RIFT VALLEY

UNIVERSITY

SCHOOL OF GRADUATE STUDIES

FACTORS AFFECTING ADOPTION OF E- PAYMENT SYSTEM (A CASE OF COMMERCIAL BANKS OF
ETHIOPIA)

MBA, Thesis Proposal By: Ibrahim Musa

Major advisor : Gadisa Bekele (PhD)
March, 2024
Dire Dawa, Ethiopia
ACRONYMS AND ABBREVIATIONS
 CBE Commercial bank of Ethiopia
 TAM Technology acceptance model
  TABLE OF CONTENTS

Contents

ACRONYMS AND ABBREVIATIONS 3

 TABLE OF CONTENTS 4

 LIST OF TABLES 4

LIST OF FIGURES 6
1. INTRODUCTION 8

1. Background of the Study 8

2. Statement of the Problem 8
3. Research Question 9
4. Research Hypothesis 9
5. Objectives of the Study 9
Cont
 :

1. General Objective: 9
2. Specific Objectives 10

1. Significance/Justification of the Study 10

2. Scope of the Study 10
3. Limitation of the Study 11
4. Definition of Operational Terms 11
2. LITRATURE REVIEW 13
1. Overview 13
2. Theoretical Review 13

1. Innovation Diffusion Theory 13

2. Unified Theory of Acceptance and Use of technology 13

3. Adoption of Electronic Payment 14

4. Factors Influencing Adoption of Electronic Payments 14

1. Information Security 14
2. Infrastructure 14
3. Technology 15

5. Summary of Literature Review 15

Cont

3.RESEARCH METHODOLOGY 16

1.Research Design 16
2.Data collection method and source 16
3.Study Variable 16
4.Method of Data Analysis and Presentation 16
5.Sample Size and Technique 17
6.Ethical consideration 17

4.REFERENCES 18
Cont

 LIST OF TABLES

 LIST OF FIGURES
 Figure 1. Conceptual framework

15
Cont’’’’’
 1. INTRODUCTION

1. Background of the Study

The banking sector in Ethiopia is undergoing rapid technological advancements, including the adoption of
electronic payment (e-payment) and mobile payment (m-payment) systems. E-payments are completed electronically
for the purchase of goods and services. M- payments, on the other hand, are completed over mobile phones for
the purchase of goods and services. E-payment systems offer numerous benefits, such as convenience, efficiency
and security. Furthermore, they effectively facilitate payments among customers, companies and banks and improve
the settlement process. With e-payments, customers can easily pay their bills without physically visiting bank premises
and access their account information at any time from the comfort of their homes or offices. There are many e-
payment options available to customers, including but not limited to electronic fund transfers, automated teller
machines, debit cards, credit or smart cards, electronic wallets, mobile banking, money transfers, person-to-person
payments, electronic cash systems, electronic cheque systems and internet payments (Wahab, 2012). Person-to-person
payments allow individuals to transfer money from their bank accounts to another individual’s bank account via
the internet. However, the adoption of these systems is influenced by various factors, including individual perceptions,
organisational factors and external influences like globalizations, interest rates.
Cont’’’
2. Statement of the Problem

To encourage e-banking in developing countries, a deep understanding of the barriers and
drivers impacting e-banking adoption is critical (Zhao, 2008). By gaining an in-depth
understanding of the conditions that influence a developing country’s ability to fully adopt and
realise the benefits of e-banking, researchers and practitioners can develop strategies to promote
the growth of e-banking in developing countries. Ethiopia’s banking industry is
underdeveloped; therefore, there is an urgent need to embark on capacity-building
arrangements and modernise the country’s banking system by employing state-of-the-art of
technology that can be used anywhere in the world (Gardachew, 2010).

The adoption of e-payment systems in the CBE(Commercial Bank of Ethiopia) presents

challenges due to factors such as perceived usefulness, ease of use, security concerns,
trust,public awareness and demographic variables such as education level,geographic
 Cont
1.3. Research Question

To determine and assess the factors affecting the adoption of e-banking in Ethiopia’s banking industry,
this study aims to answer the following main and sub-research questions:

1.What are the factors influencing the adoption of e-payment systems in the Commercial Bank of
Ethiopia?
2. What are the relationships among these factors, and how strong are they?

1.4. Research Hypotheses

1.Perceived usefulness positively influences the adoption of e-payment systems in CBE.

