E – Banking – Problems and Prospects in Ethiopia A.

Devamohan* Background of the Study: Now – a – days Modern Technology is being introduced in all the fields and it changes the world with full of innovations. In Banking also electronic devices play a dominant role in order to satisfy the growing needs of the customers. The traditional banking activities are modernized by using the Electronic – Banking system (E – Banking). These changes are being made due to the influence of Information Technology and the developments in the technology of Telecommunications and Electronic Data Processing. Information Technology which implies the integration of information system with communication technology has altered the traditional ways of doing banking and allowed banks to wipe out the differences in time as well as distance. The wings of changes are started blowing in Ethiopia with a view to integrating the economy to the global economy. In this contest, this paper attempts to trace the present status of E – Banking in Ethiopia, visualize its prospects and looks at the challenges and problems to be crossed. Objectives of the Study: The general objective is to study the problems and prospects of EBanking in Ethiopia. The study is having the following main objectives.
1. To review the literature of E-Banking 2. To identify the existing E – Banking services in Ethiopia 3. To analyse the problems of E – Banking system in Ethiopia 4. To recommend the possible E – Banking system in Ethiopia

Overview of E – Banking:
Banking system is the backbone of the economy and Information Technology in turn has become the backbone of banking activities.

* A. Devamohan is working as a Lecturer in Banking & Insurance, Faculty of Business & Economics, Jimma University, Jimma, Ethiopia.

The banking transactions become ease after the introduction of computers in banking sector. processed and received in the form of digital information and their transaction is initiated via electronic instrument like ATM card. When the internet facilities enter into the banking sector. The hi-tech multiple service channels and delivery mechanism provide a great opportunity to reach and inform the customers with much ease. The banking system verifies the user and provides access to the required services. It is more or less like bringing the bank to customer‟s computer. The automation of front-office functions improves the customer service with reduction in processing time. calculation of interest and maintenance of general ledgers. The technology has its own role to play in branch banking activities with variety of options and innovative services The E – Banking concepts become popular when the banking activities and information technology are merged. at the place and time of customer‟s choice. In e-payment funds are held. The range of services and products offered by each bank differs widely in their content. The banks are enabled to automate the accounting process and back office functions like maintenance of deposits. Concept of E – Banking: Electronic Banking or e – banking is a web-based service the enables a bank‟s customer access their account. . Payment is generally known as a transfer of funds from the payer to the payee. It allows the customers to log on to the bank‟s website with the help of a bank-issued identification and a personal identification number. The Electronic payment or e-payment is a payment carried out electronically. processed and received electronically is known as epayment. the payment that is initiated.The IT developments bring the customers closer to the banks and banks are able to offer multiple products/ services under “Single-Window” concept. Internet banking enables a customer to do banking transactions through the bank‟s website in the internet. That is. The other aspect of e-banking is e-payment. the inter-bank activities are linked through internet and the concept of “Anywhere Banking or Net Banking” is also introduced.

EDI was first used in North America by retail industries in the late 1960s. EDI implementation in banks results in reduced cost. In banks. It enables the customers to view/ download account details. improved efficiency and customer satisfaction resulting in improved growth .The concepts of e-banking and internet banking are used as synonymous in the banking industry. It will enhance the customer satisfaction and increase the customer base. Banks can play a vital role in FEDI for the payments in real time. Financial EDI (FEDI) is mostly used to settle the bills with the objective of „making the right financial resources available at the right time‟. Electronic Data Interchange (EDI): EDI is a technique used to communicate business. billions of dollars can move across borders by click of a computer key and this creates tremendous impact on the economy. financial and transaction information between computer systems of different organizations and their business partners. The banks can provide e-banking services by using this electronic network. The most significant benefit of e-banking is the ready accessibility of bank accounts at all times. Banks have to interact with the systems of customers on one side and the service providers on the other side. e-banking considerably reduces transaction costs for the banks. The following are the some of the services coming under e-banking: 1. From bankers‟ point of view. With the use of electronic network. E-payment greatly increases payment efficiency by reducing transaction costs. distribution and tourism sectors. Review of e-banking services: Information and Communication technology has made the world a global village and removed the time and geographical barriers. Unlike email. though in reality banking activities carried out through the internet just constitute a part of the whole gamut of ebanking. manufacturing. In mid-1980s EDI was introduced in other areas including automotive. The inconvenience of visiting and waiting at the banks is also eliminated. it is structured communication and sent in machine processable form.

