Banking in Ethiopia: Overview

Telephone and PC Banking
It is atoll enables customers via telephone calls to find out about their position, with their bankers merely dialing the telephone numbers given to them by the banks. In addition, the computers on the phone would require special codes given to the customers as a means of identification of authentic users before they can receive any information they requested. This is a service introduced into the banking balance because of computer telephone technology is being made available.
The technology banking has a universe of possible application limited only by the imagination. These areas include Account balance enquiry; Account statement printing; intra-Banks Account to Account Transfer; inter-banks Account to Account Transfer; Download Account Transaction, etc. (Devamohan, 2002).

Telephone and PC banking brings the bank to the door step of the customer, it does not require the customer to have his premises; interactive Voice Response becomes a regular feature of operations; Text-to-speech capability becomes reality; A uniformed messaging capability become permanent feature of the bank (Vassiliou, 2004)
E-banking challenges in Ethiopia
Banking in Ethiopia faces several challenges to fully adopt and adapt electronic banking operational applications and seize the opportunities presented by ICT applications in general. According to Mohammad MizanurRahman (2008) in Bangladesh, e-banking is now a global phenomenon. Apart from the developed countries, the developing countries are experiencing strong growth in e banking.
The government’s emphasis on setting up ICT park, raising allocation for developing ICT infrastructure, waiving taxes on computer peripherals and other measures including the automation program of banking sector and competition among the scheduled banks in improving customer services have accelerated the prospects of e-banking. In addition, as investigated by Alhaji Ibrahim H. (2009) using exploratory study, the following are among the critical challenges for the adoption of e banking in commercial banks.

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Low level of internet perception and poorly advanced telecommunication infrastructure: Lack of infrastructure for telecommunications, Internet and online payments impede smooth development and improvements in e-commerce in Ethiopia. Most rural areas of the country, where the majority of small and medium businesses are concentrated, have no Internet facilities and these are unable to participate in electronic payments activities.
Lack of suitable legal and regulatory framework for e-payment: Ethiopian current laws do not accommodate electronic contracts and signatures. Ethiopia has not yet enacted legislation that deals with e-payment concerns including enforceability of the validity of electronic contracts, digital signatures and intellectual copyright and restrict the use of encryption technologies.

Inadequate banking system:

Political instabilities in neighboring countries:
Political and economic instabilities in all neighboring countries are threatening traits that do not provide a very conducive environment for e banking in Ethiopia. Political instabilities unavoidably disturb smooth operations of business and free flow of goods and services of the countries.
High rates of illiteracy:
Low literacy rate is a serious weakness for the adoption of E-Banking in Ethiopia as it hampers the accessibility of banking services. For citizens to fully enjoy the benefits of E-Banking, they should not only know how to read and write but also possess basic ICT literacy.
High cost of Internet:
The cost of Internet access relative to per capita income is a critical factor. 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 computers and telecommunication and licensing requirements
Absence of financial networks that links different banks (Banks are not yet automated):
Most of the banking-transactions currently taking place use credit and debit cards supplied by Visa and MasterCard. For conducting e banking, the use of credit or debit cards is mandatory thus requiring the need for specialized systems, which are not currently available.
Frequent power interruption:
Lack of reliable power supply is a key challenge for smoothly running e-banking in Ethiopia.
Resistance to changes in technology among customers and staff due to:

Lack of awareness on the benefits of new technologies,
Lack of trained personnel in key organizations,
Tendency to be content with the existing structures,
People may be resistant to new payment mechanisms

Cyber security issues: Cyber security is a global challenge that requires global and multi-dimensional response with respect to policy, socio-economic, legal and technological aspects. E-banking applications represent a security challenge as they highly depend on critical ICT systems that create vulnerabilities in financial institutions, businesses and potentially harm banking customers.

