YARDESTIC INTERNATIONAL COLLEGE

MASTERS OF BUSINESS ADMINSTRATION

ONLINE PROGRAM

ASSESEMENT ON CHALLENGES AND OPPORTUNITIES OF

E-PAYMENT SERVICE PRACTICE IN COMMERCIAL BANK OF
ETHIOPIA

BUSINESS RESEARCH METHODOLOGY

01 ASSIGNMENT RESEARCH PROPOSAL

SUBMITTED BY: EBISA HUKA

ID: MBAO/6070/16A

Advisor: BERIHUN MUCHIE(PHD).

JANUARY 2024

ADDIS ABABA, ETHIOPIA

 ACRONOMY

ATM Automated Teller Machine

CBE Commercial Bank of Ethiopia

CSM Customer Service Manager

E-banking Electronic Banking

E-commerce Electronic Commerce
E-money Electronic Money

E-payment Electronic Payment

EPS Electronic Payment System

ICT Information Communication Technology

IT Information Technology

M for mobile

NBE National Bank of Ethiopia

POS Point of Sale

SWIFT Society for Worldwide Interbank Financial Telecommunication

TIN Taxpayer Identification Number

WWW World Wide Web

 Contents
ACRONOMY..................................................................................................................................2
CHAPTER ONE..............................................................................................................................1
INTRODUCTION...........................................................................................................................1
1.1Background of the Study.........................................................................................................1
1.2 Statement of the problem.......................................................................................................3
1.3 Research Questions................................................................................................................4
1.4 Objectivity of the study..........................................................................................................4
1.4.1 General Objectives..........................................................................................................4
1.4.2 Specific Objectives..........................................................................................................4
1.5 Significance of the Study.......................................................................................................4
1.6 Scope of the study..................................................................................................................5
1.7 Organization of the Study......................................................................................................5
CHAPTER TWO.............................................................................................................................6
LITERATURE REVIEW................................................................................................................6
2.1 INTRODUCTION.................................................................................................................6
2.2 DEFINITION OF E PAYMENT...........................................................................................6
2.3 TYPES OF E-PAYMENT.....................................................................................................7
2.3.1 Online Credit Card Payment System...............................................................................7
2.3.2 Electronic Payment based on Trusted Third-party..........................................................7
2.4.3 Automated Teller Machine (ATM).................................................................................8
2.3.4 Mobile/Telephone banking..............................................................................................8
2.3.5 Point-of-Sale Transfer Terminals (POS).........................................................................8
2.3.6 PC Banking......................................................................................................................9
2.3.7 Mail Banking...................................................................................................................9
2.3.8 Digital Cash.....................................................................................................................9
2.4 Online payment in Africa and Ethiopia.................................................................................9
2.4.1 Ethiopian Banks and Online Payment.............................................................................9
2.4.2 Payment Systems in Ethiopia........................................................................................10
2.4.3.1 Traditional Payment Instruments...............................................................................10
2.5 Opportunity and Challenges of E-payment..........................................................................10
 2.6. Conceptual studies related with E-payment challenges......................................................11
2.6.1 Factors influencing Banks to Implement E-payment system........................................11
2.6.1.1. Technological Factors...............................................................................................12
2.6.1.2. Organizational Factors..............................................................................................12
2.6.1.3. Environmental factors...............................................................................................13
2.7. Challenges Regarding Electronic Payment System............................................................13
2.7.1 Lack of Usability...........................................................................................................14
2.7.2 Lack of Security............................................................................................................14
2.7.3 Issues with E-Cash........................................................................................................14
2.7.4 Lack of Trust.................................................................................................................14
2.8. E-Payment Challenges in Ethiopia.....................................................................................14
2.9. Empirical studies related with E-payment challenges........................................................15
CHAPTER THREE.......................................................................................................................21
RESEARCH METHODOLOGY..................................................................................................21
3.1 Research Design...................................................................................................................21
3.2 Data type, data source..........................................................................................................21
3.3 method of data collection.....................................................................................................21
3.4 The sampling techniques......................................................................................................21
3.5 Sample and Sampling procedure..........................................................................................22
3.6 Methods of data analysis and presentation..........................................................................22
CHAPTER-FOUR.........................................................................................................................23
BUDGET BREAKDOWN AND WORK PLAN..........................................................................23
4.1 Budget breakdown...............................................................................................................23
4.2 work plan..............................................................................................................................23
Reference.......................................................................................................................................24
Appendices....................................................................................................................................26
 CHAPTER ONE

INTRODUCTION
1.1Background of the Study
Information technology is considered as the key driver for the changes taking place around the
world. Due to a pervasive and steadily growth of information and communication technology,
the world banking industry is entering into new phenomena of unprecedented form of
competition supported by modern information and communication infrastructure. The rise in the
Information communication Technology (ICT) has significant impact on service delivery in most
of the organizations adopting information system. E-commerce has become a buzzword for
companies over a couple of years with increased awareness about the use of computer and
internet.

Banks have embraced self-delivery banking services in their operations to facilitate the timeless
financial transactions services to their customer’s satisfaction. Hence, the issue of E-payment
service quality is a critical one to customer’s satisfaction of modern automation banking
technology that has long been an impediment to success in the implementation of this alternative
banking delivery channels (Davis, 1989)

Technology has increased in importance in Ethiopian banks. Traditionally, banks have always
sought media through which they would serve their clients more cost-effectively as well as
increase the utility of their clientele. Their main concern has been to serve clients more
conveniently, and in the process increase profits and competitiveness. Electronic and
communication technologies have been used extensively in banking for many years to advance
the agenda for banking (Abor, 2004).