etc. In India.and profitability. The payment system should be efficient and secure. The origin of ATMs can be traced back to June 1967 when Barclays Bank installed the first cash dispenser in UK. 3. That is the customer can have access to ATMs at any where within the country or throughout the world at any time. credit card companies and finance companies to collect the proceeds of telephone/electricity bills. sound and efficient payment and settlement systems for the country. The ECS debit clearing is a mode of payments whereby an institution receives payments from a large number of customers/consumers. It also reduces the transactions time. interest. secure. balance enquiry. At that time ATMs basically dispensed cash and offered very limited banking functions. It can be divided into two categories namely. This method helps utility institutions. The ATM card holder can do most of the banking transactions like withdrawals. Credit Clearing and Debit Clearing. dividend to a large number of employees/ex-employees/investors/share holders. Even railway and airway tickets can be blocked with the use of ATMs. an institution makes a large number of payments like salaries. And the cost of setting up ATMs is much lesser than the branch. With the use of ATMs. EDI is implemented between the Indian Bank and Chennai Customs and Port Trust. pension. The ECS credit clearing is a mode of payment electronically instead of paper warrants. the banks are providing „Any Where and Any Time Banking‟ to their customers. The ECS is created to establish safe. Automated Teller Machine (ATM): ATM is a device that allows customers who have an ATM Card to perform routine banking transactions without interacting with the human teller. . deposits of cash and cheque. The banks can use these ATMs as media for publicity by displaying products on the screen. insurance companies. Now a days. Through this ECS credit clearing. 2. Electronic Clearing Service (ECS): the primary goal of any national payment system is to enable the circulation of money in its country. ATMs are offering a wide range of bank services with the technology of web-enabled ATMs.

For ECS. This exchange is in the form of digital financial instrument such as credit card numbers and debit card numbers backed by a bank or an intermediary. Interest will be charged by the bank on monthly basis for the credit provided through the card. 4. Plastic Card Currency: Plastic cards also known as plastic currency involving electronic device in their functioning is gaining popular as a convenient mode of payme nt. And service charges also will be collected from the cardholder for the transaction and processing. MasterCard. By using these plastic card. Before issuing the card. Credit card facilitates and makes it possible to “Use First and Pay Later” the specified amount of credit as per the agreed terms of sanction. Debit Card: A Debit Card provides for online electronic payment like Credit Card but from savings or current accounts of the cardholder for purchases. This card facilitates the cardholder to purchase goods and services from the merchant establishments and shops through the collaborating credit card companies like VISA. ATM Cards and Smart Cards. and Cirrus. the Central Bank of the country has to open centralized clearing centres throughout the country. financial exchanges takes place on line between buyers and sellers. the bank would like to know and be sure the identification. This card is a deposit access product where cardholder uses his own money in his . Recently several innovations helped to simplify consumer payment which includes Credit Cards.insurance premiums or periodical installments. Banks can act as clearing houses. Credit Card: Credit Card can be called as an equivalent of a loan sanctioned by the bank to its customers. on due date based on the instructions. level and source of income and repaying capacity. Maestro. Debit Cards. age. The transactions will be settled on the next day of submission of data to the clearing house. etc. The advantage of this method is faster collection of bills by companies and automatic debiting/creating to the accounts.

Maestro and Cirrus etc. balance enquires. The cardholder is responsible for all transaction made by the use of the card. MasterCard. The cardholder is always required to maintain safely the PIN to prevent fraudulent activity.bank account through the debit card on the principle of “Pay First and Use Later”. ATM Card can be used to withdraw money. deposit bills in the account. ATM Card-cum-Debit Card: ATM Card-cum-Debit Card can be used both as an ATM card and Debit card as a method of payment when purchasing goods and services in India and Overseas. the cardholder is intimated a four digit secret Personal Identification Number (PIN). The formers can use this card wherever they needs. E-payments: . The cardholder must maintain a savings bank account or current account with the bank. The data can be encrypted and hence the card is completely temper-proof. deposit money. The loan amount sanctioned to the former will be recorded in the card. The merchants can sell the goods to the former based on the card and they can collect the amount from the local branch of the issued bank or any other bank. Mart card is issued to the formers to provide adequate and timely credit support for their cultivation needs including all purchases. But in order to use the debit card. ATM card: As mentioned earlier. Debit card contains the symbol or hologram of collaborating company such as VISA. Debit card can be used to make purchase at retail shops and merchant establishments in the same way as the credit card is used. Smart Card: The smart card is an amazing piece of technology. It is the size of a regular ATM card but is capable of storing over a 1000 times more data. the cardholder must have sufficient balance in his/her account. 5. On issuance of card. Most of the debit cards issued by banks are also ATM cards. The card can also be personalized to the holder by printing personal and other details on the card face.

