The opening up of payment system operators and agent network business is recommended to fetch the expected benefit on the financial industry development.
The position paper developed by Precise Consult International under the title of ‘Achieving Interoperability and Digitizing G2P and P2G Payments are Critical to Expanding Financial Services for the Poor in Ethiopia’ reminds that the National Payment Systems proclamation, proclamation no. 718/ 2011 that allows NBE to establish, own, operate, participate, regulate and supervise an integrated payment system consisting of a large value funds transfer system and retail funds transfer system.
The proclamation led to the formation of the Ethiopian Automated Transfer System (EATS) that includes a real-time gross settlement and an Automated Clearing House, a digital clearing and settlement platform.
The National Payments Proclamation has cleared a path for digital payments and interoperability of digital payment platforms. In 2020, NBE released three directives that helped in defining roles and enabled the licensing of institutions that make interoperability of all platforms possible.
Other laws including the directive that allows non-financial firms to be involved on digital payment solution that targets to expand the digital payment ecosystem has also been issued on the past couple of years.
The Licensing and Authorization of Payment System Operators, Directive No. ONPS/02/2020 that allows non-financial institutions to be involved on digital payment systems gives recognition to platforms that act as switch, automated teller machine, operator, point of sale operator and gateway operator.
Precise’s paper said that interoperability that makes financial services easily accessible is crucial for financial inclusion for rural and low income areas, and enable financial service providers to reach communities in lower cost.
However the involvement of the other that is not financial institution is opened and only allows Ethiopians and the diaspora to enjoy similar to the investment on financial business. While the paper highlighted that investment on digital payment system is not easy since it requires a not so small investment.
It recommended for allowance of limited or full foreign investment and ownership in the payment system operator and agent network business is required.
“Previous attempts to create interoperability among the Ethiopian financial institutions have resulted in limited impact. This is due to the required large investment and innovation needed to reach scale in interoperability,” it explained.
It reminds that there have been efforts by banks individually, bilaterally and multilaterally to create payment Switches, which amounted to the creation of Eight Switches, “however, all of these Switches couldn’t meet the demands of customers because they weren’t able to achieve interoperability to include account-to-account and online payments.”
It shared the experience of other countries in Africa and Asia that succeeded on the way to digital payment solution “it is evident that building an agent network business for payments requires a vast amount of resources, experience and accepting short term losses.”
The position paper shows that the success of Tanzania on the implementation of digital payment solution has registered massive growth every year. “Tanzanian market players were equipped with international experience, large sums of investment and innovative competition which boosts their ability to scale fast,” it shows, highlighting, “Their main objectives in creating this market led interoperability in order to make transactions convenient, cheap, fast, tackle the dominance of cash transactions and encourage people to keep their money in their wallets and bank accounts.”
“Thus, it is recommended for Ethiopia to allow limited or full investment and foreign ownership of payment system operator and agent network business to leverage their experience, investment and innovation. This includes businesses like payment switch, point of sale and automated teller machine operations,” it added.
Putting in place non bias mobile network operators is crucial according to the position paper to role in the scaling of digital payment services to the poor and underserved communities in remote areas.
It has also recommended government offices to use digital payment schemes to encourage the society to put their money in the system.