Mobile, Agent Banking Indispensable Tools to Expand Financial Inclusion

Access to financial services contributes immensely to economic growth. This is why nations come up with the right mix of policies to expand financial services. Ethiopia, too, has been reforming its financial sector for the last two decades. However, the sector remains immature, even in comparison to other Sub-Saharan African countries.

To ameliorate the situation, the government has been intensifying its efforts to expand financial services. In 2014, the National Bank of Ethiopia (NBE) made it a requirement for financial institutions to increase their branches by 25Pct annually. This resulted in an unprecedented expansion of financial services. A year before that, the bank introduced a mobile and agent banking policy. As a result, close to 2 million clients are now using mobile banking, while 16,000 agents operate in the country.

Furthermore, last April the NBE introduced the country’s financial inclusion strategy, which analyses the state of financial exclusion in the country and highlights the need to create a cogent framework to tackle the problem. EBR explores.

Yitbarek Shawl, 28, is an accountant working in a private company. He has been using banks to facilitate his financial transactions by making his way to the nearest branch ever since he opened his first bank account 11 years ago. These days, Yitbarek rarely goes to bank. He has started using mobile money.

“I started using mobile money because it has many advantages,” Yitbarek told EBR. “Through the technology, I can transfer money and check my balance wherever I am, without having the need to go to the bank; I can do this [even] when banks are closed.” Yitbarek has mobile banking accounts at the Commercial Bank of Ethiopia (CBE), and Wegagen Bank.

Until recently, bank clients in Ethiopia were obliged to appear in person to receive banking services. This changed after the launch of mobile and agent banking services in 2013, following the introduction of regulations by the central bank. These regulations, set at the end of 2012, governed the use of the technology.

Mobile and agent banking is just one form of electronic banking that allows customers to access a wide range of banking services through electronic channels. Since the early 2000s, there were attempts to adopt electronics based banking solutions in Ethiopia. The state owned giant, CBE, became a pioneer in this regard when it introduced ATMs.

The use of electronic banking services expanded to mobile banking in 2009 after Dahsen Bank teamed up with a South African electronic payment technology company. The company, iVery, allowed Dashen Bank clients to transfer up to ETB500 from mobile devices. However, it took another five years for Ethiopia to introduce full-fledged mobile and agent banking services.

Temesgen Zeleke, head of the Financial Inclusion Secretariat at the NBE says that the introduction of mobile and agent banking is critical for Ethiopia, a country that is striving to expand financial inclusion. “The availability of finance is vital to sustaining current growth,” he says. “The technology can play a major role in this regard.”

In the past, the NBE’s focus was on expanding financial service accessibility by increasing the number of brick and mortar banks. This focus did not consider the use of technology and innovative financial service delivery channels. Four years ago, the central bank introduced a directive for banks to expand their branches by 25Pct annually, and for two thirds of their branches to be located in rural areas.

But, Temesgen stresses that this is a thing of the past. “The brick and mortar banking model cannot take us far,” says Temesgen. “From now on, our approach towards expanding financial inclusion involves the use of technologies such as mobile and agent banking because it is the only way to bring fundamental change.”

Two foreign companies provide mobile banking platforms in Ethiopia. MOSS ICT Consultancy (M-Birr), a subsidiary of an Irish company, is the first to introduce a mobile banking system in Ethiopia. M-Birr entered an agreement with five of the largest Micro Finance Institutions (MFIs) in the country, including Amhara Credit and Saving Institution and Addis Credit and Saving Institution. These five institutions have over 6 million customers combined and over 1,400 branches, of which only 130 are in the capital.

Currently, M-Birr has over 1 million mobile account-holding customers and over 15,000 agent banking outlets. To date, a total of 6 million transactions worth ETB8.5 billion, have taken place through M-Birr’s platform. Out of the total, transactions worth ETB6 billion were registered in 2017 alone, according to Endeshaw Tesfaye, Business Development and Financial Institution Support Manager at MOSS ICT Consultancy. “At least 35Pct of the mobile banking account holders transact once a month.”

MOSS charges ETB4.60 per transaction, which it shares with the MFIs, agents and ET-Inclusive Finance Technology, a company established by the five MFIs, to facilitate interoperability of transactions.

