Ethswitch’s Yilebes Addis

Paving the Way for Ethiopia’s Digital Financial Revolution

EthSwitch, Ethiopia’s national switch, plays a pivotal role in fostering interoperability and facilitating seamless digital finance and payment settlement. Led by CEO Yilebes Addis, a seasoned fintech executive with a strong ICT background, EthSwitch has driven Ethiopia’s fintech landscape forward.

With over two decades of experience in banking, technology, and fintech, Yilebes brings a wealth of expertise to his role. Before joining EthSwitch, he held key leadership positions at Kifiya Financial Technology and the Commercial Bank of Ethiopia, overseeing IT projects and training initiatives. His academic credentials, including an MSc and BSc in Computer Science from Addis Ababa University, further solidify his technical prowess.

Since its establishment in 2011, EthSwitch has made significant strides in advancing financial inclusion. Key innovations such as universal ATM access and a new QR payment system have contributed to expanding access to financial services for Ethiopians. Despite the challenges posed by varying IT maturity among financial institutions, EthSwitch remains optimistic about the future of digital payments in Ethiopia.

By fostering a favourable regulatory environment and forging strategic partnerships, EthSwitch aims to position Ethiopia as a competitive hub for digital payments. This vision, the company’s track record of innovation, and Yilebes’ leadership instil optimism among industry stakeholders.

Under Yilebes’s leadership, EtSwitch’s profit before tax recorded ETB 534.53 million in 2022/23, a 172% increase compared to the previous year’s performance. The company continued its robust performance with a profit of ETB 1.06 billion in the just-concluded fiscal year.
EBR’s Eden Tshome has this brief conversation with the seasoned Fintech Executive who has successfully transitioned from technical roles to strategic leadership positions in fintech.

How would you introduce your professional life to EBR readers?

My professional journey began with a Computer Science degree from Addis Ababa University (AAU) and a teaching role at Unity University and AAU. After four rewarding years at AAU, I joined the Commercial Bank of Ethiopia (CBE), where I held several roles, including Database Administrator and Manager of Electronic Banking System.

Two pivotal experiences catalysed my transition from IT to business. First, while teaching Peachtree Accounting Software, I delved into accounting principles, sparking my interest in finance. Second, my exposure to Business Process Engineering (BPR) at CBE allowed me to explore essential banking functions, including international banking, credit, and retail banking. These experiences and pursuing management courses in HR, project management, business, banking, and leadership shaped my understanding of the intersection between technology and finance. They prepared me for leadership roles in the fintech sector.

After CBE, I joined Kifya Financial Technology as Chief Technology Officer and later focused solely on my role as Chief Information Officer. During this time, I worked on branchless banking innovations, new payment systems, and bill aggregation.

My career took a decisive turn when I received an offer from EthSwitch during a challenging period for the company. I was initially hesitant, as the company was facing significant obstacles and had a limited product range. However, after discussions with board members and bank stakeholders, I was encouraged to transform the company with a clear vision. Overcoming these challenges and steering the company towards a more diverse product range and strategic partnerships was a significant milestone in my professional journey.

My mission was to diversify EthSwitch’s product offerings and establish strategic partnerships. That’s why we competed for funding through the African Digital Finance Facility, a financial inclusion initiative by an African development bank. Winning this grant was crucial for developing key platforms, such as a national payment gateway and services for those without access to digital wallets. Securing this grant involved rigorous competition, strategic planning, and a clear vision for the company’s future. Out of 340 competitors, including private and governmental entities, EthSwitch won the contest and secured USD 2.3 million in funding, marking a significant milestone in our journey.

This achievement transformed EthSwitch’s image and marked a turning point in our profitability. In my first year, we introduced a range of diversified products, significantly enhancing our impact and success in the fintech sector.

What inspired the establishment of EthSwitch, and what are its core objectives?

EthSwitch was established in alignment with Ethiopia’s National Payment Modernization Strategy, which aimed to revolutionise the country’s digital payment landscape through critical initiatives. These included introducing an Automated Clearing House (ACH), creating a national repository, and developing a national switch with interoperability.

