ePayment in Ethiopia: Challenges and Opportunities

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e-Payment in Ethiopia Challenges and
Opportunities

• ECA-AAU Project

Forum on ICTs, Trade and Economic Growth March 14
16, 2006
Wondwossen Tadesse, Tsegaye G/Medhin Solomon
Atnafu, Dawit Bekele
Department of Computer Science Department of
Economics Addis Ababa University
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Outline

• Introduction
• Impacts of e-payment
• Challenges of e-payment
• e-payment in Africa
• Payment Systems in Ethiopia
• Conclusion
• Recommendations
• The e-Payment prototype

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1. Introduction

• Project initiated by DISD-ECA in collaboration
  with the Computer Science Department of Addis
  Ababa University

• Objectives
• Conduct a survey on the existing status of
  e-payment in the world, in Africa, and then in
  Ethiopia
• Investigate the main challenges and opportunities
  for e-payment in Ethiopia,
• Based on the result of the survey, recommend
  appropriate actions to be taken to promote
  e-payment in Ethiopia,
• Propose systems that may work on the existing
  Ethiopian condition,
• Validate the proposed system by developing a
  working prototype

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Survey Conducted (June/August 2005)

• Document search for the experience of developed
  countries, and other developing countries,
• In the case of Ethiopia
• Questionnaire,
• Interview, and
• Onsite observations are used
• Survey covers
• government and private banks, ETC, TOTAL,
• Justice and legal research institute,

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e-Payment

• Payment processes carried out electronically.
• A payment that is initiated, processed and
  received electronically (EU directive document)
• Components of e-payment system
• Money transfer applications,
• Network infrastructures
• Rules procedures
• Major actors of e-payment
• Payer
• Payee
• Banks
• Trusted third Party

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Advantages of e-payment

• Increase payment efficiency
• Reduce transaction costs
• Enable trade in goods and services of very low
  value
• Increase convenience of making payments
• Payment can be made swiftly and remotely using
  various devices
• Can be used for
• e-commerce / e-Trade
• For other purposes like paying bills, taxes, etc

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Types of e-Payment

• Many types of e-payment system exist
• Online credit card payment system
• Electronic Payment based on Trusted Third Party
  (TTP)
• PayPal
• Digital Cash
• M-Payment
• Smart card based e-Payment system
• Electronic billing presentment and payment

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Impacts of e-Payment

• On consumers
• Inequality between net-haves and net-have-nots
• Greater intrusions into individual behaviors
• Monetary policy
• How and when to set interest rate
• Difficulty to control money supply and stability
  and hence complicates implementation of monetary
  policy
• Taxation agencies
• Increasing tax evasion leading to increased
  surveillance by government trying to control

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Challenges of e-payment

• Security challenges
• Disclosure of private information
• Counterfeiting
• Illegal alteration of payment data
• But, possible solutions are
• SSL (Secure Socket Layer)
• SET (Secure Electronic Transaction)
• 3D Secure
• Smart Card Security

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Challenges of e-payment, cont

• Infrastructure
• Computer networks and other communication
  infrastructure
• Users access devices
• Regulatory and Legal Issues
• Proper legal and regulatory framework are vital
  for the success of e-Payment
• e-signature, data protection law
• Socio-Cultural Challenges

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e-Payment in Africa

• e-Payment in Africa is practiced in some
  countries such as South Africa, Tunisia, Egypt,
  etc
• Challenges for e-payment in Africa
• Inadequate telecommunication infrastructure,
• Banks are not ready,
• Behavioral constraints,
• Inexistent of proper legal and regulatory
  framework,
• Low level of credit card access, etc

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E-payment in Africa, Cont

• Some e-Payment initiatives in Africa
• Egypt
• Good ICT infrastructure
• Adopted legal and regulatory framework for
  e-commerce
• Banks are ready for e-payment
• Government encouragement in the area of
  e-business
• Comprehensive e-payment framework

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E-payment in Africa, Cont

• Tunisia
• Good ICT infrastructure for e-commerce
• Banks are ready for e-payment,
• A good and extensive legal and regulatory
  framework for e-payment,
• Good support from the government,
• e-DINAR , CCPNet
• SADC Model Law on Electronic Transactions and
  Data Protection

