Chapter One

1. The Problem and Its Approach

1.1 Introduction

Technological innovations play a crucial role in banking industry by creating value for banks and
customers. They have enabled customers to perform banking transactions without visiting a brick
and mortar banking system. E-banking has made it possible for banking institutions to compete
more effectively in the global environment by extending their products and services beyond the
restriction of time and space (Turban 2008, cited by Ayana 2012).

On the other hand, the rapid growth of communication technology is affecting almost all
organizations in the world to the negative, especially in our country. Like all other organizations
financial institutions are being constantly disturbed by technological change. Ethiopian financial
institutions especially private banks are one of the victims of this technology change.

1.2 Statement of the Problem

Although E-banking is easy, convenient and, unlike a bank's physical location, the
electronic banking doesn't abide by any business hours, enables customers to do different
transactions instantly, there are drawbacks associated with it as well.

The purpose of this research is to identify the drawbacks for adoption and development of
electronic banking technology in Ethiopian private commercial banks. This research will attempt
to answer the following questions:
 What are the negative sides of adoption and development of electronic banking
technology in the banks?
 What are the disadvantages of the different E-banking services to the customers?
 What kinds of drawbacks are too difficult to deal with for managers and their
negative impact on the works of the bank
1.3 Objectives of the Study

General Objective

The general objective of the study is to find out the drawbacks of the adoption and
development of electronic banking technology in Ethiopian private banks.

Specific Objectives
The specific objectives of the study are

 to identify the negative sides of the adoption and development of electronic banking
technology in Ethiopian private banks.
 to pinpoint the drawbacks of the different E-banking services for customers.
 to specific the drawbacks which are difficult to deal with for managers and their
impact on the works of the bank?

1.4 Significance of the study

The purpose of this research is to identify the benefits and drawbacks for adoption and
development of electronic banking technology in Ethiopian private banks. In this aspect it
is believed the research will have the following significance:
 May have a positive impact on the performance of banks that wish to adopt
and/or have adopted electronic commerce or electronic payment applications.
 Could help the managers or decision-makers in order to take appropriate
measures in the area for the promotion of E-banking practices.
 May provide a framework for the Banks for the design of their future directions
and to adjust their goals and objectives as per real benefits and drawbacks.
 This study could also help to assist stakeholders in the banking industry to
identify and formulate strategies that will promote electronic banking.
  Gives way to other researchers to conduct more research on electronic banking.
 May add to the existing literature and serve as an additional source of literature .

1.5 Delimitation of the Study

The findings of the research would be more fruitful if it were conducted widely by
including other private banks. It would also be more representative if it would include the
branches of the banks in the regions. But, due to time, labor and money constraints it
would be unmanageable for the researchers to include all private banks or the branches of
the selected banks. Therefore, the study is delimited to the HQs of the two private banks:
Dashen and NIB banks in Addis Ababa.

1.6 Limitation of the Study

It is expected that the major constraint in this study would be time. Although the two
banks are selected based on the availability of data and the confirmation of cooperation
by the managers of the banks, it is always difficult to get information in a short period of
time, especially from banks.

Also, this research study will only include or gather data from the main banks of the two
private banks of Ethiopia, and will not include the remaining banks operating in the
country or the branches of the selected banks in the regions.

This research will also not include all the customers that use these banks due to lack of
time, resources and ability to communicate with all the customers.
1.7 Definition of used terms

The following terms are defined to clarify them for the readers.

E-banking – Electronic banking

A brick and mortar banking system - any infrastructural entity having solid physical
presence compared to e-banking.

1.8 Research Methodology

The purpose of this research is to conduct exploratory research in order to gather as much
information as possible to find out the drawback of e-banking in the two private banks.
The exploratory type of research gives valuable insight of the problem and provides
suggestive ideas through reviewing information from the problem area.

Sampling involves any procedure that draws conclusions based on

measurements of a portion of the population. In other words, a sample is a
subset from a larger population. Respondents for the study will be taken from
service users of electronic banking service in Dashen, and Nib banks.

In order to achieve the objectives of the study, both primary and secondary sources of
data will be employed. Secondary data will be collected from different websites,
annual reports of banks, case studies, journal articles, magazines and books that
are reviewed in the area of e-banking.

Data will be collected through the following methods:

 Observation
 Questionnaire
 Interview
The study will use two subjects: - the customers and the management.