Payment is generally understood as a transfer of funds from the payer to the payee. Electronic
payment is a payment carried out electronically. The European Central Bank defines e-payment
as “a payment that is initiated, processed and received electronically. In e-payment funds are
held, processed and received in the form of digital information and their transfer is initiated via
electronic payment instrument. (HarunaIssahaku, 2012). Conventional payments are enabled

1
through cash, check or credit card whereas electronic payments are carried out by means of
software, payment cards and electronic cashes. The major components of e-payment system are
money transfer applications, network infrastructures, and rules & procedures governing the use
of the system. Customers and merchants are the major actors of e-payment systems.

EthSwitch (National E-Payment Switch), a centralized switch system which integrated all real
time and online payment systems in Ethiopia, is established through cooperation among all
private and public commercial Banks in the year 2011. Being established with equal share
investment by all private and public banks in Ethiopia, EthSwitch is an offspring of the National
Payment Systems Development Strategy of Ethiopia which is crafted and led by the National
Bank of Ethiopia.

Electronic Banking has been widely used in developed countries and is rapidly expanding in
developing countries. In fact in Ethiopia were started to use electronic payment system, however,
cash is still the most dominant medium of exchange, and electronic payment systems are at an
embryonic stage and face different challenges

Statistics show that Africa is lagging behind in the adoption of E-commerce. However, according
to Jensen (2003), there is some e-commerce activity in Africa, with South Africa, Egypt,
Morocco, and Tunisia taking the lead. Most rural areas in Africa, where the majority of small
and medium businesses are concentrated, have no Internet facilities and thus are unable to
engage in e-commerce activities. According to Jensen (2003), most countries in Africa, except
South Africa, have Internet infrastructure only in their major cities.” Recently, several African
countries have already made progress in their e-commerce links to integrate themselves with the
global connectivity roadmap (Magembe, B A S and Shemi A P (2002).

The Commercial Bank of Ethiopia (CBE) was established as the State Bank of Ethiopia in 1942
and later legally established with its current name as a share company in 1963.In 1974, CBE
merged with the privately owned Addis Ababa Bank. Since then, it has been playing significant
roles in the development of the country. The bank is pioneer to introduce modern banking to
Ethiopia and acknowledged for playing a catalytic role in the economic progress and
development of Ethiopia.

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CBE with a vision of becoming a world class commercial bank by the year 2025 is also a pioneer
in introducing ATM service for local users. Currently it hasover 1000+ branches, 400 billion Birr
Asset, more than 18.8 million account holders, more than 2000 ATMs, 8400 POS, 1,736,768
Mobile and Internet Banking users and more than 7 million ATM Card holders.

The research into E-payment service implementation related to Ethiopia is limited in the
marketing literatures. This study will attempt to contribute to the bank and academician by
identifying the challenges and opportunity of E-payment service practice for their customers on
its verge of high distribution prospect and the find out the solution of their struggle.

1.2 Statement of the problem

Electronic payment is mostly referred to automated payment or banking channel that allows
delivery of banking services in an effective, efficient and convenient way via electronic channels
i.e., Automated Tellers Machine (ATM), Point-Of-Sale terminals (POS), Mobile phones, Internet
and Personal computers (CBE E-payment procedure ,2016)

Despite the fast progress in the E-Payment system in the world, the economy in Ethiopia is still
cash based, where majority of the transaction is using paper money. Nevertheless, cash is
expensive to mint and print, and costly to keep in circulation.

National payment switch has been facing different challenges on implementing national e-
payment switch project. These concerns necessitate this study which is aimed at providing
information on possible challenges.

 The high delays in processing disputes were observed which in turn created grievances
on the part of some Banks’ customers (EthSwitch Board of Directors’ Report, 2017).

 Delays in implementation of Card to Card transfer, ATM mini-statement, Top up, pin
change, POS purchase and POS Balance enquiry, bill payment, internet and mobile
services on part of member Banks, have negatively affected National payment switch
performance in project works( EthSwitch Board of Directors’ Report, 2017).

Commercial bank of Ethiopia (CBE) has faced some challenges relating with e payment service.
Among the challenges security, standardization, regulatory and legal issues, infrastructure, heavy

3
investment costs and socio-cultural challenges are the serious ones. However very limited
number of research has been done on the opportunity and challenges of E-banking service in
CBE but more studies are still required to assess of those challenges.

Therefore, the purpose of this study will identify the opportunity and challenges for development
of E payment technology in Commercial Bank of Ethiopia and also show some solution related
with this.

1.3 Research Questions

While conducting this research, an effort will be made to answer the following question :

1. What are the major challenges of E-Payment system in CBE?

2. What are the major existing opportunities of E-Payment system in CBE?

3. What are the solutions to solve the existing challenges of E-Payment system?

1.4 Objectivity of the study

1.4.1 General Objectives

The general objective of this study will be to identify and analyze the Challenges and
opportunity on the practice of E –payment service in the Commercial Bank of Ethiopia.

1.4.2 Specific Objectives

Specifically, the study will be

 Identify the major challenges of E-Payment system Project implementation

 Explore the opportunities of E-Payment system Project implementation.

 Provide the solution among the challenges on E payment.

1.5 Significance of the Study

This study aim to assess the opportunity and challenge towards E-payment practice. Discussion
on e payment helps to establishing how e payment service is practiced.

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This study is significant to identifying the challenges that affect implementation of E-payment
Service and providing possible recommendation to the bank regarding ways to improve the
Services.

The finding of the study will have a great importance in filling the knowledge gap that exists
among stakeholders. The stakeholders involved include the commercial bank of Ethiopia, other
concerned individuals and organizations.
Other researcher who would like to conduct related studies in a similar setting can use the
finding of this study as reference who would like.

1.6 Scope of the study

The study will delimit to assessing the opportunity and the challenges that affect E-payment
service practice in customer and employee point of view and also delimited on three selected
branches; Merkato, sebategna and toreayloche branches respectively. As such, it is presumed that
the results of the present study will be great value to the banks involved in implementing E
payment service. Further, the outcome of this study helps to the other banks and companies to use
this practice and appropriate methods to improve the challenge on its.

