Are we there yet? To electronic payments.

5 May

Soon you could be using one of those fancy plastic cards to pay for the cup of coffee you sip at Kaldi’s Coffee as a new legislation framework for such sophisticated electronic payments is entering force. The regulator, National Bank of Ethiopia (NBE), on Thursday tabled to parliament the new bill known as the National Payment System, establishing an integrated, electronic payment network aided with information technology tools.

The National Banks says the new law would ensure safety, security and efficiency of a payment system that will be using the latest electronic transfer devices such as the already in operation Automated Teller Machines (ATM), Mobile Banking, Point of Sales, internet and various payment cards.

The upcoming modern system would replace the costly and risky cash and cheque based transactions that have defined the local financial sector for decades, the NBE says. Though the practice of using different kinds of payment cards for purchases dates back to the 19th century in the developed world, it would be the first time it would be applied here. Financial research for the proposal and technical assistance was provided for by the World Bank.

The system

The upcoming payment system that will go online, once parliament approves the bill in three weeks, has NBE as regulator; the central bank will both physically host the system’s server and also confirm transactions.

The integrated payment system will consist of two parallel lines of transactions. One is a real time transfer dedicated only for large value funds such as huge sums paid by the federal government or intra-bank financial transactions.

Retail fund transfer systems such as paying a telephone fee can be made instantly but confirming the transaction done by NBE could take up to a day. If the payer and receiver are using the same financial transaction it could be faster.

Though the large sum transfers are usually tasked for central banks, the private sector could have handled the retail transfer once proved competent and strong, indicates the NBE document submitted to MPs alongside the bill.

Every financial organization will need to be accredited and monitored by the NBE which itself will serve as a bank handling transactions for the federal government.

Risks

Identity theft is a common threat to wire transfers but even the current core banking solution adopted by eight commercial banks can sterilize it, the NBE says. However, it adds that more advanced protection measures would be applied with costs to be shared by participants.

NBE says it can ease most of the risks connected with the wire transfer.

“Discharge of settlement obligations between system participants shall be effected by means of entries passed through the National Bank or authorized settlement system,” the bill reads in an effort to ease threats of system failure that could led to a collapse of the financial sector.

Redundant severs and two lines of communication exclusively dedicated for money transfers would be provided by Ethio-Telecom, promises NBE downplaying operation related risks as one line would continue if the other fails.

“Any system shall specify the rules to achieve finality of payment in its operations. This shall include rules establishing irrevocability of orders once these have entered into the books of the system,” article 14 of the bill reads.

Financial assets of participants in the wire system would be put in reserves as a guarantee. NBE will also serve as lender of last resort to avoid liquidity risks related with transfers.

What we have to start

The introduction of Ethio-Telecom has hardly improved Ethiopia’s poor telecom services such as mobile and internet connections.
The former Ethiopian Telecommunications Corporation’s failure to offer efficient services, especially broadband internet, had often limited banking services to the point where banks were often delayed for several months from opening new branches.

The challenges persisted with only a few branches of eight banks networking. With the upcoming system connecting at least 16 banks; however exclusive their lines of communication will be, its efficiency could be a challenge.

Initiated by NBE, a positive move is that fifteen commercial banks have since September been in talks to form an independent share company. This company is intended to manage a central switch needed to organize inter operability of different networks of the banks.
The legislation framework easing one from having to stash a lot of cash when going shopping is here, but its actual application could take a bit longer.

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