1.9 Organization of the study

The study will be organized into four chapters. The first chapter will deal with the problem and
its approach where statements of the problem, objective of the study, significance of the study,
scope and limitations of the study, definition of Terms and research methodology will be dealt
with. The second chapter will be dedicated for review of related literature. The third chapter will
treat the analysis of the data collected. The fourth chapter will bring the research report to an end
by presenting the summary, conclusion and recommendations.
 Chapter Two
2. Review of related literature
Nowadays it’s hard to imagine the world without electronics. Electronics have become one of the
most important tools in human life and it’s hard to separate the two. Electronics helps humans in
many ways possible. One of them is electronic banking.

2.1. Definition of Electronic Banking (E-Banking)

Over the years E-banking have been defined by different authors in different ways based on their
understanding of the application of electronic banking but all refer to the same meaning, some of
these definitions are:

E-banking is a form of banking service where funds are transferred through an exchange of
electronic signal between financial institutions, rather than exchange of cash, checks, or other
negotiable instruments (Kamrul 2009, cited by Meaza 2013).
E-banking, also known as electronic funds transfer (EFT), is simply the use of electronic means
to transfer funds directly from one account to another, rather than by check or cash (Malak
2007). Electronic Funds Transfer (EFT) is a term that identifies any system used to transfer
payments or funds electronically. EFT refers to any transfer of funds, other than a transaction
originated by check, draft or similar paper instrument, that is initiated through an electronic
terminal, telecommunications instrument, computer or magnetic tape, to order, authorize or
instruct a financial institution to debit or credit an account.

EFT or E-banking is the groundwork of the cash-less and cheque-less culture where and paper
bills, checks, envelopes, stamps are eliminated. EFT is used for transferring money from one
bank account directly to another without any paper money changing hands. The most popular
application of EFT is that instead of getting a paycheque and putting it into a bank account, the
money is deposited to an account electronically. EFT is use full to, Simplify accounting, Improve
efficiency, Reduce administrative costs and improves security. It is also reliable and convenient
way to conduct business.
E-banking can be defined as the deployment of banking services and products over electronic
and communication networks directly to customers. (Singh and Malhotra 2004)

E-banking can defined as a variety of platforms such as internet banking or (online banking),
TV-based banking, mobile phone banking, and PC (personal computer) banking (or offline
banking) whereby customers access these services using an intelligent electronic device, like PC,
personal digital assistant (PDA), automated teller machine (ATM), point of sale (POS), kiosk, or
touch tone telephone (Alagheband 2006, cited by Meaza 2013).

2.2. Types of E-Banking Payments

There are different types of ways to transfer money electronically. These are:

2.2.1. Payment Cards or Plastic Cards

Payment cards include credit cards, debit cards, charge cards and smart cards. They are the most
popular tool for electronic payment transactions.

2.2.2. Credit Cards

Credit cards are issued based on the customer's income level, credit history, and total wealth. The
customer uses these cards to buy goods and services or get cash from the participating financial
institutions. The customer is supposed to pay his or her debts during the payment period;
otherwise interest will accumulate. Two limitations of credit cards are their unsuitability for very
small or very large payments. It is not cost-justified to use a credit card for small payments. Also,
due to security issues, these cards have a limit and cannot be used for excessively large
transactions.

There are two types of credit cards on the market today:

• Credit cards issued by credit card companies (e.g., MasterCard, Visa) and major banks.
• Credit cards issued by department stores (e.g zefemesh supermarket), oil companies and other
businesses. Businesses extremely benefit from these company cards and they are cheaper to
operate.

2.2.3. Debit Cards

The difference between credit cards and debit cards is that in order to pay with a debit card
customers need to know their personal identification number (PIN) and need a hardware device
that is able to read the information that is stored in the magnetic strip on the back of the card.

Debit cards task similar to checks in that the charges will be taken from the customer's checking
account. It is easy to use, fast and convenience. These cards also keep the customer under their
budget because they do not allow the customer to go beyond his or her resources.

2.2.4 Charge Cards

Charge cards are similar to credit cards except they have no revolving credit line, so the balance
must be paid off every month.

2.2.5. Smart Cards

A smart card is about the size of a credit card, made of a plastic with an embedded
microprocessor chip that holds important financial and personal information. The microprocessor
chip is loaded with the relevant information and periodically recharged. In addition to these
pieces of information, systems have been developed to store cash onto the chip. The money on
the card is saved in an encrypted form and is protected by a password to ensure the security of
the smart card solution. In order to pay via smart card it is necessary to introduce the card into a
hardware terminal. The device requires a special key from the issuing bank to start a money
transfer in either direction. Smart cards can be disposable or rechargeable.