1.7 Organization of the Study

This paper contains Five Chapters. The first chapter deals with introduction which
include; background of the study, statement of the problem, research question, objective
of the study, scope of the study , significance of the study and limitation of the study. The
second chapter contains review of Literature; the third chapter contains research design
and methodology, method of data collection, type of data collection, data analysis method
and organization of the study. The last chapter contain summery, conclusion and
recommendation.

5
 CHAPTER TWO

LITERATURE REVIEW

2.1 INTRODUCTION
ICT has made it possible to have electronic payment systems like debit cards, credit cards,
electronic fund transfer, direct credits and internet banking. E-payment can refer to a payment
system for buying and selling goods or services offered through the internet or any type of
electronic fund transfer. Banks play a critical role in these e-payments as an intermediary.
(Ozkan, 2010).

The need for electronic payment technologies is to respond to fundamental changes in

socioeconomic trends. The tasks to design payment system infrastructures become ever more
complex as competition and innovation push constantly to the limit the search for better
combinations of efficiency, reliability, safety, and system stability in the provision of payment
services to larger numbers of individual users and institutions.

2.2 DEFINITION OF E PAYMENT

Payment is generally understood as a transfer of funds from the payer to the payee. Electronic
payment is a payment carried out electronically.E payment is a subset of an e-commerce (trading
electronically) transaction to include electronic payment for buyingand selling goods or services
offered through the Internet. The European Central Bank defines e-payment as ‘a payment that is
initiated, processed and received electronically’. In e-payment funds are held, processed and
received in the form of digital information and their transfer is initiated via electronic payment
instrument (HarunaIssahaku, 2012).

Conventional payments are enabled through cash, check or credit card whereas electronic
payments are carried out by means of software, payment cards and electronic cashes. The major
components of e-payment system are money transfer applications, network infrastructures, and
rules & procedures governing the use of the system. Customers and merchants are the major
actors of e-payment systems. Most of the time, banks and trusted third party (TTP) or
intermediaries may also participate in e-payment systems (Taddesse and Kidan, 2005).

6
2.3 TYPES OF E-PAYMENT

2.3.1 Online Credit Card Payment System

Online credit card payment system is the most common type of payment system for e-commerce.
A customer who wants to use a credit card for e-commerce transaction will be requested to
provide his credit card information by the merchant. After the credit card information is received,
the merchant's software will contact a clearinghouse. The clearinghouse authenticates the credit
card and verifies the account balance by contacting the bank, which issued the credit card. If the
credit card is approved to be valid for the transaction, the issuing bank credits the account of the
merchant at the merchant’s bank. The merchant then notifies the customer that the payment has
been made. The actual transfer of money from the credit card issuing bank to the merchant
happens in hours or days.

Credit Card in Ethiopian Airlines

The Ethiopian Airlines currently provides an option for its customers to buy flight tickets online
using their credit card. These credit cards are international credit cards such as Master Card and
Visa. Customers who prefer to pay online using credit card are required to submit their credit
card upon online registration. After the customers have completed their flight details online, their
credit card will be charged. Tickets can be delivered by mail, collected at the airport or issued at
the city ticket office (Taddesse and Kidan, 2005)

2.3.2 Electronic Payment based on Trusted Third-party

Since there is no face-to-face interaction in most e-commerce transactions, the payment system
must be strongly secured. Trust is also another important factor that has to be considered.
Towards this end, most electronic payment systems used for e-commerce are based on the idea
of Trusted Third Party (TTP). TTP provides trust, security, identification and authentication,
which are highly desirable in these kinds of payment schemes. The specific role of the TTP
varies from one payment system to another. In some payment systems such as Cyber Cash the
role of TTP is limited to serving as a channel of communication between the open Internet and
closed financial networks. In other systems, such as PayPal and First Virtual, both buyers and
sellers have to open account in the TTP and transfer money into their TTP account(Taddesse and
Kidan, 2005).

7
2.4.3 Automated Teller Machine (ATM)
ATMs enable customers to withdraw limited amount of money from their account at any time.
The ATMs also enable customers to check their account balance, transfer to other account
holders of the same bank and some perform local money transfer (e.g. Abyssinia). But depositing
money through ATM is not currently possible. In order to get ATM services, customers need
ATM cards and secrete PIN codes. The ATM card is a smart card used for security purpose only.
The ATM card coupled with a PIN code provides state-of-the-art authentication scheme called
two-factor authentication (Taddesse and Kidan, 2005)

2.3.4 Mobile/Telephone banking

Mobile payment (m-payment) is an electronic payment done using mobile devices. One of the
main uses of m-payment is in mobile commerce (m-commerce). M-commerce is the buying and
selling of goods and services through mobile devices. These mobile devices include mobile
phones, Personal Digital Assistants (PDAs), smart phones, and laptops. M-commerce is actually
a subset of e-commerce carried out over wireless networks. SMS (Short Message Service), WAP
(Wireless Application Protocol) and Bluetooth application are the technology that enabled m-
commerce. Mobile payment is started in Japan and today forms a considerable component of
Japan's economy. M-payment is also common in South Korea. It is widespread in Europe
compared to North America (International Journal of Scientific and Research Publications,
2016).

The mobile phone and electric bill prepaid card payment system are successful instance of card
payment system in Ethiopia. Currently they are in use by prepaid mobile phone users and
customers of Ethiopia Electric. Users have to charge their card account to get the respective
service (Taddesse and Kidan, 2005).

2.3.5 Point-of-Sale Transfer Terminals (POS)

The POS system allows customers to make retail purchases with a check card. The card looks
like credit card but does not function like it. The amount purchased is transferred immediately
from the account of the debit card holder to that of the store. (Malak, 2007).

8
2.3.6 PC Banking
PC banking is another form of e-banking in which any authorized user can access and obtain
financial services from a banking service provider using a personal computer which has been
connected with the bank‘s network. (Easingwood & Storey, 1996).