It is imperative for banks to understand and address security concerns in order to leverage the potentials of ICTs in delivering E-banking applications. (i.e. the use of ICTs by individuals to commit fraud and other crimes against banking transactions) (ITU4D, 2006).
All electronic payment methods share a number of common features and characteristics. These are: independence, Interoperability and portability, ease of use, and transaction fees, security, anonymity, divisibility. Independence refers to the ability of e-commerce methods to operate without installing specialized software.
Interoperability and portability refers to the ability of forms of e-commerce to interlink with other enterprise applications and systems. Security is an important consideration that encompasses the safety of the transfer and the chance of the transfer being intercepted. According to C.S.V Murthy, (2004), electronic payment gives a number of benefits to the issuing banks and customers of the bank including:

Dramatically reduce printing, mailing, and financial handling costs associated with processing transaction.
Enhance payment security by minimizing theft or loss.
Prevent fraud through automated controls
Increase customer satisfaction and enhance service to constituents.
Ensure continuity of service to cardholders in emergency or disaster situations
Improve operational efficiency and profitability of the issuing banks

Importance of E-Banking
Understanding e-banking service is important for several stakeholders, since it benefits them to derive advantages from it. Many banks and other financial institutions have already implemented or are planning to implement e banking because of the numerous potential benefits associated with it. Some of these major benefits according to (Shah & Clarke (1997) are briefly described below.
Benefits from the Customers’ side
The main advantages of e banking for corporate customers as per (BankAway! 2001; Gur?u, 2002) are as follows:

Reduced costs in accessing and using the banking services.
Increased comfort and timesaving — transactions can make 24 hours a day, without requiring the physical interaction with the bank.
Quick and continuous access to information: Corporations will have easier access to information as, they can check on multiple accounts at the click of a button.
Better cash management: E-banking facilities speed up cash cycle and increases efficiency of business processes as large variety of cash management instruments are available on internet site.