2.2.6. Automated Teller Machines (ATM)

It is an electronic terminal which gives consumers the opportunity to get banking service at
almost any time. To withdraw cash, make deposits or transfer funds between accounts, balance
inquiries and cash advances a consumer need an ATM card and a personal identification number
(PIN). ATMs let the customer’s bank without going inside a bank and talking to a teller.
 2.2.7. Point-of-Sale Transfer Terminals (POS)

The system allows consumers to pay for retail purchase with a check card, a new name for debit
card. This card looks like a credit card but with a significant difference. The money for the
purchase is transferred immediately from account of debit card holder to the store's account
(Malak 2007).

2.3. Mobile Banking

Mobile banking is a service that enables customers to conduct some banking services such as
account information and funds transfer or cash-in and cash-out, by using of short text message
(SMS).

2.4. Internet / Extranet Banking

Internet is a global computer network providing a variety of information and communication

facilities, consisting of interconnected networks using standardized communication protocols.

Internet/ extranet is an electronic home banking system using web technology in which Bank
customers are able to conduct their business transactions with the bank through personal
computers.

Banks offer Internet banking in two main ways. An existing bank with physical offices can
establish a Web site and offer Internet banking to its customers in addition to its traditional
delivery channels. A second alternative is to establish virtual branchless or Internet-only, Bank
almost without physical offices. Virtual banks may offer their customers the ability to make
deposits and withdraw funds via ATMs or other remote delivery channels owned by other
institutions (Furst & Nolle 2002, cited by Ayana).

2.5. Direct Deposit

Direct deposit helps to directly wire money into ones account it’s mostly used in payroll system.
It lets the company electronically pay employees. After sending payroll to the bank or direct
deposit service provider and send how much to deposit in each employee’s bank account. Then,
the bank or direct deposit provider will put that money in employee accounts on payday.

2.6. Wire Transfers 

Wire transfers are a fast way to send money. They are typically used for large, infrequent
payments. They are mostly used to pay vendors or to make a large down payment on a building
or equipment.

2.7. Telephone payment system or Pay-by-phone systems

Telephone payment let the customer pay bills or transfer money between accounts over the
phone. To access an account the customer is required to dial a telephone number which the
service is given. The customer can check account balance, transfer funds between current,
savings and credit card accounts, pay bills, receive information and other services.

2.8. Personal computer banking 

Personal computer banking lets the customer make banking transactions with their computer or
mobile device. You can use your computer or mobile device to move money between accounts.

2.9. Need for E-banking

In order to get a bank service a customer has to approach the branch in person, to withdraw or
deposit cash, request a statement of accounts and to do other banking activities, but in true E-
banking, any information or transaction is processed online without any reference to the branch.
The customer can access any bank related information or transaction from anywhere any time
which makes E-banking needed in high rate. E-banking is also the cheapest way of providing
banking services considering the time, paper costs and people needed in normal banking
transactions or face to face transactions. Banks have and still trying to improve their products,
services and efficiency. They have, over a long time, been using electronic and
telecommunication networks for delivering a wide range of value added products and services.
Especially with the popularity of computers, easy access to Internet and World Wide Web
(WWW), Internet is increasingly used by banks as a channel for receiving instructions and
delivering their products and services to their customers. E- Banking has made banking service
easy to access, time and paper reducing and helps the banks to satisfy customers and gain more
customers as a result.

2.10. E-banking system in Ethiopian banking industry

The appearance of E-banking in Ethiopia goes back to the late 2001, when the largest state
owned, commercial bank of Ethiopia (CBE) introduced ATM to deliver service to the local
users. In addition to eight ATM Located in Addis Ababa, CBE has had Visa membership since
November 14, 2005. But, due to lack of appropriate infrastructure it failed to reap the fruit of its
membership. Despite being the pioneer in introducing ATM based payment system and acquired
visa membership, CBE Lagged behind Dashen bank, which worked aggressively to maintain its
lead in E-payment system. As CBE continues to move at a snail's pace in its turnkey solution for
Card Based Payment system, Dashen Bank remains so far the sole player in the field of E-
Banking since 2006. (Gardachew 2010)

2.11. Risks of E-banking

Even though E- banking has a great influence on banking system like all other human inventions
it is not perfect. Some of the problems or risks on implementation of E-banking are: Low level of
internet penetration and poorly developed telecommunication infrastructure.
 Chapter Three – Supplemental
3.1. Bibliography

 Electronics business. Available from https://en.wikipedia.org. Accessed 10 April 2019.