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Payment systems in Ethiopia

• Traditional Payment Instruments
• Cash
• Check
• LC (letter of credit )
• Electronic Payment Instruments
• SWIFT
• A secure private TCP/IP network
• Provide a messaging service settle and clear
  foreign transaction
• Western Union Money Transfer
• Used to transfer money from abroad
• Card Based Payments
• TOTAL Fuel Card
• Mobile Prepaid Card Payment System
• Credit Card
• ATM

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Payment systems in Ethiopia, Cont ..

• Total Fuel Card / Abyssinia Card (By TOTAL Eth.
  PLC.)
• Smart card used for fuel purchase
• Has two option for payment post-invoiced and
  pre-paid
• Limited usage, but promising trend
• Mobile prepaid card (by ETC)
• Scratch card prepaid payment system
• Has become successful
• Credit card (Dashen Bank, Hotels, Some Shops,
  etc.)
• Usage is very low
• Encashment services for Visa and Master card by
  Dashen Bank
• ATM (by CBE)
• Limited services,
• limited only to few branches and clients,
• Demand is higher than the service (ECA branch)

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Payment systems in Ethiopia, Cont ..

• Problems related to infrastructure
• Frequent connectivity failure in telephone lines,
• Low bandwidth, particularly for Internet
• High cost of Internet
• Availability of Internet especially at peak hour
  is low
• Unavailability of dedicated data service networks
  and closed financial networks
• Frequent power interruption

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Payment systems in Ethiopia, Cont ..

• Completed and ongoing efforts by ETC to expand
  ICT infrastructure
• The introduction of broadband Internet.
• Internet capacity has increased both in terms of
  bandwidth and coverage
• The introduction of broadband multimedia and data
  service networks,
• Country wide expansion of the mobile phone
  network
• Status of bank automation
• Banks are not yet fully automated,
• No financial networks that links different banks,
  
• Banks are not ready for e-payment,

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Payment systems in Ethiopia, Cont ..

• Legal Framework
• No legal and regulatory framework for e-commerce
  and e-payment due to
• Inexistence of large pool of e-commerce and
  e-payment users group,
• The meager e-commerce activities can be served by
  the existing Ethiopian Civil Code
• The Ethiopian Civil Code Addresses some of the
  issues in electronic transactions
• e.g. Freedom of form of contracts
• The code, however, doesn't allow signatures to be
  in electronic form,
• Clearly stipulated privacy and data protection
  laws are absent in Ethiopia,

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Payment systems in Ethiopia, Cont ..

• Socio-cultural issues
• Resistance to changes in technology among
  customers and staff due to
• Lack of awareness on the benefits of new
  technologies,
• Fear of risk,
• Lack of trained personnel in key organizations,
• Tendency to be content with the existing
  structures,
• People are resistant to new payment mechanisms

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Recommendations

• Develop a comprehensive regulatory and legal
  framework for e-commerce and e-payment,
• Raise public awareness on the use of ICT,
  e-commerce, and e-Payment,
• Provide incentives for financial institutions to
  invest rigorously on ICT and use of e-commerce,
  and e-Payment,
• Encourage the current efforts to develop and
  expand ICT infrastructure,

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Conclusions

• Investigated existing payment systems, their
  strength and weakness,
• Investigated the practice of e-payment systems in
  Africa
• Conducted a survey on the situation of e-Payment
  practices and legal grounds in Ethiopia
• Proposed appropriate e-Payment systems that may
  work under current condition in Ethiopia,
• Developed a prototype system based on the
  proposal,

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The e-Payment prototype

• Two e-Payment prototype systems developed
• For bill presentment and payment, and
• For e-commerce.
• A web based e-Payment systems,
• Based on scratch card,
• Security is provided by SSL.
• Tools used
• JAVA
• MySQL DBMS
• Apache Tomcat web server

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• For bill presentment and payment.

Cust1
Cust2
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Clients
Service Co.
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• E-payment for e-commerce

Payee
Payer
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• Thank you