The national switch, a cornerstone of this effort, could operate as a department within the central bank, a private entity, or part of financial institutions. After careful discussions, we agreed on essential aspects such as pricing, roles and responsibilities, ownership, regulatory frameworks, and technological standards. The primary objective was to establish interoperability among banks and financial institutions across ATMs, mobile payments, QR code payments, and other financial services.

A second key motive was developing domestic expertise and setting precise payment landscape requirements. This involved creating a robust payment scheme with technology standards, system requirements, and standardised agreements to ensure a cohesive approach.

Payments also extend beyond interoperability; for example, e-commerce necessitates a national payment gateway. Thus, the third objective was to establish this gateway to facilitate seamless online transactions. EthSwitch’s role as a hub for multiple companies, aggregating payments and providing central connectivity for clearing and settlement processes, was also important.

Recognising that many financial institutions struggled with capital allocation and financial deficits, EthSwitch was designed to serve as a shared infrastructure and capital platform. This collective model allows institutions to pool resources and invest in costly infrastructure.

What initially drew you to the digital payments sector?

My background in technology and various opportunities across different companies sparked my interest in fintech. I gained valuable insights through business, banking, payments, and leadership courses and training. During my four years at CBE, I witnessed significant advancements in fintech and digital banking, where technology modernised the banking system. I saw firsthand how payment systems simplified lives and addressed societal challenges. This experience ignited a genuine interest and passion for fintech, inspiring me to think about how I could further improve these systems and contribute to societal solutions while leaving my legacy in the fintech space.

Additionally, after completing a leading digital market course and other fintech-related training, I began to view challenges as opportunities for innovation and growth.

How has your background in ICT influenced your leadership in digital finance?

My background in ICT, along with additional training and business experiences, has provided valuable insights for my role as CEO of EthSwitch. Understanding tech leadership has helped me identify effective leadership styles to enhance payment systems and leverage technology’s contributions.

Tech companies are built on three fundamental pillars: technology, processes, and people. Each element is crucial for success. Processes extend beyond technology to finance, procurement, administration, and risk management. Additionally, having a qualified and well-trained personnel is essential. When these pillars are effectively integrated, a company can become profitable, make a significant impact, and maintain sustainability.

What innovations has EthSwitch introduced recently to enhance digital payments?  What are the key milestones that you believe define the company’s journey so far?

Since its inception, EthSwitch has introduced various initiatives that align with our five core objectives. Our mission is to empower companies by providing inclusive payment solutions. For instance, our ATMs are universally accessible, allowing customers to use any ATM card across all banks.

In point-of-sale (POS) systems, we recognised that traditional card transactions were limited due to the country’s low card circulation. To address this, we developed mobile-based solutions that enable seamless transfers between individuals, regardless of their banks. This allows transactions between accounts, as well as wallet-to-account and wallet-to-wallet transfers.

Moreover, we introduced an instant payment system that facilitates various transactions, including utility bill payments and online purchases, all from home. This system also allows banks to lend to each other.

A significant milestone this year was the launch of our QR payment system. This revolutionary solution simplifies payments using a QR code displayed at any location, requiring minimal costs and no internet connection. Payments can be completed by scanning the code, making it accessible even for small vendors. I was particularly impressed by its reach when I saw a homeless individual in India using a QR code.

These products are innovative, cost-effective, and financially inclusive. One of our goals is to create a shared capital and infrastructure platform. Many banks struggle to provide essential infrastructure due to long implementation times, so we developed a platform that removes these barriers, enabling banks to meet their needs quickly and operate efficiently. A key focus of our efforts is security, which we address through our shared reconciliation security platform.

How do you foresee EthSwitch’s financial performance evolving in the next few years?

We received a grant to introduce technology and reduce costs rather than maximise profitability. However, as a shared company, generating profits remains essential for paying taxes and employees, ensuring sustainability, fostering innovation, and maintaining operations.