Belcash Technology Solutions is the second foreign company providing mobile banking solutions in Ethiopia. The company, based in the Netherlands,provides mobile and agent banking platform for Lion Bank, Cooperatives Bank of Oromia, Wegagen Bank and Somali Micro Finance Institute. HelloCash is Belcash’s flagship service.

Currently, HelloCash has close to 900,000 customers and 6,000 agents, of which 1,350 are located in Addis Ababa. Some 25,000 mobile banking customers at HelloCash are government beneficiaries in the state of Somali.  HelloCash facilitates 50,000 transactions each day that are worth between ETB45 million and ETB50 million. Recently, it launched a service that allows customers to buy bus tickets through the mobile banking platform. And, currently, some 1,000 businesses accept HelloCash wallet card.

“The mobile and agent banking technology improved financial inclusion significantly more than the traditional method—which is to increase bank branches,” says Zewdu Assefa, senior director for Banking and Financial Services at Belcash. “The company is undertaking projects to integrate bank accounts with the mobile and agent banking platform. It has almost finalized integrating the bank accounts of Lion and Wegagen banks in order to create interoperability.”

Zewdu  says mobile and agent banking in the country is improving; particularly since core banking started to perform well and ATM use took off.  “However, customizing the technology is required to get the most out of mobile and agent banking.”

Studies conducted on the issue indicate that mobile and agent banking have a great benefit both for banks, customers, and the nation. Sunil K. Mishra and Durga P. Sahoo, in their study entitled ‘Mobile Banking Adoption and Benefits towards Customer Service’ published in 2013, state that the technology cuts the cost of transaction, and the cost of setting up branches. Furthermore, the technology improves the competitiveness of banks that provide mobile banking services over those that are not providing this service.

On the other hand, mobile and agent banking enables customers to save precious time, and on the cost of travel. It also allows clients to pay their bills on time and avoid penalties because the technology can send alert messages. In this way, mobile and agent banking can create convenience, mobility and instant access to customers.

 All these features of the technology, coupled with high penetration of mobile phones across the social strata ultimately make it an indispensable tool to expand financial inclusion in the country. Better financial inclusion, in turn, accelerates economic growth by strengthening competition. This can especially benefit the lower income portion of society, and enhance inclusive growth.

Although the financial sector in Ethiopia has been growing rapidly for the past two decades, it is still underdeveloped. According to the NBE, bank branch networks of commercial banks stood at 4,227 at the end of the last fiscal year; meanwhile, there are 1,745 branches of MFIs. On the other hand, there are 8,800 Point of Sales (POS) and 2,743 ATMs. The number of account holders at banks and MFIs also stood at 43.8 million.

The number of bank branches and ATMs per 100,000 adults stood at 4.6 and 3.01, respectively. These indicators are below the averages for Sub-Saharan economies. For instance, an average of 10 bank branches and 7.5 ATMs are available for every 100,000 people in most Sub-Saharan African countries according to a World Bank report published in 2016.

While many indicators of financial inclusion are below the standard, the number of mobile banking clients reached close to 2 million, and the number of agents,to 21,000, in just the last two years. However, Endeshaw stresses that Ethiopia is at the foundational stage when it comes to mobile and agent banking; “we are still at the awareness creation stage.”

In the beginning of the current fiscal year, the NBE, in the presence of high government officials, officially launched the financial inclusion strategy, which aims to increase financial inclusion from the current 22Pct, to 60Pct in five years. The strategy also envisions increasing the number of mobile banking users to 10 million.

A Financial Inclusion Council, with a steering committee, and a secretariat office at the NBE, is tasked with overseeing the implementation of the strategy. The council reports to the Prime Minister’s Office every 6 months to 1 year.

Stakeholders stress that financial inclusion is all about ensuring access to tailored financial products and services in a fair, transparent, and equitable manner. Therefore, offering suitable financial products through mobile and agent banking is crucial.

However, the expansion of the technology is currently encountering challenges. “It is challenging to increase transactions via mobile banking unless various products with relatively higher value are put on the platform,” argues Habtamu Shiferaw, Mobile and Agent Banking Department Head at the Addis Credit and Saving Institution (AdCSI). “Mobile banking cannot succeed without serving transactions. The daily transaction cap, which is ETB6,000, should be also lifted.”