2. Perceived ease of use positively influences the adoption of e-payment systems in CBE.
3. Security concerns negatively influence the adoption of e-payment systems in the CBE.
4. Trust positively influences the adoption of e-payment systems in the CBE.
5. Gender positively influences the adoption of e-payment systems in the CBE.
6. Educational level positively influences the adoption of e-payment systems in the CBE.
7. Age negatively influence the adoption of e-payment systems in the CBE.
8.Financial and human resources are positively influence adoption of e-payment systems in the CBE.
8. There are highly positive correlations among aforementioned variables.
5. Objectives of the Study
1. General Objective:

General objective of this study isto identify the factors affecting the adoption of e-payment
systems in the Commercial Bank of Ethiopia (CBE).

2. Specific Objectives

1. To assess factors determining adoption of e-payment systems in CBE.

2. To examine types and extent of relationships among factors.
Applied Research Examples
6. Significance/Justification of the Study

The outcomes and results of this study will have potential value and provide valuable insights to financial institutions, particularly
CBE and other banks in Ethiopia looking to enhance their e-payment system adoption rates. It will also contribute to the existing
body of knowledge on e-payment system adoption in the banking sector, particularly in the Ethiopian context.
It also will assist National Bank of Ethiopia to identify challenging factors that hinder the
adoption of Electronic banking in order to increase the use of service as well as to encourage the general acceptance of new IT
services and to monitor the development and growth of E- banking.
In addition, this study expected to help other researchers who will be interested to conduct
further study regarding the issue under investigated by providing use full information. Finally based on the factors found to be
influencing bankers' decision on E-banking system, the study may provide recommendations for banks about changes needed to
accelerate the practice of the system to deliver service to customers through technological innovation.

7. Scope of the Study

The study will focus on customers and employees of the Commercial Bank of Ethiopia (CBE) in Addis Ababa. It will
cover factors such as perceived usefulness, ease of use, security, trust, awareness, and demographic variables.
Cont’’’
The study will focus to investigate the major challenges of adoption of E-banking
in the Banking industry of Ethiopia. The study will be limited to select five
commercial banks namely commercial bank of Ethiopia, United bank, Abay bank,
Dashen bank, and Awash bank and their branches that are located only in Addis
Ababa and excluded financial institutions other than bank. The reasons for this are
Ethiopia is too large for the researcher to travel all over the country. From the total
population five banks are selected based on banks that are partly implemented E-
banking and large customer base.

There are many factors affecting adoption of E- banking. But I will try to see the
following Factors only and other factors are excluded. From technological factors
perceived benefits and perceived risks, from environmental factors legal frame
work, national ICT infrastructure, competitive pressure and government support,
from organizational factors,
Cont’’’
8. Limitation of the Study

While conducting the study, the sample is taken only from one state owned bank and four private
commercial banks; and the researcher will uses non probability sampling technique and it have its own
drawbacks like Unknown proportion of the entire population is not included in the sample group i.e. lack of
representation of the entire population, Lower level of generalization of research findings compared to
probability sampling and Difficulties in estimating sampling variability and identifying possible bias. Hence
the generalizations may not be applicable to them. However, in order to get a more reliable
representation, respondents’ information should be gathered from all banks that use e-banking. It is also
expected that respondents may not properly respond to the whole content of the questionnaire due
to misunderstandings, lack of knowledge, or commitment to the subject matter. However, to minimize
these problems, the researcher will use interceptive interviewing technique and some of the questionnaire
which will be distributed to the Bank's customer will be selectively distributed for those individuals the
researcher believe that they have the potential, ability and capacity to respond the questioner properly.
Cont’’’
9 Definition of Operational Terms
1.Electronic Banking is a form of banking service where funds are transferred through an
exchange of electronic signal between financial institutions, rather than exchange of cash,
checks, or other negotiable instruments (Kamrul, 2009).

2.Internet banking: refers to systems that enable bank customers to access accounts and
general information on bank products and services through a personal computer (PC) or other
intelligent device (Booz, Allen & Hamilton, 1999).

3.ATM: It is a machine where cash withdrawal can be made over the machine without going in
to the banking hall. It also sells recharge cards and transfer funds; it can be accessed 24
hours/7 days with account balance enquiry (Fenuga, 2010).