2.3.7 Mail Banking

Mail banking is another form of e-banking service that gives customers the opportunity
tocommunicate with their bankers through the use of the e-mail, Chovanová (2006). He argued
thatthe frequent usage of mail banking is for customers to be able to receive their account
statementsfrom their bankers.

2.3.8 Digital Cash

One of the earliest efforts to electronic payment is the concept of digital money or digital cash.
Electronic cash or digital cash is an equivalent form of physical cash backed by real money. It
enables storage and exchange of values digitally. In digital cash, funds or value is stored in
electronic device in a consumer possession. Electronic cash has got some similarities with real
money such as privacy, transferability and convenience

2.4 Online payment in Africa and Ethiopia

The African e-business environment has a crucial missing component, electronic payment.
Electronic payment is very limited in Africa (Taddesse and Kidan, 2005) and Ethiopia is one of
such countries. Thus, we can say that e-commerce can be considered as very poor in Ethiopia
since the online transactions do not support online payment system.

2.4.1 Ethiopian Banks and Online Payment

Information and communication technology (ICT) is knocking the front-door of every
organization in the world, where Ethiopian banks would never be exceptional. In the face of
rapid expansion of electronic payment (E-payment) systems throughout the developed and the
developing world, Ethiopian’s financial sector cannot remain an exception in expanding the use
of the system (Gardachew, 2010)

All banks in Ethiopia are late to move with technological advancement and they should clearly
chart out the time schedule for their integration and technological advancement. Some of the

9
banks even today do not have good websites which can help them to provide easily updated
information on financial services offered by them.

According to Jensen (2003), most countries in Africa, except South Africa, have internet
infrastructure only in their major cities. Lack of suitable legal and regulatory framework for
Ecommerce and E-payment is another impediment for the adoption of new technology in
banking industry.

2.4.2 Payment Systems in Ethiopia

2.4.3.1 Traditional Payment Instruments

Cash

Cash is a legal tender defined by the National Bank of Ethiopia (NBE) to represent values and
used as major instrument of payment. NBE has authorized Birr to be used as a legal tender
throughout the country. Like in other African countries, in Ethiopia also cash is a dominant
means of payment (Taddesse and Kidan, 2005).

Cash can easily be stolen and is usually not convenient for large amount of transactions (e.g. you
cannot easily buy a house with cash). Cash also does not provide a float (the period of time
between a purchase and actual payment for the purchase). It also forces the payer and the payee
to physically present them. Thus cash is not a convenient means of payment for e-commerce
(Taddesse and Kidan, 2005).

Checking Transfer

Checking transfer is a fund transferred directly via a signed draft or check from a consumer‘s
checking account to a merchant or other individual. Checking transfer is the second most
common form of payment in terms of number of transactions in Ethiopia (Taddesse and Kidan,
2005).

2.5 Opportunity and Challenges of E-payment

E-payment types are being continually innovated and developed. The study by Bogota, 2013
titled " Electronic payment methods, e-commerce and economic activity: Theory and new
evidence for developing and emerging countries” shows that electronic payments are not only an

10
alternative for reducing costs with respect to other payment methods, such as cash and checks,
but can also generate significant benefits for increasing economic development. The evidence
shows that making payments by cash or check not only comprises ‘costs’ which include not only
costs to produce it, but also costs for handling, printing, transporting, and securing it. In this
sense, electronic payments have become a more efficient process and contribute to the
improvement in the economic growth and market development in both developed and emerging
countries.

Adoption of electronic payment has improved over the years however, the growth of E-payment
has not been so rapid and this is due to several challenges that have faced e-payment adoption in
the Banking industry. Challenges such as legal, infrastructure, security, regulatory and socio
cultural challenges are facing e-Payments.

Additionally, in Africa challenges such asundeveloped infrastructure, inadequate legal and

regulatory framework, un-readiness by Bank and low level of credit card access hindering the
progress of E-payment (Wondwosen et al., 2009).

Kumaga (2010) study shows that use of electronic payments in most African countries are not
common. Tadesse and Kidan, (2009) highlights that legal and regulatory framework are some of
the missing key components for electronic payments. Also infrastructure for electronic payments
such as mobile network and internet are also not available in Africa. Kumaga (2010) highlights
that banks are not adequately automated to allow electronic payments. InKumaga’s view the
infrastructural challenge is the main challenge which relate to networks, ICT
accessibility,affordability, connectivity and usage (Marako, 2017).

2.6. Conceptual studies related with E-payment challenges

2.6.1 Factors influencing Banks to Implement E-payment system

The technological factor refers to adopter’s perception of E-banking attributes. Typical
characteristics of technology considered in technology adoption studies are based on the
assumption of Rogers’ diffusion of innovation (Rogers 2003), Which include relative advantages
(perceived benefits), and relativedisadvantages (perceived risks).While the organizational factor

11
refers to the organizations characteristics that influence its ability to adopt and use of E-banking
system. The environmental factor refers to the external environment in which an organization
operates and its condition for supporting the development of E-banking services. For each
context, various factors have been identified from the literature but only those that are considered
relevant for E banking adoption are included in the framework. Details of factors considered in
this study are discussed below (Tornatzky and Fleischer (1990)

2.6.1.1. Technological Factors

To avoid overlapping between technology and organizational contexts, researcher chooses two
basic factors related to technology competence, which have relevant to the organizational factors,
i.e. perceived benefits and perceived risks are technological factors.

1. Perceived benefits: - Perceived benefits of E-banking cover both direct and indirect
benefitsfor the banking industry as well as for the consumers. Direct benefits include the savings
onoperational cost, improved organizational functionality, productivity gain, improved
efficiencyand increased profitability. Indirect benefits include the opportunity or intangible
benefits such as improved customer’s satisfaction through improved services, improved banking
experienceand fulfillment of their changing needs and lifestyle (Lu et al. 2005; Kuan &Chau
2001 &Iacovou 1995)

2. Perceived risks: - One of the important risks faced by banking institutions in offering E-
banking services is the customers‟ resistance to use the services which significantly hinder the
growth of E-banking (Zhao et al. 2008 & Laforet 2005). Issues related to security have always
been a concern when dealing with technologies related to online transactions such as E-banking
(Chang 2007 & Rogers 2003). Therefore, the perception of the risks regarding E-banking is
expected to influence its adoption and further growth.

