The New Payment Directive and the Future of Fintech in Ethiopia
The National Bank of Ethiopia (NBE) has issued the long-awaited directive that will regulate payment instruments issuers which includes mobile money, wallet and similar digital financial services in Ethiopia.
The new directive titled "Licensing and Authorization of Payment Instrument Issuer Directive No. ONPS/01/2020" is poised to replace the previous Mobile and agent banking directive that paved the way for the likes of M-Birr, HelloCash, CBE-Birr, Amole, and other mobile money services to flourish.
The 2012 directive had allowed banks and microfinance to provide mobile money service via agents. With that, customers were able to sign up at an agent or branch location and be able to transact up to 6,000 birr daily and have a maximum account balance of 25,000 birr. In addition, Banks and MFIs were allowed to partner with technology service providers through either software acquisition or revenue sharing arrangements.
The new directive is a game changer when compared to the former as it paves way for the creation of a new type of financial service providers beyond the usual banks and microfinance. It introduces Fintech's or also referred to by the national bank of Ethiopia as "Digital financial service providers" or DFS providers in short.
This arrangement is taken from other countries' experiences such as Nigeria where financial technology companies (Fintech) are licensed by the regulator to provide a limited range of financial services.
This move is partly attributed to the low performance of banks and microfinance in delivering their promise of financial inclusion and eased digital payments using mobile. Our internal research shows, Banks and microfinance in Ethiopia have rolled out a total of 18 mobile money services via partnerships with fin-techs or directly acquiring the technology and rolling out on their own.
So far, Banks and MFI's are not able to succeed as the likes of M-Pesa did in Kenya. All mobile money platforms in Ethiopia acquired a total of around 8 million customers to date, around 20,000 agents. Their set of services are also limited to sending money and a handful of payments. However, one could argue it will not be fair to compare the success of a telecom led mobile money like Mpesa against banks led mode mobile money platforms and point that both are operating in a different context.
Anyhow, these numbers are considered quite low for a country with a population of over 100 million people and 45 million mobile phone subscribers. The results are further dimmed down when we start analyzing beyond registered customers and focus on the number of active monthly users.