4.Adoption is the acceptance and continued use of a product, service or idea. Consumers go
through a process of knowledge, persuasion, decision, implementation and confirmation
5.Mobile bankingmeans performing banking activities which primarily consist of
opening and maintaining mobile/regular accounts and accepting deposits;
furthermore, it includes performing fund transfer or cash-in and cash-out services
using mobile devices (NBE Directive, FIS-01-2012).

6.POS: A Point-of-Sale service is an electronic payment type that allows credit/debit card
holders make payments at sales/purchase outlets. It allows customers to perform the
following services: Retail Payments, Cashless Payments, Cash Back Balance
Inquiry, Airtime Transaction, Printing mini statement etc. (Kumaga, 2010).

7.Credit Card: Credit Card can be called as an equivalent of a loan sanctioned by the
bank to its customers. Credit card facilitates and makes it possible to ―Use First and Pay
Later‖ the specified amount of credit as per the agreed terms of sanction (Fenuga, 2010
  2. LITRATURE REVIEW
2.1. Overview

The main goal of reviewing literature is to

identify a theoretical framework and research on
factors affecting electronic payments in the
Ethiopia Commercial Banks. Previous studies
have
 Cont
. identified several factors that influence the adoption of e-payment systems. These factors include perceived usefulness,
perceived ease of use, security, trust, awareness, and demographic variables. For instance, a study by Alemu and Berhanu
(2018) found that perceived usefulness and ease of use significantly influence the intention to use e-payment systems among
Ethiopian bank customers. Additionally, research by Tekle et al. (2020) highlighted the importance of security and trust in the
adoption of e-payment systems in the Ethiopian banking sector. Furthermore, a study by Kassahun and Tadesse (2019) emphasized the
role of awareness and education in promoting the adoption of e-payment systems in Ethiopia.

2. Theoretical Review

This section reviews theories which are identified with the research. The study focuses on two theories namely innovation diffusion
theory and unified theory of acceptance and use of technology.
Cont’’’

1. Innovation Diffusion Theory

The innovation diffusion theory was developed by Rogers (1962). The theory defines how innovation is diffused via various
channels over a given period of time among individuals of a society. The theory focuses on the factors which affect the
likelihood that a new innovation will be adopted by members of a given social community. The theory also highlights that the
adoption of a new idea does not happen immediately but involves a process and some individuals are more likely to adopt
an innovation of more than other.

2. Unified Theory of Acceptance and Use of technology

Unified Theory of Acceptance and Use of technology (UTAUT), theory forms the basis of this study. This theory explains
intentions users have for using an information system and how their user behavior changes thereafter (Verkatesh et al.,
2008). The theory consists of four main key constructs which include; facilitating conditions, social influence,
performance expectancy, and effort expectancy. The theory highlights that experiences, gender, age, ease of use are
factors which can minimize the impact of the four main constructs on usage intentions and behavior and challenges
facing adoption of technology (Verkatesh et al., 2008). Unified Theory of Acceptance theory was preferred over the theory
3. Adoption of Electronic Payment

Electronic Payments use has greatly improved over the years and some of the factors that have contributed to the improved
use of E-Payments include; introduction of Internet, the improvement of ICT, and the quick expansion of wireless
telecommunication (Gerald, 2011). E-payments have made the customers payment processes to be much easier and
effective. Businesses and Banks also settlement process has been made easier and more affective due to the adoption of Electronic
Payments. Most organizations and banks have adopted electronic payments so as to be continuously competitive and also succeed
in the global economy.
Cont’’’

4. Factors Influencing Adoption of Electronic Payments

The following are factors which influence electronic payments in the banking industry,
the factors are; information security, infrastructure, technology, regulatory framework
and top management support.

1. Information Security

According to Collins (2010), one of the main factors affecting electronic payments today
is lack of adequate security. Research indicates that technical failures such as
(hardware malfunctioning and other transaction errors) are not a major issue in electronic
payments, but information security is a major factor affecting adoption of E-payments.
Time dimensions of Research

2. Infrastructure

Internet banking is faced by challenges such as poor infrastructure which in turn even affects the
rate at which data is updated for the customers on the banking systems. Customers are
therefore not able to view latest banking information which is a very major challenge. Poor
infrastructure is mainly caused by the limited skills for building the E- payments systems.
Another challenge is the lack of knowledge on the outdated electronic commerce, such as
credit cards and telephone sales also there is a limited number of online consumers (Yuan et al.,
2010).
2.4.3. Technology

Technology use in the banking systems has really improved over the years. However,
technology systems have been faced with various risks such as data and network security risks
which have made adoption of electronic payments difficult. Clients have become uncertain due
to technology risks regarding data security and information on applicable models of
electronic payments (Owens, 2009).

