commercial banks and the National Bank of Ethiopia (NBE), interconnected all machines throughout country, enabling any debit cardholder to withdraw funds from any banks’ ATM.
Fortunately, after he was told to do so, Abel inserted his debit card in Zemen Bank’s ATM, installed at the Hotel and withdrew his money. “I don’t believe this. I wasn’t aware that they started such a service,” he said, relieved.
Such real-time interbank ATM integration was officially launched long after many like Abel faced difficulties accessing their money. “You may not always keep cash in your pocket and what can you do when you face emergencies, especially if it is holiday or if you are far away from a bank branch?” pondered Abel.
EthSwitch was established in 2011 with ETB80.5 million in registered capital, after the NBE initiated it in 2009, but integration was slow to come. “In addition to the dalliance of procurements of hardware and software, integrating the platforms of each bank, a lack of readiness to cooperate from the banks [delayed] the introduction of the service [for a] long [time],” said Daryl Berg, Managing Director of BPC Banking Technologies in Africa, the Switzerland-based software provider for EthSwitch, speaking at the inauguration of the integration service.
Bank industry insiders say this “lack of readiness” stemmed from competition in the sector. “There was conflict of interest among banks, especially among those that have already installed ATMs, not to integrate themselves,” says Kenedy Abebe, E-Banking Customer Development Officer at Wegagen Bank, which recently purchased 80 new ATMs, in addition to its 100 existing machines, of which 70 are active. “It is advantageous for new entrants but might discourage large banks that have already invested in ATMs.”
Kenedy believes that EthSwitch has created a modern and standardised service for the banking sector: “Branch-based service is now too costly, not convenient and unattractive. Now it is better that banks share the resource, which would have been difficult to do separately.”
However, Mezmur Birhanu, Payment System Oversight and Development Principal Officer at the NBE, says that negotiations are underway with the board of EthSwitch regarding how to compensate banks that have already invested large amounts of money on ATMs that now have to share them with newer banks.
Abraham Alaro, President of BIB, agrees with the need to share the costs with other banks. “It is necessary to share the administrative, supervision and maintenance costs with banks that installed the ATMs,” he argues. “We have to support it because EthSwitch has come to help us in so many ways, especially in resource utilisation and payment service integration.” On average, a standard ATM costs ETB400,000 for banks to install.
“It is a great opportunity for both the new and larger banks,” said Adisu Haba, President of Debub Global Bank and the Ethiopian Bankers Association.
Adisu’s bank, BIB, AdIB, BoA, CBO, OIB as well as Abay, Lion and Enat banks have no ATMs thus far, while the Commercial Bank of Ethiopia (CBE) leads in ATM services, with 760 active machines, out of 1,200 installed by the Bank. Dashen Bank follows, with 170 active ATMs and 827 PoS terminals, which is higher than CBE’s. Currently, there are 1,355 ATMs owned by a total of eight banks, a figure that stood at 884 as of June 2014. There are also currently 1,337 PoS terminals owned by six banks.
The three-month average of ATM transactions has also reached 7.8 million, worth ETB7.6 billion, according to data from the NBE. The number of cardholders is currently 2.3 million, up from 1.46 million in June 2014.
According to Ephrem Mekuria, Communications Manager at the CBE, this demonstrates that card banking services are still underdeveloped in Ethiopia. “There is much to be done in expanding branches and electronic services,” argues Ephrem. “The number of [CBE] cardholders is small compared to our 13 million account holders.”
The modern e-banking system, in which information is electronically transmitted over wireless communication channels and the Internet, is new to the Ethiopian banking sector. In fact, the country’s banking industry is relatively late when it comes to technological advancement. With some exceptions, almost all banks operating in Ethiopia used to provide service to customers primarily through the traditional brick-and-mortar model, which exacerbated customers’ dissatisfaction regarding the country’s state of financial and technological development.
However,Abraham sees the growth of electronic services in the banking industry as a catalyst for economic development and increasing the number of people that utilise banks. “The banking service modality is changing now since electronics and e-commerce are engulfing traditional banking services, although Ethiopia is at the bottom,” he says. “But, the economy is becoming more vibrant. So it is time that banks reach out to the unbanked section of the population through ATMs, PoS terminals and agent banking to accelerate economic growth.”
Of course, technological innovation plays a crucial role in the banking industry by adding value for banks, which enables customers to perform transactions in a more efficient and convenient manner. E-banking will also enable institutions to compete more with each other by expanding their products and services beyond the time and space restrictions of the brick-and-mortar model.
This is why Mezmur says that even though the NBE has necessitated that banks increase their branches by at least 25Pct every year, this will become obsolete in the future. “Cost-wise, branch expansion is not advisable,” he argues. “If electronic services and agent banking have the right coverage, branch expansion will not be necessary.”
Still, some argue that ATMs can’t address all the sector’s development issues. Yedilfre Moges, E-Banking Clearing and Settlement Officer at Wegagen Bank, says that ATMs aren’t helpful in resource mobilisation. “Customers use the machines to withdraw cash, not to deposit,” she says. “Rather, it is a digital wallet, which Wegagen is currently developing, that must be adopted by banks in Ethiopia, to facilitate resource mobilisation.”
Wegagen recently started prepaid and gift card services in collaboration with Shoa Supermarket, which has nine branches in the capital. “We are also dealing with gas stations and other entertainment places because they have customers who are willing to spend,” stresses Yedilfre. Wegagen currently has 139 branches.
E-banking in Ethiopia has not really been able to diffuse into society, considering the low development of information and communication technology infrastructure compared to other countries.
However, banks are slowly shifting from traditional models towards relationship banking. The experiences of other countries demonstrate that banks should strengthen these efforts by adding technological innovations in their development strategies and daily operations to satisfy the growing needs of customers like Abel. EBR