 Electronic fund transfer (EFT). Available from

https://www.patriotsoftware.com/accounting/training/blog/what-is
electronic-funds-transfer-eft/. Accessed 20, April 2019.
 Gardachew, W 2010, Electronic -banking in Ethiopia: practices, opportunities and
Challenges, Journal of internet Banking and commerce,15(2):2-9
 James A. O’Brien. (1998) Introduction to information systems: an internet worked
enterprise perspective (2nd ed), New York, McGraw- Hill.
 José Fernandes. Types of e-commerce. Available from
https://bloomidea.com/en/blog/types-e-commerce. Accessed 19 April 2019.
 Malak, J 2007, Readiness of the Palestinian banking sector in adopting the electronic
banking system: exploratory study, MA thesis, The Islamic University of Palestine.
 Ramon O'Callaghan. (2003) Electronic Data Interchange Concepts And Issues, Denmark,
Jon A. Turner Copenhagen Business School Denmark and New York University USA.
 Unity University distance module. course material for accounting information system,
Addis Ababa, Unity University.
 Singh, B. and Malhotra, P. (2004). Adoption of Internet banking: An empirical
investigationof Indian banking Sector. Journal of Internet Banking and Commerce,
9(2).
3.2. Time and budget schedule
3.2.1 -Time schedule
Time

Activity Dec Jan Feb Mar Apr May Jun July Aug

Data collection X

Data analysis X

Conclusion and X
recommendations

Presentation X

3.2.2. Budget schedule

No Material Quantity Price per unit Total
price

1 Paper 200 0.25 50

2 CD 4 30 120

3 Internet cost 70

4 Print 120 0.50 60

5 Transportation 80

Total 380
 3.3.Questionnaire & Interview Questions:
Unity University
College of Business, Economics and social science
Department of Accounting and Finance
(This questioner is to be filled by the bank managers)
Dear Sir/Madam

Hello we are BA student in department of Accounting and Finance at Unity University. The aim
of this questionnaire is to identify the Drawbacks of Electronic Banking in Ethiopian Private
Commercial Banks. The results of the research will have important contribution to the banks, to
owners, to clients, to concerned government offices and others. The information you will provide
in response to the questions in the questionnaire will be used as part of the data needed for the
research.
We sincerely assure you that the information you provide will be used only for academic
purposes. Your honest and thoughtful response is invaluable.
Reminder:
 Please do not right your name on the questionnaire
 Put the tick mark ( ) on the appropriate space as per your choice for each closed-
ended question
 Please state the appropriate reason for open-ended questions on the ruled line carefully.

Thank you in advance for your participation

Part I.

1. Name of the Bank

2. What type of E-banking services does the Bank provide to its customers?

ATM Internet Banking

 Mobile Banking

Others (please specify)

Part II.

Please indicate whether you agree or disagree with each statement by ticking ( ) on the
spaces that specify your choice.
Key
SA= Strongly agree, A=Agree, N= Neutral, SD= Strongly Disagree, D= Disagree

No Questions SA A N SD D
1.
2.
3.
4.
5.
6.
7.
8.
5.
5.
5.
5.
5.

Unity University
College of Business, Economics and social science
Department of Accounting and Finance
(This questioner is to be filled by the bank customers)
Dear Sir/Madam

Hello we are BA student in department of Accounting and Finance at Unity University. The aim
of this questionnaire is to identify the Benefit and Drawbacks of Electronic Banking in Ethiopian
Private Commercial Banks. The results of the research will have important contribution to the
banks, to owners, to clients, to concerned government offices and others. The information you
will provide in response to the questions in the questionnaire will be used as part of the data
needed for the research.
We sincerely assure you that the information you provide will be used only for academic
purposes. Your honest and thoughtful response is invaluable.
Reminder:
 Please do not right your name on the questionnaire
 Put the tick mark ( ) on the appropriate space as per your choice for each closed-
ended question
 Please state the appropriate reason for open-ended questions on the ruled line carefully.

Thank you in advance for your participation

Part I.
Please indicate the following by ticking ( ) on the spaces in front of the response options:

1. Gender: Male Female

2. Age: 18-30 31-40 41-50 51-60

Part II.
Please indicate whether you agree or disagree with each statement by ticking ( ) on the
spaces that specify your choice.

Key
SA= Strongly agree, A=Agree, N= Neutral, SD= Strongly Disagree, D= Disagree

No Questions SA A N SD D
1.
2.
3.
4.
5.
6.
7.
8.
5.
5.
5.
5.
5.
5.
5.
5.

II. Interview

Interview questionnaires designed for the managers.

1. Position on the bank?

2. What type of Electronic banking service does the bank provide?
3. What are the basic drawbacks of adopting new technological innovations?
4. What factors are considered as an obstacle for implementation of technological innovation?
5. Are there any social, Economic and legal difficulties for implementation E-Banking?