The main objective of the Banknet is to speedup the process of transfer of funds from one bank to another bank and one branch to another branch. In E-payments. Banks collect service charges from the customers. Banknet: Banknet is a communication backbone connecting various centres of a country to facilitate the transfer of inter-bank or inter-branch messages.Payment is generally understood as a transfer of fund from the one person (payer to other person (Payee). The banks have to become the member of International Financial Messages Communication Network. It operates 24 hours on all days. the funds are transferred through electronic mode. Electronic Fund Transfer (EFT): EFT system permits transfer of funds from any account at any branch of any member bank in any city to any other account at any branch of any member bank in any other city. the foreign exchange business which the banks are conducting today would not have been possible without SWIFT. SWIFT: The society for Worldwide Inter-bank Financial Telecommunication (SWIFT) provides reliable. It facilitates the transfer of funds from one place to another place within the country quickly and safely. secured and expeditious telecommunication facilities for exchange of financial messages all over the world. timesaving and easy access to the banking services. The following are coming under the Epayment system. We can say. Importance of E-Banking: The importance of e-banking can be discussed in the following ways: Customers’ Point of View: E-Banking offers substantial advantages to the customers in the form of convenience. This system utilizes the Service Branches of the member banks. The . The banks can do foreign exchange business safely and secured mode. Most of the centres of a country are being brought on the network.

The customers need not visit the branch for each and every transaction and no need to wait in the big queue. By this they can save the time. banks can save time and hence they can increase the number of transactions and business. There is no time and place restriction. With the help of e-banking. 2. Proven high quality software is a must for high-tech banking services. In e-banking system there are many ways in which private information may be accesses by attackers. Banks’ Point of View: In this competitive world. Challenges of E-Banking: 1. Thus the e-banking provides sophisticated services to the customers. E-banking helps the banks to attract more number of customers and tackle the competition from other banks. The customers can avail 24*7 access to the banking services at any where. This authentication can be done using user ID and passwords. Security: Security is first and foremost requirement of E-banking as the internet is inherently unsecured. the banks can avoid fraudulent activities. the standardization of operating systems. The banks can enhance the customer satisfaction through sophisticated services. Securing the process in e-banking involves authenticating both customer and banker and protecting the information to be transmitted from interception. the easy access to the banks will be another advantage to the customers. Standardization: One of the major issues in E-banking is the standardization of software which is necessary to offer e-banking services.customers can transact in their account at any time and any where throughout the country or outside the country. For the sophisticated services. Banks should take effective steps for the interests of customers from data tampering and hacking. With the help of e-banking. By providing secured e-banking services. systems software and application . Software failures can also destroy entire portions of a network and bring huge losses. And this information could be used to make fraudulent transactions that could lead to a loss of money.

software throughout the banking industry is a necessary condition. are to be cleared in the legislation. regional and international laws. For effective deployment of e-banking services. this may create financial crisis. Banks in developed countries have already deployed huge amount of investments for e-banking services. rules and regulations are important prerequisites for successful implementation of e-banking. They have to incur heavy maintenance costs also. banks have to invest huge amount of money. Close financial links between banks and other financial institutions is necessary. This link is used for clearing and payment systems among these institutions. Legislative and Regulatory Issues: National. But in case of new and small banks. evidence and burden of proof. Legal or Legislative support is essential for protecting the interests of customers and banks in various areas relating to e-banking and payment systems. which may have to be pursued. preservation of records. 4. Most of the transactions use internet to communicate with the customers. Socio-Cultural Challenges: . 3. cheque truncation. etc. This may not be the problem for well established banks. Infrastructure: The other challenge for e-banking is well developed infrastructure. This can be done by adopting model laws at global level such as UNCITRAL Model Law on E-commerce and UNCITRAL Model Law on E-signature. they have to face financial problems at the initial stage. The base communication infrastructure for e-banking is computer network with internet facility. allocation of loss in case of insolvency. it is necessary to have a reliable and cost effective infrastructure that can be accessible to the majority of the population. 6. Heavy Investment Costs: In order to offer e-banking services. 5. Automating the banking services is another prerequisite for e-banking. For banks in developing and underdeveloped countries. prevention of fraud. Some of the main issues like liability for loss in case of fraud.