The main benefits from e-banking for private customers are as per BankAway (2001) are as follows :
a) Decrease costs: This is in terms of the price of available and using the various banking products and services.
b) Suitability: All the banking transactions and communications can be performed from the comfort of the home or office or from the place, a customer wants to gain.
c) Speed: The response of the medium is very fast; therefore, customers can actually wait till the last minute before concluding a fund transfer. Funds management: Customers can download their history of different financial records or accounts and do analysis on their own PC before affecting any transaction on the web. This will lead to better funds management.
Benefits from the Banks Point of View
Cost Reduction: The main economic and financial argument of electronic payment so far has been reduction of overhead costs of other channels such as branches, which require expensive and costly buildings and a staff presence. It also seems that the cost per transaction of e banking often falls more rapidly than that of traditional banks once a critical mass of clients is achieved.
The consensus is that fixed costs of e banking are much greater than variable costs, so the larger the customer base of a bank, the lower the cost per transaction would be. Whilst this implies that cost per transaction for smaller banks would in most cases be greater than that of larger banks, even in small banks it is seen as likely that the cost per transaction will be below that of other banking channels.
Attracting High Value Customers, E-Banking often attracts high profit clients and business with higher than average income and education levels, which helps to increase the size of income streams. For a retail bank, e-banking customers are therefore of particular interest, and such customers are likely to have a higher demand for banking products. Most of them are using online channels regularly for a variety of purposes, and for some there is no need for regular personal contacts with the bank’s branch network, which is an expensive channel for banks to run (Berger &Gensler, 2007).
Increased Revenues; Increased revenues or incomes as a result of offering e-channels are often reported, because of possible rising in the number of clients, preservation of existing customers, and cross marketing opportunities. Whether these revenues are enough for reasonable return on investment (ROI) from these channels is an ongoing debate.
It has also allowed banks to diversify their value creation activities. E banking has also resulted in increased credit card lending, as it is a sort of transactional loan that is most easily deliverable over the internet. Electronic bill payment is also on rapid rise (Young, 2007) which suggests that electronic bill payment and other related capabilities of e-banking have a real impact on retail banking practices and rapidly expanded revenue stream
Benefits to General Economy
Electronic Banking as already stated has greatly serviced both the public and the banking industry.
Besides many tangible benefits in the form of discount of cost, reduced delivery time, better efficiency, reduced wastage, banking electronically controlled and thoroughly monitored environment and discourage many illegal and illegitimate practices associated with banking industry like money laundering, frauds and embezzlements.
As e- banking deliver opportunity to banking sector to enlarge their customer base, a consequence to increase the volume of credit creation which results in better economic condition. Besides, E-banking has also helped in documentation of the economic activity of the masses (Mahdi Salehi, 2004)
In Ethiopia and beyond, some researches was conduct on the challenges of electronic payment system. The results of those researches created doubt in the minds of different researchers on the challenges of electronic payment system. Some researchers are of the opinion that the power failure and management attitude are the challenges of electronic payment system. To others, illiteracy, political instability and user acceptability
Different researchers in different parts of the world conducted different related studies; however, there are limited numbers of studies conducted in Ethiopia on the adoption of technological innovation. Specifically, (Gardachew2010) conducted research on the opportunities and challenges of E-banking in Ethiopia.
The aim of his study is focus on analyzing the status of electronic banking in Ethiopia and investigates the main challenges and opportunities of implementing E-banking system. The author conducted a survey on the existing operating styles of banks and identifies some challenges of using E-banking system, such as, lack of suitable legal and regulatory frame works for E-commerce and E- payments, political instability in neighboring countries, high rates of illiteracy and absence of financial networks that links different banks.
And conducted research on the opportunities and challenges of E-banking in Ethiopia in addition, found that lack of suitable legal and regulatory frame works for E-commerce and E- payments, political instability in neighboring countries, high rates of illiteracy and absence of financial networks that links different banks are the major challenges. The research output showed Opportunities offered by ICT through e-learning programs and Commitment of the governments on development of ICT infrastructures is considered as drivers of using Ecommerce and E-payment systems.
Nwankwo (2013) studied the problems and prospect of electronic payment in cashless economy of Nigeria and found that electronic payment system has great implication on cashless economy of Nigerian but it will lead to significant decrease in deposit mobilization and credit extension by Nigerian deposit money banks.
(Wondwossen and Tsegai 2005) also studied on the challenges and opportunities of electronic payments in Ethiopia; their objective was studying of electronic payment practices in developing countries, Africa and Ethiopia.
The authors employs interview and on site observation to investigate challenges to electronic payment in Ethiopia and found that, the main obstacles to the development of electronic payments are, lack of customers trust in the initiatives, Unavailability of payment laws and regulations particularly for electronic payment, Lack of skilled manpower and Frequent power disturbance.
According to the author, an adequate legal structure and security framework could promote the use of electronic payments, which is contradicting with the finding of the previous study. In addition, they found that the main obstacles to the development of E-payments are lack of customers trust in the initiatives, lack of payment laws and controlling system especially for E-payment, lack of skilled work force and frequent power disruption.
Polatoglu and Ekin (2001) found that E-banking decreases operational costs and it increases customers satisfaction and retention and increase firms overall profile. SimilarlyEchekoba et al (2011) examined user acceptability and problems of electronic retail payment systems in Nigeria and found that cash usage is still very high in Nigeria despite efforts of CBN(Commercial bank of Nigeria) towards the adoption of electronic payment system.
The study identified challenges such as inadequate power supply, shortage of critical technological infrastructures, lack of socio-cultural support and absence of regulatory framework that are required to operate seamless and effective electronic payment system
Conceptual Framework
To attain the research objective and assess the research, the study will use the Theoretical framework developed by Davis et al. (1989) modified with some modifications by consideration of Tornatzky and Fleischer (1990)
Theoretical framework of Technology organization-environment (TOE).The research here below suggested that perceived usefulness, perceived ease of use, perceived risk, organizational factors and environmental factors have influence n adoption of electronic banking service in commercial bank of Ethiopia.

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