By- Yinebeb Bahru
Digital payments have come of age during the last few years in Ethiopia. With access to multiple platforms, well-educated peoples are now increasingly opting for digital payments to discover and complete their purchase journey.
Information and communication technology is considered a key factor behind the changes that are taking place worldwide. The information and communication applications are of paramount importance for the banks in today’s business environment and the Internet has become the main platform for all financial transactions in the current scenario. Due to the growth of information and communication technology, the banking industry worldwide is converting its services from manual to automated. Rapidly expanding information and communication technology is knocking on the door of every organization, and Ethiopian banks would never be an exception.
E-banking is widespread in developed countries and is spreading rapidly in developing countries. In recent years, commercial banks in Ethiopia have launched various e-payment platforms. However, electronic banking services have not been widely adopted by most bank customers in Ethiopia, most bank customers continue to conduct most of their banking transactions using traditional methods, and cash is the dominant medium of exchange in the country, with the majority of small and medium-sized businesses were not using these platforms, because they do not have internet access, also, they can not engage in e-commerce activities. Internet infrastructure is only available in larger urban areas of the country. Nowadays, the banking sector in Ethiopia faces numerous challenges to fully adopting and adapting e-banking applications and taking advantage of the opportunities that ICT applications offer. There are key challenges for e-banking applications in Ethiopia:
1/ Language barriers
All e-banking and e-payment platforms are developed in English, and the majority of Ethiopian bank users prefer to use e-banking services in their language, which can present an online barrier. They never spend money online in a language that is not their own. According to a new study published by Eurobarometer, almost all users prefer to use digital services in their language.
2/ Cyberattacks
According to Information Network Security Agency (INSA), Ethiopia hit more than 3,400 Cyber attacks in the first half of the fiscal year that began in July 2021. Most cyberattacks have targeted financial services institutions.
Cybersecurity is a global challenge that requires a global and multidimensional response in terms of political, socio-economic, legal and technological aspects. E-banking applications pose a security challenge as they rely heavily on critical ICT systems that create vulnerabilities in financial institutions and businesses and potentially harm bank customers. Understanding and addressing security concerns is imperative for banks to leverage the potential of ICT in delivering e-banking applications.
3/ Bad network connection
In Ethiopia, Internet users are not far from 15 million over 120 million in total population, Internet and online payments hinder smooth development and improvements in e-commerce in Ethiopia. 80% of Ethiopians live in rural areas of the country, where the majority of small and medium-sized enterprises are concentrated in rural areas, they don’t have Internet facilities and are therefore unable to access and engage in e-banking activities.
4/ Frequent power cuts
The lack of a reliable power supply is a key challenge for smoothly functioning e-banking in Ethiopia. Electricity shortages affect businesses’ ability to run base stations, data centers, computers and other IT equipment. Rampant power outages are hitting Ethiopia’s telecoms sector hard and are likely to cause aftershocks in related industries.
Persistent power shortages have increased the high cost of doing business in Ethiopia, as most cellular service providers and business process outsourcing facilities are forced to use generators to power facilities. This problem escalates specifically in rural areas.
5/ Low the financial network
Commercial banks in Ethiopia are not yet automated. Most banking transactions that take place currently use Visa, American Express, Union Pay, and MasterCard debit cards. To conduct e-banking, the use of credit or debit cards is mandatory, which necessitates the need for specialized systems that are not currently available, in addition to all the cards valid only in Ethiopia for domestic transactions purposes.
6/ Lack of awareness
Skilled workers have the skills and expertise to create awareness. Raising awareness of e-banking services and the benefits of new technologies has a direct, positive and significant impact on the actual usage behavior of e-banking service users. The implication is that the more the customers become aware of e-banking service delivery channels (having enough information about its benefit and how to use them); the better becomes their actual usage behavior.
7/ Lack of qualified human power
Shortages of highly skilled manpower in the IT sector, Behind every successful digital transformation there’s highly skilled and talented IT staff. However it’s difficult to form this team easily specifically in the developing countries, as more businesses embrace new technology, a skilled manpower shortage is happening. According to KPMG, 54 percent of organizations face a shortage of skilled manpower because these organizations were pending to achieve their plan. Especially in the areas of AI, advanced data analytics, blockchain, machine learning, and cybersecurity, the best option to fix those challenges companies should be to hire highly dedicated IT people and technical consultants to supplement their own IT team.
Quality of work and customer satisfaction can be affected if employees don’t have the right skills. Recently major Ethiopian banks added new positions called “digital channel officer” and they assign in every branch however all these positions’ employees’ background is very far from Information communication technology. Because of this, there is a shortage of trained staff in the banking industry.
8/ Political instabilities
Various types of conflicts exist across the country, especially after PM. Abiy Ahmed came to power in 2018, and there are conflicts in all corners of the country. In addition, all neighboring countries of Ethiopia expect that Kenya will not have Political and economic instability are ominous features that do not provide a very favorable environment for e-banking in Ethiopia. Political instability inevitably disrupts the smooth running of the business and the free flow of goods and services.
9/ High illiteracy rate
A low literacy rate is a serious obstacle to e-banking adoption in Ethiopia as it hinders access to banking services. “Most of our customers were illiterate, that’s why it’s so difficult for us to easily train e-payment platforms, they couldn’t read and write, nor did they have basic ICT skills,” said Abatneh Berihun, customer service and deputy branch manager at Awash Bank.
10/ Lack of proper legal and regulatory framework for e-commerce and e-payment
Current Ethiopian laws do not allow for electronic contracts and signatures. Ethiopia has yet to enact laws dealing with e-commerce issues, including enforcing the validity of electronic contracts, digital signatures and intellectual property rights, and restricting the use of encryption technologies.
According to reliable sources, Amhara Bank try to use cryptocurrency and blockchain technology but the National Bank of Ethiopia didn’t permit it because there’s no regulatory framework for cryptocurrency in the country.
11/ High internet costs
According to visual capitalists, the price of one gigabyte of mobile internet prices $2.5, which is very expensive relative to Ethiopians’ per capita income. Compared to the developed countries, there are higher costs of entry into the e-commerce market in Ethiopia. These include high start-up investment costs, high costs of electronic gadgets, telecommunication and licensing requirements.
Summary
Certainly, the banking industry in Ethiopia is underdeveloped, hence there is an urgent need to initiate capacity-building measures and modernize the banking system by using the most advanced technology that is used anywhere in the world. With a growing number of import-export businesses and increasing international trade and relations, the current banking system is unable to provide efficient and reliable services and therefore all banks operating in Ethiopia should recognize the need to adopt an electronic banking system, to satisfy their customers and meet the demands of rapidly growing domestic and international trade and increasing international banking services.
Low Internet penetration and poorly developed telecommunications infrastructure, lack of proper legal and regulatory framework for e-commerce and e-payment, high illiteracy rate, high cost of Internet, lack of financial networks connecting different banks, lack of reliable power supply, language barriers and cybersecurity issues are the main one’s Challenges for the development of e-banking in Ethiopia. Therefore, to fix those challenges of the e-banking system in Ethiopia, the country should: create a comprehensive regulatory and legal framework for e-commerce and payment, creation of public awareness of the use of ICT, e-commerce and e-payment, provision of incentives for financial institutions to invest consistently in ICT and the use of e-commerce and e-payment, promoting current efforts to develop and expand ICT infrastructure.
