Ethiopia’s financial services industry is one of the least developed in the region. The banking sector is heavily regulated. As at October 2013, pan-African financial services provider Ecobank estimated Ethiopia’s unbanked population to be around 80 million people.
But the industry is slowly evolving, adopting services that are widely used elsewhere in Africa.
“The economy is growing and people need to transact money fast,” says Dawit Nehemia, technical, marketing and research director at SS Communications, a company that offers software development and banking support services. It was established by an Ethiopian who spent years in the US, and was keen to help change the industry when he returned home.
A few years ago SS Communications worked with Dashen Bank to roll out ATM machines for the first time. Recently, regulators and banks have become more receptive to the introduction of other services, opening opportunities for businesses like SS Communications.
When How we made it in Africa visited its offices in Addis Ababa in March, staff at SS Communications were working round the clock to beat the deadline for several tenders issued by banks. At the time 4,000 point-of-sale (POS) terminals had arrived at the port in Djibouti, to be deployed by a local bank.
“Last week we sent out four tenders to four different banks. The market is growing fast,” says Arsema Zewdie, chief operations officer of SS Communications.
Still a long way to go
But there is still a lot to be done in the country given that mobile money is only starting, inter-bank transactions do not exist and not many people have debit cards. Zewdie notes that if a supermarket decides to accept card payments it has to have four POS terminals, one for each bank that offers the service. This makes the roll-out expensive and unattractive to businesses. She estimates the number of terminals in the market to be only in the thousands. It has been reported that Ethiopia has about 1,500 automated teller machines (ATMs) and just over 2,200 bank branches.
But the government is currently pushing the adoption of card payments.
“And it is working. Certain people are beginning to demand to pay via cards when they go shopping because they are seeing advertisements on TV,” says Nehemia.
SS Communications is one of several companies involved in the roll-out of a national switch project expected to go live in a year. The system will allow customers to access their money via ATMs, mobile and internet channels, and POS devices, regardless of with whom they bank.
“That will be a game-changer. It will make more people appreciate the benefits of card and electronic payments,” says Nehemia.
Although mobile phone penetration is low at just 25 million, considering Ethiopia’s 94 million population and adoption patterns elsewhere in Africa, the entry of mobile money is expected to have a significant impact on the country’s financial services sector. The local subsidiary of Netherlands-based BelCash has rolled out the helloCash mobile money service, while MOSS ICT introduced M-Birr last December.
“Things take time to get here. One major issue is the language barrier. Mobile phones are built with Latin [keyboards], but not everyone in Ethiopia speaks English. As more phones are adapted to Amharic, people will be more comfortable using SMS and other mobile services,” explains Nehemia.
Business is unusual
Although SS Communications is a pioneer in card payment services in Ethiopia, Zewdie says being a domestic company comes with some challenges. For starters, people doubt the competency of local enterprises.
“Yet as a local company we can respond instantly to issues, we can deploy faster because we understand local dynamics, we speak Amharic and we build our software in-house in cognisance of the local environment,” says Zewdie. “It is not as easy and smooth to do business here compared to other countries. In Ethiopia, business is unusual.”
Nonetheless, the company expects good growth in coming years as Ethiopia’s financial services industry transforms. Foreign investors too seem to be whetting their appetites, with some having set up offices in Addis Ababa despite legislation blocking foreign investors in the banking and insurance sectors. Togo-headquartered Ecobank opened a representative office in 2013, while South Africa’s Standard Bank also announced it is establishing a presence.
The two want to gain a foothold in the market in anticipation of the deregulation of the banking sector.