Ethiopia is one of the three sleeping giants of the mobile money industry, according to the GSMA’s State of the Industry Report on Mobile Money from 2018, which points to the country’s enormous potential for uptake if it has the right social and regulatory environment.
A PayNXT360 report in August 2019 says that Ethiopia is also one of the fastest growing markets for mobile payments in Africa. The report forecasts a compound annual growth rate of 21% in mobile payment volumes between 2020 and 2025. By then, the market is expected to be worth $9.5 billion.
To help the country get there, the National Bank of Ethiopia (NBE) issued a new directive at the end of March – Licensing and Authorization of Payment Instrument Issuers Directive No. ONPS/01/2020 – which allows entities other than licensed financial institutions to apply for licences to issue payment instruments.
Allowing domestically owned entities to provide mobile money services is a welcome development that will drive digital finance in a cash-oriented society
– Thierry Artaud, Moss ICT Consultancy
This development is widely seen to be Ethiopia opening the door to new entrants into mobile money services, although the reality is slightly more complicated.
In most parts of Africa, mobile money services are delivered through a telco-led model, M-Pesa being the most famous and successful example.
However, Ethiopia has a bank-led model, so only financial institutions have been allowed to provide mobile money services – until the NBE issued this latest directive.
Thierry Artaud, executive chairman of Moss ICT Consultancy (the company that developed the M-Birr mobile money service), explains that the new directive has a drawback: it allows only Ethiopian-owned non-financial institutions to provide mobile money services.
This means that although state telecoms provider Ethio Telecom could now apply to be a mobile money provider, if any of its shares were sold to a foreign entity, it would no longer be able to provide financial services because it would not be wholly locally owned.
Artaud thinks this provision will not stand.
“There is an expectation that this will change because the operators interested in entering the Ethiopian market (Safaricom, MTN, Orange) have all said that they would need authorization to provide mobile money services in order to operate in Ethiopia,” says Artaud. “However, as it stands, they would be bidding for licences with no guarantee that they would receive the necessary authorization.”
Tewodros Tassew, a fintech consultant previously employed by a large mobile money provider, describes Ethio Telecom as being well placed to offer such services thanks to a subscriber base of around 45 million. He says the firm has made big investments in its network over recent years, with 3G coverage now available across two thirds of the country.
“Most of the infrastructure has been upgraded in the last decade, mainly by Chinese companies (Huawei and ZTE),” says Tassew, “although it is mostly concentrated in urban areas and there are still issues around coverage quality and bandwidth.”
He is still confident that the NBE directive should eventually enable multiple businesses – including telecoms operators and financial technology companies – to offer mobile money, increasing market competition and expanding coverage.
However, Christopher Green, east Africa lead at risk and intelligence consultancy S-RM, warns that relatively low mobile subscriber penetration in a country with a population of around 110 million people – coupled with low levels of financial literacy – will likely result in limited immediate change.
“The pending privatization of Ethio Telecom alongside the expected entry of two international telecom operators into the Ethiopian market should result in a reduction in tariffs and a further increase in mobile subscribers, but this remains to be seen,” he says.
When it comes to access to financial services, Ethiopia is working from a particularly low base, adds Green.
“Less than 35% of the population are estimated to have access to bank accounts or financial services,” he says, “and services are typically restricted to Addis Ababa and other major cities. Therefore, despite the current relatively low percentage of mobile phone users, mobile money services offer the potential for a significant increase in access to financial services, especially amongst rural populations.”
When asked to assess how the process is likely to develop, Artaud observes that the NBE has some level of independence of the government and Ethiopia is a country that often follows its own path.
“The issuing of the new mobile licences has already been delayed on a number of occasions, although we believe they will be issued this year,” he adds. “In the meantime, allowing domestically owned entities to provide mobile money services is a welcome development that will drive digital finance in a cash-oriented society.”