We have made significant progress, achieving a pre-tax profit of ETB 1,053,740,343 this fiscal year. We expect to maintain profitability in the future, which is crucial for advancing technology, training qualified personnel, ensuring a secure environment, and introducing innovative products. Additionally, we plan to build a suitable headquarters with a G+12-14 structure to support these efforts. We aim to position EthSwitch as a globally competitive company by streamlining payment processes and making them more affordable.

How does EthSwitch differentiate itself from other payment service providers in Ethiopia?

EthSwitch differentiates itself from other payment service providers in Ethiopia through several key factors outlined in the directive on Licensing and Authorisation of Payment System Operators. EthSwitch is designated as the national switch, with specific responsibilities mandated by the National Bank of Ethiopia (NBE). Notably, NBE is both a board member and chairman, ensuring alignment with its agendas alongside the presidents of other banks and financial institutions.

Only financial institutions can be shareholders in the national switch; individual business owners cannot. Shareholders include banks, microfinance institutions, payment system operators, and payment instrument issuers, each limited to owning up to 5% of the switch’s capital.

The national switch is tasked with creating multilateral interoperability, connecting all financial institutions. In contrast, other operators typically have limited one-to-one or bilateral relationships, which can introduce risks and encryption issues. The right to operate a domestic scheme is exclusive to the national switch. Pricing: While other operators can set their prices, the national switch’s pricing must be approved by the NBE.

The directive on which EthSwitch was established grants the national switch the exclusive right to provide a national payment gateway and establish payment connectivity between financial institutions. The directive does not explicitly grant the national switch the right to deliver shared services. These distinctions position EthSwitch uniquely within the payment service landscape in Ethiopia.

What challenges do you face in Ethiopia’s fintech landscape? How does the regulatory environment in Ethiopia affect your operations and growth?

Despite the challenges, the fintech landscape in Ethiopia presents substantial opportunities. The regulatory framework is supportive, creating a significant advantage for us.

Firstly, Digital Ethiopia is focused on fintech, with interoperability as a major priority. The national switch plays a crucial role in advancing these goals.

Secondly, the national digital payment strategy emphasises interoperability, digital payments, and establishing a national payment gateway. With the NBE as chairman, this creates valuable opportunities for progress.

Our primary challenge is the varying levels of IT maturity and decision-making capabilities among financial institutions and use case providers, which hinders timely service delivery. Additionally, finding skilled professionals for the sector, including domestic technology companies that develop wallets and switches, is a significant challenge. While local companies are addressing these needs, they require more support.

Banks and financial institutions should encourage and support domestic technology companies by choosing to purchase from local providers rather than international suppliers. This can streamline the purchasing process and ensure more timely service delivery. Fortunately, awareness and literacy are not major challenges when we offer convenient products.

What is your vision for the future of digital payments in Ethiopia?

Digital payments are assessed based on the overall economy and user engagement. As Africa’s second most populous country, Ethiopia offers substantial business opportunities. The market remains largely untapped, with limited daily transactions, use cases, and technologies. However, strong government support and simplified products create opportunities for first-mover advantages.

In this context, I envision Ethiopia becoming a receptive market for innovative payment products and a hub for youth-driven innovation. Looking ahead, I see the Ethiopian fintech landscape evolving into a competitive force, not only within Africa but also on a global scale, standing alongside countries like China and India.

As we start the New Year, what achievements and lessons have you learned from the success of the just-concluded year?

Over the past year, we developed an annual plan that set specific targets for projects, finances, non-financial goals, and strategies for timely adaptation to changes. This approach led to strong performance and profitability. We introduced new products, improved our HR practices, and achieved high employee satisfaction.

I am grateful to critical contributors: the National Bank of Ethiopia (NBE), banks, financial institutions, microfinance organisations, payment instrument issuers, and payment system operators. We also thank our partners, suppliers, and funding instituions such as the Bill and Melinda Gates Foundation and the African Development Bank, for their support.

As we enter the New Year, I hope we achieve our goals and wish everyone mentioned above success, peace, and prosperity for our country. EBR

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12th Year • September 2024 • No. 133