Four months ago, the AdCSI scaled mobile and agent banking into a full-fledged service throughout its 138 branches. Prior to this, it had been testing the banking solution in four branches. Currently it has 140,000 customers and over 1,100 agents.

AdCSI collected ETB150 million deposits via its mobile and agent banking in the last fiscal year, while the five MFIs under M-Birr mobilized ETB1.2 billion over the last two years, according to the information obtained from MOSS ICT Consultancy.

Habtamu says the biggest challenge for mobile and agent banking in Ethiopia is the security factor perceived by bank customers during electronic transactions. “Though things are improving, much should be done to create awareness and reduce the fear towards the technology.”

Sang-Chul Lee, in a study entitled ‘Determinants of Behavioral Intention to Mobile Banking’ argues that there are four major risks when it comes to mobile banking. The first is the security or privacy risk that can occur due to fraud. The second is performance risk, which can arise from malfunctioning mobile banking servers. The last two, are what the study refers to as time risk (the loss of time and any inconvenience due to delays in receiving payments or difficulty in navigation) and financial risk (the monetary loss due to transaction errors or bank account misuse). These are the remaining threats for the technology. Lee and his colleagues believe that out of all these risks, privacy risk might have the most significant influence on the acceptance of mobile banking.

To safeguard the funds of clients, agents who handle large transactions are required keep a financial audit report. “This is affecting the effort to increase agents,” explains Temesgen. “However, the central bank is currently finalizing an amendment to the requirement.”

Another directive that is limiting the performance of the technology is the maximum daily transaction cap placed by NBE. “We told officials at NBE to leave the decision to the financial institutions. But, there is no response, yet,” says Habtamu.

Financial institutions that provide mobile and agent banking are in another dilemma due to another requirement put forth by the NBE. Two years ago, the central bank ordered financial institutions like AdCSI, to completely take over the platforms from foreign technology providers within five years. “Since the technology providers are foreign companies, they cannot be involved in financial activities. Therefore, they must fully transfer the technology platforms to the MFIs and banks,” explains Temesgen.

So far, the partnerships between platform providers and financial institutions are based on revenue sharing. “After the financial institutions build their capacities, our involvement will be restricted to provision of assistance,” says Zewdu.

Habtamu, on the other hand, says the NBE must extend the takeover period to more than five years. “Currently MFIs get small profits. But big investment is needed to promote the technologies and develop products, for which we don’t have capacity. The two foreign companies are better at it.”

Apart from the effort by foreign platform providers, some banks are pushing towards mobile and agent banking by acquiring the platform themselves. According to the NBE, banks have to lease or own the platform themselves in order to provide mobile and agent banking, unlike MFIs.

Dashen Bank can be an example in this regard. Dashen operates the platform with an external partner. Since it started the service in 2015, Dashen has registered 24,316 mobile and agent banking subscribers. However, the transaction value and volume is still small, according to Mulugeta Alebachew, marketing manager at Dashen Bank.

The bank has started sales of flight tickets through mobile banking with Ethiopian Airlines, and others. Mulugeta says Dashen is aggressively working to introduce various products to capture larger business transactions in its mobile and agent banking service, if the central bank relaxes its requirements. “We planned to encourage our bank customers to transact through the technology. We have many digital service delivery channels in the pipeline. Digital banking is our biggest agenda of the future.”

Zewdu also stresses that because of the nature of the business model that is allowed in Ethiopia, expanding mobile and agent banking goes hand in hand with the availability of POS and ATMs as well as branches for cash withdrawal. “Since ATMs are not used to deposit cash, an alternative must be introduced.”

Globally, there are two major mobile banking business models. In the additive model, which is similar to the model found in Ethiopia, the mobile phone is merely another channel to an existing bank account. This is also known as the bank based model.

The other non-bank based model, or transformational model, allows the provision of banking services for the largely unbanked population. MPESA of Kenya and Wizzit of South Africa are mobile banking services operated by telecoms companies that are based on this transformational model.

Temesgen stresses that the urgency to introduce more business models in mobile and agent banking becomes clear when looking at the bigger picture. “It is not only about increasing coverage and accessibility, but also realizing equitable access to financial services for all, which is something the existing banks and MFIs could not provide.”


6th Year . January 16  – February 15 2018 . No.57

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