2.6.1.2. Organizational Factors

Organizations are different in their preference to adopt technological innovation (Iacovou 1995&
Grover 1993) influenced by a number of factors;

Financial and human resources: - Financial resources are an important factor in

facilitatinginnovation adoption for any organization and they are often correlated with the firm
size (Kuan2001 & Iacovou 1995).Therefore, it is expected that the availability of financial

12
resources withinthe adopting firms is important for E-banking adoption. These resources enable
bankinginstitutions to obtain human related resources including the required skills and expertise
todevelop and support provision of E-banking services.

2.6.1.3. Environmental factors

The Four factors relevant for E-banking adoptions included in this are;

1. Legal Frameworks: - The existence and maturity of E-commerce legal frameworks within a
country influence the diffusion of online transactions including E-banking as demonstrated in
various studies (Tan & Wu 2002; Martinson & Trappey 2001).

2. The National ICT infrastructure: - National ICT infrastructure is a major factor that supports
the adoption of E-banking as the case for other E-commerce initiatives. Without an adequate
development level and quality of a nation’s ICT infrastructure, E-banking adoption and use
cannot do well (Efendioghu 2004 & Scupola 2003).

3. Competitive pressure: - Competitive pressure can strongly influence any bank to develop and
adopt E-banking initiatives and it may affect the bank’s perception towards E-banking system.As
implied in previous studies (Quaddus & Hofmeyer 2007; Gibbs, Kraemer & Dedrick 2003).

4. Government Support:-Government can either directly or indirectly affect the adoption of E

banking in terms of creating a favorable environment and impetus for banking institutions and
their customers so that the services can be diffused with the community (Kuan 2001 & Iacovou 1995)

2.7. Challenges Regarding Electronic Payment System

According to Harrison (2012); the most critical challenges can be ascribed to the very limited
information and communication infrastructure available in most developing countries. Reasons
vary widely among sectors and countries and are most commonly related to lack of applicability
to the business, preferences for established business models, (OECD, 2004). Common challenges
includes; enabling factors (availability of ICT skills, qualified personnel, network infrastructure);
cost factors (ICT equipment and networks, software and re-organization); security and trust
factors (security and reliability of ecommerce systems, uncertainty of payment methods, legal
frameworks and intellectual property right); and challenges in areas of management skills,
technological capability, productivity and competiveness. Lack of reliable trust and redress

13
systems and cross country legal and regulatory differences was also impede e-commerceadoption
(OECD, 2004). It is however important to note that challenge to e-commerce adoptionwork
differently according to organizational type and culture.

2.7.1 Lack of Usability

Electronic payment system requires large amount of information from end users or make
transactions more difficult by using complex elaborated websites interfaces. For example credit
card payments through a website are not easiest way to pay as this system requires large amount
of personal data and contact details in web form.

2.7.2 Lack of Security

Online payment systems for the internet are an easy target for stealing money and
personalinformation. Customers have to provide credit card and payment account details and
otherpersonal information online. This data is sometimes transmitted in an un-secured way,
(Kolkataand Whinston, 1997). Providing these details by mail or over the telephone also entails
securityrisks (Guttman, 2003, Laudon and Traver, 2002)

2.7.3 Issues with E-Cash

The main problem of e-cash is that it is not universally accepted because it is necessary that the
commercial establishment accept it as payment method. Another problem is that when we makes
payment by using e-cash, the client and the salesman have accounts in the same bank which
issue e-cash. The payment is not valid in other banks.

2.7.4 Lack of Trust

Electronic payments have a long history of fraud, misuse and low reliability as well as it is new
system without established positive reputation. Potential customers often mention this risk as the
key reason why they do not trust a payment services and therefore do not make internet
purchases (Lietaer, 2002).

2.8. E-Payment Challenges in Ethiopia

Banking in Ethiopia faces numerous challenges to fully adopt E-banking. Research result studied
by Wondwossen & Tsegai (2005) forward the following challenges:

14
  Low level of internet penetration and poorly developed telecommunication
infrastructure
 Lack of infrastructure for telecommunications.
 Lack of suitable legal and regulatory framework for e-commerce and e-payment
 Ethiopian current laws do not accommodate electronic contracts and signatures.
 Ethiopia has not yet enacted legislation that deals with ecommerce concerns.
 Political instabilities in neighboring countries High rates of illiteracy
 High cost of Internet
 Absence of financial networks that links different banks

2.9. Empirical studies related with E-payment challenges

Some related studies are conducted by different researchers in different parts of the world.
However, there are limited numbers of studies conducted in Ethiopia on the implementation of
technological innovation. Specifically, Gardachew (2010) conducted research on the
opportunities and challenges of E-banking in Ethiopia. The aim of his study was focused on
analyzing the status of electronic banking in Ethiopia and investigates the main challenges and
opportunities of implementing E-banking system. The author conducted a survey on the existing
operating style of banks and identifies some challenges of using E-banking system, such as, lack
of suitable legal and regulatory frame works for E-commerce and E- payments, political
instability in neighboring countries, high rates of illiteracy and absence of financial networks that
links different banks. According to Gardachew (2010), Opportunities offered by ICT through
elearning programs and Commitment of the governments on development of ICT infrastructures
is considered as drivers of using E-commerce and E-payment systems.