2.5. Summary of Literature Review

It concluded that the high customer security challenges involved, the lack of proper
infrastructure to ensure a good flow of electronic payments, concerns regarding the
reliability of technology and lack of stable regulatory frameworks are barriers to the success of
electronic payments. From the above review it is evident that the factors affecting
electronic payments are customer information security, infrastructure, technology,
regulatory framework and top management support. The factors have not been thoroughly
researched and thus the need for this study.
 RESEARCH METHODOLOGY
This chapter highlights the methods that will be used in collecting and
analyzing the data which will enable the study reach its pre-set research objectives.
The chapter is outlined into research design, population and sampling techniques,
data collection procedure and data

1. Research Design

The purpose of this thesis will be to conduct mixed research design (both descriptive and
explanatory). The goal of descriptive research is to describe some aspect of customer's
attitude about e- banking in Ethiopian banking industry, i.e., the status of e- banking. It can help
understand a topic and lead to causal analysis. The desire to know "why," to explain, is the
purpose of explanatory research. It is a continuation of descriptive research and builds on
exploratory and descriptive research and goes on to identify the reasons for something that
occurs.
2. Data collection method and source

In order to collect sufficient data that can answer the research questions, researcher will use questionnaires to
get quantitative data, while interviews will be aimed to collect qualitative data from E-payment/IT managers.
In addition to questionnaire and interview, data collected from different published and unpublished materials
will also be used.

3. Study Variable

Independent variable: Awareness and knowledge of E-payment system, trust and security concern ease of
use, perceived benefit, gender, education, human and financial resources.

Dependent variable: Adoption of Electronic payment system.

4. Method of Data Analysis and Presentation

Data analysis consists of examining, categorizing, tabulating, or otherwise recombining the evidence, to
address the initial proposition of a study (Yin, 1989). The researcher will analyze the data collected through
survey to statistical population concerning the factors affecting the adoption of E- banking. The data
collected via questionnaires will be analyzed with descriptive statistics using statistical package for social
scientists (SPSS version 20).
5. Sample Size and Technique

Sampling is the process of choosing, from a much large population, a group about which
wish to make generalized statements so that the selected part represent the total group
(Leedy, 1989). Commercial banks have been operated and the additional banks which make an
initial public offering to begin their operation were taken as population, and purposely draw a
sample from the total to get rich evidence. The total number of Commercial Banks which is
operated in the year 2017 is 16 private banks and 2 state-owned banks.

6. Ethical consideration

The study will adhere to ethical principles, including informed consent, confidentiality, and
voluntary participation. Participants will be informed about the purpose of the study.
 4. REFERENCES

Kunaga, D. (2010). The challenges of implemerting electroric paymernt systems - The case of Ghana's E-
zwich paymert system Irternational Joumal of Business and Informatior, 6(2), 226-245.

Abenet
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adopion of intemet banking in Ethiopia Retrieved
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Ayal, A. (2018). Factors affecting the adoption of e-banking in Ethiopian banking industry
(Master's thesis, Addis Ababa University). Retrieved from http://etd.aau.edu.et/handle/1
23456789/17172

Beyene, Ebisa, "Adoption and Challenges of Mobile Banking Systems in Ethiopia: The Case of
Cooperative
Bank of Oromiya' (2020). African Conference on Information Systems and Technology. E
https://digitalcommons.kennesaw.edu/acist/2020/allpapers/5

Ayara, G. (2014): Factos Affecting Adoption of Electroric Banking System in Ethiopian Banking Idusty,
Joural of MIS ard E-commerce Vol. 1, No. 1,17,2014

Alemu, M., & Berhanu, B. (2018). Factors Affecting the Adoption of Electronic Payment Systems in Ethiopia: The
Case of Dashen Bank. Journal of Economics and Sustainable Development, 9(17), 104-112.

Kassahun, S., & Tadesse, M. (2019). Factors Affecting Adoption of E-payment Systems in Ethiopia: A Case of Commercial