Last month, automated teller machines (ATMs) throughout Ethiopia were integrated, meaning a cardholder from any bank could use any ATM to access their accounts and withdraw money. This level of technological integration is a first for Ethiopia’s growing banking sector – and a step towards creating an economy that’s less cash-dependent and one marked by greater financial inclusion.
The company at the centre of this integration is EthSwitch, the industry-owned enterprise that develops innovative, technological banking solutions. EthSwitch’s founding CEO, Bizuneh Bekele, says that integration is central to their operating philosophy – not only integrating banks but also bringing more people into the formal financial sector. Bizuneh earned his bachelor’s degree in management from Addis Ababa University and a master’s in computer science and applications from Shanghai University. He spent decades working in the field of information technology before taking the helm of EthSwitch. EBR’s Ashenafi Endale spoke with Bizuneh to learn more about his company’s work, the prospects of creating a cashless society, and his plans to bring more technological innovation to Ethiopia’s banking sector. The following is an excerpt.
It has been four years since EthSwitch was established to unify the banking sector through technology. Why did it take so long to begin Automated Teller Machine (ATM) integration?
The project is very complex and big, especially in terms of the number of banks and services it includes. It was a very difficult job to include all banks in the country into the platform, because every bank has its own system and bringing that to an integrated service contributed to the extended time.
The technology by itself is complex. The system now works at the individual bank and EthSwitch levels. We do not believe it is late, because we started working on the operation part only two years ago. So integrating 19 banks, excluding the recently merged Construction and Business Bank (CBB), is tough work.
What were the banks’ commitments in terms of agreeing to work with EthSwitch after the company was established, since many banks have already invested in ATMs individually?
There was no hesitation. Banks established EthSwitch themselves. The National Bank of Ethiopia (NBE) only initiated and supported by coordinating, placing regulatory orders and bringing banks to a consensus. Since banks founded EthSwitch there was no opposition from them.
What types of services does EthSwitch provide other than interconnecting ATMs?
There are more services to come through Point of Sales (POS), Internet, voice and mobile [banking]. They are already tested but they have not started yet in order to reduce complications. However, the package will start soon, with more than 40 different services in it.
Some cardholders complain that the system does not work. Is the platform now fully integrated and working for all banks?
It is working for all banks except the Development Bank of Ethiopia, which didn’t provide retail banking services before. But since it started lease financing recently, we are integrating it too. But for now, 18 banks and the NBE are integrated and their ATMs are working seamlessly. We only manage the integrated interbank transaction service among banks. Individual banks still manage their own ATMs through their own platforms.
Still, many customers of the Commercial Bank of Ethiopia (CBE) are complaining that the system is not fully functional. What are the reasons?
The CBE’s cards are not different from other banks’. They are working at all ATMs now. There was a technical problem at the CBE in the past, because it was integrating itself with the CBB. The CBE also announced that on the media and it was sorted out within days. So currently there is no problem arising from lack of integration.
What is the significance of improving Ethiopia’s payment landscape for the economy?
EthSwitch can bring all services related to payment under one platform. The platform is flexible and can bring together various institutions such as microfinance, insurance, banks, cooperatives and other institutions. Even the recently launched crop insurance platform by Kifiya Financial Technologies can easily be hosted on the EthSwitch platform.
We are also working to make it a central hub for various services. It can be a national roll-out, since it is a national infrastructure. Therefore, in addition to increasing access to finance, financial inclusion and making fast transactions, it can connect vast economic sectors through its flexible services and bring value added growth to the economy.
Do you believe that the creation of cashless society is the next big thing in Ethiopia?
Globally, the current thought is not creating a cashless society, because replacing cash has become very hard for many countries. Some developing countries even say that it is impossible. So, they shifted to a cash-light economy, which describes an economy that has a reduced amount of transactions in cash. Electronics service is the best way to that end.
Card, mobile, Internet and voice are all supported services by EthSwitch’s infrastructure, with more than 50 total products. So, this will make the payment system fast and modern for banks, in addition to reaching more people and creating a cash-light society.
The adoption of technology by financial services is allowing the sector to leapfrog traditional infrastructure. However, there are currently very few cardholders in the country, less than 3 million. Given this small number and the current payment landscape in Ethiopia, do you think the project can reduce the burden of cash usage?