Wondwossen and Tsegai (2005) also studied on the challenges and opportunities of E-payments
in Ethiopia; their objective was studying of E-payment practices in developing countries, Africa
and Ethiopia. The authors employs interview and on site observation to investigate challenges to
E-payment in Ethiopia and found that, the main obstacles to the development of E-payments are,
lack of customers trust in the initiatives, Unavailability of payment laws and regulations
particularly for E-payment, Lack of skilled manpower and Frequent power disruption. According

15
to Wondwossen and Tsegai (2005), an adequate legal structure and security framework could
foster the use of E-payments, which is contradicting with the finding of the previous study. On
the other hand the study conducted by Daghfous and Toufaily (2007) on the success and critical
factors in adoption of E-banking by Lebanese banks. The research was conducted on the factors
that can lead to success the adoption of E-banking and the other factors that can constitute as
barrier to its adoption, it focus on the organizational, structural and strategic factors which can
accelerate or, on the contrary, slow the adoption of this electronic mode of distribution and
communication by the banks, through analyzing the case of the Lebanese market. In order to test
the validity of the theoretical framework, structured survey was used, interview questionnaire
that was given to E-banking managers or to information technology managers of all the banks on
the official list of institutions operating on the Lebanese market, with a total of 57 banks, 31 of
them operate internationally and 26 are strictly local were used to gather data. The results of their
study shows that the organizational variables (bank size, functional divisions, technical staff,
technical infrastructure, perceived risks, decision makers` international experience and mastery
of innovation) are variables which exert significant impact on the adoption of E-banking, among
the structural characteristics, the result revealed that internal technological environment of the
bank is a very important factor in determining the adoption of E-banking, also the result shows
that banks which are developing in the international scale are more likely to adopt E-banking
innovations.

In general, review of empirical studies show that understanding the practice of e-banking in
Commercial Bank of Ethiopia, Ethiopia, and Africa and on the other world. The study mostly
deals about the opportunity and challenges of e-banking practices. Some studies also deals about
the critical success factors in e-banking is important for banking industry because it would
potentially help to improve their strategic planning process. The main obstacles and barriers the
oppose e-banking practice are the concern of security, privacy of information and technology
investment cost. The literature also indicates that according to the customers there are different
factors related to the service itself and how to be accepted and used by the customers, which
differs from country to country.

Japhet and Usman (2010) identified the following specific challenges hindering the adoption of
e-commerce in developing countries.

16
 Lack of convenient payment means, poor distribution system, imperfect legal system, and lack
of large scale telecommunication transmission capability (broadband), Internet security are
problems face these countries.

 Another most pressing limitations are access to technology (computers, connectivity, and
gateway to Internet), limited bandwidth, which reduces the capacity to handle audio and graphic
data; poor telecommunications infrastructures and unreliable electricity supply.

 The cost of the Internet access makes it inaccessible to most users in developing countries. The
cost of accessing the infrastructures also influences the growth of ecommerce. The priority for
most developing countries is to put in place the necessary infrastructure and a competitive
environment and regulatory framework that support affordable Internet access. The monthly
connection cost of the Internet far exceeds the monthly income of a significant portion of the
population.

 Confidence and trust is also an essential requirement for secure electronic trading. The
geographical separation of buyers and sellers, often coupled with a lack of real-time visual or
oral interaction, creates a barrier to ecommerce adoption in developing countries. Language is
another important hindrance to ecommerce adoption. Most people in developing countries are
illiterates and uneducated. Moreover, English is a primary language used in many Western
countries where new technologies originate. It is the predominant language for development of
IT and ecommerce and it is the main language used on the Web.

 Finally, the study identified various socioeconomic characteristics as barriers hindering

ecommerce adoption in developing countries. The most common are unfavorable economic
condition , the poor state of educational system , Lack of ICT skills and business skills ,un
reliable and non secure payment infrastructures , the inefficient logistics and distribution system
and the lack of good transport Exploratory study conducted by Alhaji Ibrahim H. (2009) the
following are among the critical challenges for the adoption of E-banking in Nigeria:-

 Lack of Technological Infrastructure – the implementation of e-payment is been impeded by

unavailability of ICT infrastructure. Most rural areas where majority of small and medium scale
industries are concentrated have no access to internet facilities

17
 ICT Equipment Costs – where available, the cost of ICT is a critical factor relative to per
capital income. This makes the cost of entry higher compared to developed countries.

 Regulatory and Legal Issues – inexistence of proper legal and regulatory framework.

 Non-readiness of banks and other stake holders (acceptability) – even though some have shown
impressive willingness, some banks are still not fully ready to for this new payment regime.

 Resistance to changes in technology among customers and staff due to: · Lack of awareness on
the benefits of new technologies,

 Fear of risk among banks

 Lack of trained personnel in key organizations and
 Tendency to be content with the existing structures

 People are resistant to new payment mechanisms;

 Security – where disclosure of private information, counterfeiting and illegal alteration of

payment data may be rampant.

 Frequent connectivity failure in telephone lines.

 Frequent power interruption. In addition, a research conducted by Eze and Nwankwo (2012)
stated that the following as major challenges for adoption and development of E-banking
technology in Nigeria:-

 Legal and Regulatory framework: - The absence of a proper legal and regulatory framework
for internet constitutes one of the major challenges of E-banking. The existing banking laws do
not address the issue of E-banking as a new banking system.

 Consumer Protection: - Another major challenge of the development of E-banking is the issues
of adequate protection for consumers of banking products from the various risks to which they
are exposed to. The risks include financial loss, malfunctioning of terminals or cards as well as
the possibility of unauthorized disclosure of information without the consent of the consumer.
The challenges here range from customer details being stolen from the vendors files to the
selling up of a fraudulent website by fake customer to deceive other innocent customers.

18
 Loss of Audit Trail: - Another challenge of E-banking is the loss of audit trail as business
processes continue to change with internal banking, personal computer and telephone banking.
Audit trail basically allows for the tracing of transactions through banking environment
facilitates the work of supervisors in ascertaining the reliability or otherwise of the information
contained in the master file.