Cheques are typically used for large transactions. NBE has authorized Ethiopian Birr to be used as a legal tender throughout the country. The Commercial Bank of Ethiopia (CBE). Private Banks came into existence after the changes in the Economic Policy in the year 1994. The customers who have checking account can use cheques to make payments and for other uses. Traditional Banking System: The commercial banks in Ethiopia started their traditional way of banking in the year 1906 with the establishment of first bank called “Bank of Abyssinia” as a private bank. The banking systems in Ethiopia can be viewed as two major categories namely Traditional Banking System and Modern Banking System. are the basic banking activities of commercial banks in Ethiopia. The NBE is having full control over the commercial banks in the country. Birr is representing the values and used as major instrument of payment. New technologies will not be successful until customers are satisfied with privacy and security aspects. a public sector bank. is playing major role in the industry with 184 branches. It also requires some time to earn confidence among the customers even it is easier and cheaper than the traditional methods. The second major instrument of payment is cheque. Basically the Ethiopian banks are following the American way of banking system. Accepting deposits from the public. etc. the central bank of the country. lending money to the borrowers and transferring funds from one place to another. National Bank of Ethiopia and Commercial Bank ofEthiopia started their operations. In 1964. In 1931. Drafts are also used to send money or to make payments to .Normally customer‟s confidence and trust in traditional banking system will make customers less likely to adopt new technologies. the Bank of Abyssinia became “Bank of Ethiopia” a fully government-owned bank providing central and commercial banking services. E-Banking in Ethiopia The Ethiopian banking industry is consisting of three public and seven private sector banks under the control of National Bank of Ethiopia (NBE).

But there are some business firms (Hotels. Credit Card: Currently. Dashen Bank only acts as a merchant accepting credit card issued by banks outside Ethiopia. This card is mostly used by foreigners and Ethiopians residing abroad. They are using SWIFT as a primary payment system for international payment system. Construction and Business Bank and Dashen Bank S. Connection to SWIFT network is done only through a dial up connection which makes the usage of SWIFT as expensive. Mail Transfers and Telegraphic Transfers are used to transfer money form one account to another account.000. The money transfers are paid out in Ethiopian Birr with the maximum ceiling of Br.) that accept international credit cards. etc.C. But the bank is finalizing its preparation to start issuing credit cards. Unlike SWIFT. which is used to transfer money from Ethiopia to abroad and vice versa.Dashen Bank currently gives encashment services to VISA and Master Card users. there is no issue of local and international credit cards in Ethiopia. It includes a test question to be answered by the receiver.60. Automated Teller Machine (ATM): . 2. 4. Western Union Money Transfer: Western union is the world‟s largest money transfer network with morethan 212. Supermarkets. are three agent companies Western Union. Western Union is used to transfer money only from abroad to Ethiopia. Commercial Bank of Ethiopia. Banks must make a dial up call to the server found in Brussels. 1. E-Banking System: The banks in Ethiopia are having the following E-banking services.000 agents in over 195 countries.another place. Banks in Ethiopia currently settle their foreign transaction payment through SWIFT. SWIFT: SWIFT provides a messaging service that enables to settle majority of high value payments internationally. In Ethiopia. 3.

2. Challenges of E-banking in Ethiopia E-banking in Ethiopia is having the following challenges: 1. Especially. They have to buy and install the required systems and facilities which lead increased establishment expense. This will create lot of problems in e-banking activities which are basically depending on power supply. It will force the banks to depend on generators results in high operational cost. ICT is facing lot of problems or challenges. In order to use ATM. For wellestablished banks like Commercial Bank of Ethiopia. This will create problems to offer e-banking services. Establishment Expenses: Initially. These problems are considered as obstacles for the expansion of ebanking services in the country. the establishment cost . Since the bank has connected only six branches. the customers need ATM cards and secrete PIN codes which are given by the bank for the purpose of security. Another major problem is frequent Electric Power disruption. Infrastructure: Information and Communication Technology (ICT) infrastructure is prior most to offer and to implement e-banking services. These ATMs enable the customers to withdraw limited amount of money from their account and to check their account balances. Telephone lines must be adequate for ebanking. banks have to invest huge amount of money in order to provide e-banking services. WAN. But depositing money through ATM is not possible. ATM services are given only to the customers of these six branches. Communication infrastructure such as Internet. the Commercial Bank of Ethiopia is offering ATM services to its customers with eight ATMs located only in Addis Ababa. Internet is the major problem because of Low bandwidth and low speed. Failures in telephone line and other network lines are happening frequently. due to poor telecommunication infrastructure.In Ethiopia. The bank has planned to add more number of ATMs in the future. Ethiopian Telecommunication Corporation is unable to provide reliable and fast telecommunication services. In Ethiopia.