There are only 2.3 million cardholders in Ethiopia now. This is not enough, considering the [90+ million] population of the country. [And most cardholders] do not even use [their cards]. But now the assumption is that if people get the service simply in their reach, with more products, they will use it. That will increase the number of card users hopefully. Many other things have to be done to increase the number of card users.
What are the other services EthSwitch plans to launch in the short and long term?
We are implementing our project in two phases. Under the first, we started with common ATM services like cash withdrawal and account balancing. Six other services, like purchase, refund reversal and so on, will start soon. Under the second phase, there are more than 40 products, with additional features on ATMs, PoS, Internet, mobile and voice services. Other cards, like debit cards, different gift cards, and credit cards are on the way.
All in all, we are laying the foundation for many services, like e-commerce. Without this infrastructure, we cannot move towards that end. The services and cards under the second phase will be launched with their sub-brands. For instance, we have launched the EthioPay debit card. It will continue with EthioPay pre-pay, EthioPay pre-debit and EthioPay pre-credit, EthioPay online and so on.
When will the second phase be launched?
The first phase is already launched, while the second phase will [start] this month with a few products. It might take one-and-a-half to two years to launch the last product under the second phase. There will be no formal launching ceremony because all products are not going to be launched at once, but they will come one after another and we will keep informing the public. All services under phase two will be launched within two years.
Although your goal is to make interbank retail payment processing easier, problems like security and transparency still pose a threat. What is EthSwitch doing to prevent these problems?
Security is at the base of the EthSwitch infrastructure. There is a security issue in each and every system’s infrastructure components, starting from purchasing the equipment for the system. There are international standards. We started [utilising those] after fulfilling the industry standard for security requirements. But still there are risk-mitigating methods.
It is nearly impossible to predict how a cashless financial system will work on a large scale. Bank customers may expose themselves to unnecessary inconveniences and complications, which are more likely in the early stages of a new technology. What are your strategies for educating the public about the technology and services adopted from other countries?
There is [a lot to do] in localising the technology to our country’s concept. These products are already known in other countries. But we have big plans in introducing our own schemes – for example, the EthioPay card. We have set our own card standard for Ethiopia now. Our standards are partially taken from international standards. It is all about implementing that in Ethiopia. There are many issues in it. For the future, this will be the biggest base. The only thing left is localising and creating more products based on Ethiopian demands.
How will EthSwitch impact the branch expansion of banks – and will it affect financial inclusion?
They are complementary. The bank branch ratio in Ethiopia is minimal, even by sub-Saharan standards. The bank branch to population ratio is low in Ethiopia. Electronics-based service in the banking industry is also the same. So, these things are not mutually exclusive, they go hand in hand. Branches help banks come closer to customers. The electronic payment system helps banks be more directly accessible to customers. Electronic services increase access to financial institutions with value addition because branch expansion is expensive. Still, there is a large amount of cash in circulation and there is much to be done on both sides.
Electronic payments, by contrast, are proven to boost economic growth while advancing financial inclusion. But to make this happen the appropriate legal framework should be prepared in advance. Do you think that the NBE has laid the proper legal framework?
Unlike other African countries that started electronic services without legal frameworks, Ethiopia ratified a proclamation in 2011. EthSwitch was established based on that proclamation and the legal part will expand. This is a process and it cannot be done at once. Much needs to be done to create awareness.
What benefits does EthSwitch get from providing the platform?
EthSwitch gets ETB0.25 per ETB100 transaction. With the current rate of our economic growth, and if the number of cardholders increases, it will take 4 to 5 years to get a return on the investment. We focused on the accessibility and affordability of the service rather than profit in order to increase coverage. Price is not an issue. The number of transactions and money flowing through ATMs now is very small. Fundamental change must come in the industry in this regard.
What do you think about the possibility of a cashless future? Does the convenience outweigh the risks?
Electronic service always has risks but still it is needed. Our platform is based on a modern approach; it is vast and gives a big opportunity for other services. It will help to accelerate financial inclusion in Ethiopia. It can be used as a base for remittance services and many other services.
But still, government institutions, payrolls and others must be involved to bring about that change. EBR
4th Year • June 16 2016 – July 15 2016 • No. 40