 Security of Financial Transactions: - There are numerous threats to the security of internet
banking. One of such threats is the fear of insecurity and trust associated with online banking
which can only be tackled by a good online developer that can put in place the required firewalls
whereby only the authentic users can gain access. Security breaches in E-banking are most
frequently discussed in terms of the dangers that hackers may intercept messages, misuse the
information on modify the content of the message.

 Money Laundering and other Financial Crimes: - Another major challenge is that under E-
banking the financial system is prone to criminal abuse such as money laundering and other
financial crimes. Money laundering and other financial crimes are easily facilitated through E-
banking. This has given a lot of work to monetary authorities, which have continued to work to
see that the activities of the money launderers and fraudsters are brought under control.

 Systems and Infrastructure Failure: - Systems and infrastructural failure have also a lot of
effect on E-banking. Failure results to loss of data. System failure can be caused by software
failure either at the entity or at an organization used for outsourced functions. Infrastructure
failures are mainly caused by power failure. The system and infrastructural really given a lot of
setback to development E-banking.

 The Potential Risks of E-banking: - Electronic delivery and payments systems involve a wide
range of potential risks. The use of an electronic channel to deliver products and services
introduces unique risks due to the increased speed at which systems operate and the broad access
in terms of geography, user group, applications database and peripheral systems. The potential
risks bring by the e – banking has a lot of implications for the safety and soundness of the
nation’s banking system.

A research conducted by Vaithianathan, S. (2010) stated that lack of technology infrastructure,

lack of awareness, lack of skilled human resources, and the lack of government initiatives,
19
including various economic and social factors are cited as hurdles that prevent pervasive e-
commerce adoption in India

CHAPTER THREE

RESEARCH METHODOLOGY

20
3.1 Research Design
This study is descriptive in nature and this study will focus on describing the current situation of
the problem and answer the research questions which are in the form of ‘‘what’’, and to highlight
the challenges that can affect E-Payment service in Commercial Bank of Ethiopia. Therefore,
Descriptive research is being used to achieve the research objectives

3.2 Data type, data source

The student researcher use primary and secondary data source will be used in order to make the
study complete and achieve its state objectives. The primary data consists of data from the Banks
Manager and customer’s response. The data which is important for the study will be collected by
two methods, for the primary sources of data: questionnaire will be distributed for the customers,
interview will be conducted with managers. For secondary source of data: books, company’s
published document will be used.

3.3 method of data collection

The researcher will collect data by two methods, for the primary sources of data: questionnaire
will be distributed for the customers, interview will be conducted with managers. For secondary
source of data: books, company‘s published document will be used.

3.4 The sampling techniques

In this study the student researcher will used census method employees. For customer the
student researcher non- probability sampling technique which is convince sampling
technique, because in this technique the main criteria of selecting the respondent are there
availability and willingness of respondents and distributes the questioner to the
respondent who will be found close to the researcher and have relation with the study.

3.5 Sample and Sampling procedure

The populations for this study will comprise on E-Payment Process (managers and E-Payment
Business and technical team), CBE District Manager and Officers, users of the three Branches
and other staff.

The total population of the study is 90 which include CBE staff and user of selected branches
and a total of 73 sample size will be taken using random sampling Technique. From this 36 of

21
the are staff and 37 of them are customers and also interview question will be provided for 6
managers from CBE Switch Managers. From the 36 staff members 6 of them will be managers in
the bank in different sectors.
N
n= 2
1+ N ( e )

Where, n= sample size, e= significance error=0.05, N= the total number of population size

90
n= 2
=73
1+ 90 ( 0.05 )

3.6 Methods of data analysis and presentation

In the study process different types of raw data will be collected. This raw data will be processed
and analyzed by using percentage data analyzed method. Finally, the data will effectively
process analyzed and interpreted by using table and lastly will be presented accordingly.

CHAPTER-FOUR

BUDGET BREAKDOWN AND WORK PLAN

4.1 Budget breakdown
No. Material requirement Unit cost(birr) Number of units Total cost
required
1 Pen and pencil 10&8 3&1 38

2 Flash memory 300 1 300

3 Paper 1000 1 package 1000
4 Telephone expense 100 4 400
5 Bag 1000 1 1000
6 Questionnaire and duplication 10 40 400
7 Transportation 200 4 800
22
8 Typing and printing 10 40 400
9 Miscellaneous cost 200
Total 4,538

4.2 work plan

No Activities Months
JAN FEB MAR APR JUN
1 Problem identification √
2 Selecting the research topics √
3 Literature review √
4 Develop proposal √
5 Submission of 1st draft proposal √
6 Final draft submission of √
proposal
7 Data collection √
8 Data edition √
9 Data analysis √
10 Data summary write √
11 Submission of essay report 1st √
draft
12 Write up finding and √
incorporating comment
13 Finalizing the research report √
14 Submission of essay report final √
draft
15 Defense √ √

Reference
Abor, J. (2004). Technological innovation and banking in Ghana. Accra: Ghana Universities
Press.

Board of Directors’ Report (2017).Financial Statement for Fiscal Year Ended June 30, 2017:
Addis Ababa: Kokeb & Melkamu Audit Work Partnership

Davis, 1989, `User Acceptance of Computer Technology: A Comparison of Two Theoretical

Models‟, Management Science 35(8): 982- 1003. Efendioglu, A. and Yip, F. (2004), Chinese
culture and e-commerce: An Exploratory study Interacting with Computers‟, 16:45-62.

E-payment Procedure, (2016). Commercial Bank of Ethiopia (Revised) European Central Bank,
2010. The payment system.

23
Gardachew, W. (August, 2010). Electronic-banking in Ethiopia- practices, opportunitiesand
challenges. Journal of Internet Banking and Commerce, vol. 15, no.2

Harrison Utum Ubi, 2012, Adoption of e-commerce in the Nigerian banking Industry: problems
and prospects, A study of UBA PLC and Zenith Bank PLC, Nnamdi Azikiwe University,
AWKA Anambra State.MA thesis.