They have to hire manpower from foreign countries to overcome this problem. 5.may not be a problem. especially e-payment. 4. The reason for nonexistence of comprehensive legal framework in Ethiopia may be the lesser e-banking activities. banks need skilled manpower. The National Bank of Ethiopia does not clearly mention its role in regulating the e-banking system in its governing legislation. It has some short comes such as e-signature. Another reason may be the existence of Ethiopian Civil Code of 1960. Instead of strict regulation. it is very difficult to invest such huge amount. But for small and new banks. have faced some problems related to social and cultural . But mostly in developed countries. the country should make some amendments in order to coincide with the e-banking practices. Lack of Skilled Manpower: In order to offer and maintain e-banking services without any fault. Otherwise. which provide some of the e-banking services. But in Ethiopia. Legal Framework: Legal framework is plying a crucial role in facilitating e-banking system and in its growth. they have to provide proper training to the existing manpower. Socio-Cultural Aspects: The banks in Ethiopia. especially Dashen Bank and Commercial Bank of Ethiopia. they have developed a comprehensive legal framework for e-commerce which includes e-banking. might have not faced any major problem regarding the regulatory aspects. 3. the banks are suffering due to inadequate skilled manpower. Ethiopia has not yet set a comprehensive legal framework for e-commerce in general and e-banking in particular. lack of significant penalties for frauds and other abuses and lack of adequate provision for e-banking. Both will result in increased operating expenses. which is open by many standards to incorporate technical and institutional improvements. The Ethiopian Civil Code addresses some of the most important legal issues pertaining to electronic transactions. Another reason for nonexistence of legal framework may be the banks.

The National ITC draft policy has given great emphasis on the expansion of ITC infrastructure. The government‟s effort to establish nation wide network such asWerdaNet and RevenueNet need to be encouraged and expanded. In Ethiopia ICT infrastructure facilities are not well developed. the lack of training and sticking with existing structure are the problems. For e-banking services the banks need 24 hours internet service. In case of staff members. Another constrain in ITC is high cost structure. There is a resistance to changes among customers and some staff members. But in Ethiopia the cost of dialup internet is expensive. The study found that in Ethiopia the e-banking aspects are recent phenomenon. Due to this. Because of this banks are not in a position to . to identify the problems or challenges of e-banking in Ethiopia and to explain the prospects of e-banking in Ethiopia along with recommendations. banks are not in a position to extent the e-banking services.  Lack of Infrastructure facilities  Unbearable establishment cost  Lack of skilled man-power  Unavailability of comprehensive legal framework  Socio-Cultural aspects Recommendations: The recommendations part gives the valuable suggestions to increase the e-banking services with the consideration of prospects of e-banking in Ethiopia.attitude. 2. Some banks are aiming to introduce these aspects to their customers. The recommendations are given below: 1. But the efforts taken by ETC to develop ITC infrastructure is encouraging. The major challenges of e-banking in Ethiopia are. This is mainly because of lack of awareness on new technologies and its benefits. The fear of risk is also another reason for their resistance. Conclusion and Recommendations Conclusion: This study is aimed to review the literature related to e-banking.

banks can offer these services jointly. 5. the banks have to create public awareness about the benefits of new . In Ethiopia the electric power supply is frequently interrupted. 7. banks must go for automation of banking services with in the bank. The government has to give emphasis on establishing comprehensive legal framework in order to facilitate e-banking. especially small banks. The regulatory and legal framework for ITC is essential to create reliable environment for e-banking. 4. Still Ethiopia lags behind in establishing separate legal framework for e-commerce which includes e-banking such as data protection laws. That is banks have to create links between all branches of the bank by using financial network system. the cost of ITC has to be reduced and ITC services should be available for all people in cost effective manner. Otherwise. In order to establish e-banking. 6. 3. it has to incur huge amount of establishment cost. Some times the banks may face resistant from the staff members to establish these services. For instance the small banks can share the ATMs of well established banks in order to provide services to their customers. The Ethiopian Civil Code is not enough to make adequate changes in the legal framework.extend e-banking services. in Ethiopia are not in a position to establish the e-banking services due to high establishment cost. Here the banks are facing problem relating to the reliable electric power supply. Internet laws. First of all. Thus the electric power providers should take efforts to provide uninterrupted power supply throughout the country. For instance if a bank wants to install ATMs. It plays a crucial role in developing the ebanking. In order to overcome this problem the banks can go for low cost products such as low cost ATMs which will reduce the establishment cost upto some extent. the banks have to create awareness among the employees and then they have to provide proper training to them. The Ethiopian banks are lacking in skilled man-power which is necessary to extent e-banking services. In order to overcome this problem. In order to overcome the problems relating to socio-cultural aspects. Most of the banks.

Higher Institutions and Media should give due attention to achieve the above. Schools.technologies and its impact. *********************************************************************** . The banks should be bold enough to face these types of problems.