HarunaIssahaku (2012). Challenges of Electronic Payment Systems in Ghana: The Case of e-

ZWICH.

JENSEN, S. 2003. The Evolution of the Internet in Africa, In Beebe

Kuan, Y and Chau K 2001, „A Perception-based model for EDI adoption in small business using
a Technology-Organisation-Environment Framework’, Journal of Information and Management,
35:507-512.

lacovou, L 1995, „Electronic data interchange and small organizations: Adoption and Impact of
Technology’, MIS Quarterly, 19(4): 465-485.

Lu, et al. 2005, „Internet banking: strategic response to the accession of WTO by Chinese
banks‟, Journal of Industrial Management & Data Systems, 105(4):429-440.

Malak, J 2007, Readiness of the Palestinian banking sector in adopting the electronic banking
system :exploratory study, MA thesis, The Islamic University of Palestine.

OECD. 2011. MEASURING E-COMMERCE [Online]. Organisation for Economic Co-

operation and Development. Available: https://www.oecd.org/internet/ieconomy/2771174.pdf
[Accessed January 5, 2017].

Ozkan ,A.(2010) Online Payment challenges, Adoption and Impact ofTechnology.pp212-123.

ROGERS, E. M. 2003. Diffusion of Innovations, New York: Free Press.

TADDESSE, W. & KIDAN, T. G. 2005. e-Payment: Challenges and Opportunities in Ethiopia.

UNITED NATIONS: ECONOMIC COMMISSION FOR AFRICA.

WENDY, M.-Y., CHOY, C. S. & WEI, C. J. 2013. Factors affecting consumers’ perception of
electronic payment: an empirical analysis. Internet Research 23, pp. 465-485.

Wondwossen, T and Tsegai, G 2005, `E-payment: challenges and opportunities in Ethiopia‟,

Economic commission for Africa, Addis Ababa Ethiopia

24
 Appendices

Date __________

Dear Sir/Madam

I am yardestic international college MBA student, I am here for doing a research on E

payment and the purpose of the study is to identify the Opportunities and Challenges of E-
Payment System: a Case study of Commercial Bank of Ethiopia. You are selected randomly and

25
your participation in the study is completely voluntarily. Your genuine and well thought response
to the questions will enhances the purpose of the study. The information you provide will be
used only for academic purpose & it will be kept confidential. You are not supposed to write
your name.

Thank you for your time and participation in this research.

Ebisa Huka

Annex I Questionnaire for user

YARDESTIC INTERNATIONAL COLLEGE

Department of Business adminstration

General Instruction
Please tick your response in the space provided. In all such cases where more than one response
is necessary under the same question, please tick as many responses as are applicable. If you
have comments or if you want to provide further explanations, please use the space provided at
the end of the questionnaire.

26
Section I: Demographic profile
Please indicate the following by ticking"√"on the spaces in front of the response options:
1. Gender:
Male Female

2. Age: 18- 30 31 -40 41-50 above50

3. Educational level:

High School First-degree holder

Diploma holder Masters or above

4. Occupation
Student Governmental employee
Self-employee Other____________
Private employee

Section II – Factors for opportunity of the service

Please indicate the level of your agreement and disagreement with the following statements.
Please tick (√) your appropriate answer based on the following rating.

1= strongly agree
2= agree
3= neutral
4=disagree
5= strongly disagree

TABLE 1 Factors for opportunity of e payment

s/n O p p o r t u n i t y o f e p a y m e n t 1 2 3 4 5
1 There are media work to increase awareness about e paymen t
2 Are you willing to accept E payment system
3 Are you willing to participating in creating awareness about this service to other
4 Employees of the bank have the knowledge to answer users questions related to E payment

5 Low support and follow up by the bank

6 Is the service provide any time(24 hr,7 day a week)

Section II: Challenges of e payment service

Table 2 challenge and opportunity of e payment.

27
 The following are some challenges on Epayment service please indicate level of your choice. 1 2 3 4 5

T e c h n o l o g i c a l F a c t o r s
1 Lack of knowledge to use E-Payment system can implementation problem
2 Customers do not trust the technology provided by the ban k
3 Lack of confidence with the security
O r g a n i z a t i o n a l F a c t o r s
4 Un clear strategy towards E payment service
5 L i m i t e d t o p m a n a g e m e n t S u p p o r t
6 The bank have procedures in place for when there is an interruption in service of ebanking

7 Customers of CBE were not familiar with the service.

9 Lack of skills to implement E-payment service
10 Lack of Coordination and cooperation between banks, branches, districts.

11 Lack of technical and managerial skills on the use technological innovations affect the E-payment service
E n v i r o n m e n t a l f a c t o r s
12 Lack of available ICT infrastructure can affect the E-payment service
13 Lack of sufficient public awareness has an effect on E-payment implementation
14 Lack of legal frame works that enforce banking industries to adopt technological innovation
15 Lack of competition among local banks and foreign bank s
16 Lack of adequate coordination, interaction and cooperation between banks and other decision making

If you agree on the above challenge, mention the

solution_____________________________________________________________________
__________________________________________________________
__________________________________________________________
Please provide any additional comments and/or clarifications on specific systems' features that
May not be properly captured in this questionnaire.
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
____________________________________________________________________________________

Thank you
INTERVIEW QUESTION TO BE ANSWERED BY CBE SWITCH MANAGEMENT

1. What are the major challenges of implementing E-Payment System?

2. What are the opportunities of using E-Payment System?

3. What do you propose to deal the above challenges?

28
4. What can be said about general attitudes of the public towards E-Payment System?

5. Is there any policy direction or legal frameworks at NBE to enforce EthSwitch E-Payment
System?

6. What sort of support would you expect from the government in relation to the E-Payment
improvement in Ethiopia?

7. If you have any comment please specify

__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
Thank you

29