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The central bank’s national payment system (NPS) is set to go online on May 27, 2011, and the other banks are either finished or busy installing their centralised, online, real-time, electronic (CORE) banking systems that promise customers and the overall economy many benefits. However, there are concerns over the industry’s capacity to ensure security and uninterrupted service, writes EDEN SAHLE, FORTUNE STAFF WRITER.

Countdown to Compulsory CORE Banking

Central bank’s national payment system, to go online by the end of the month

 

Selam Alelegne, 23, a student at Addis Abeba University (AAU), was excited when she received her automated teller machine (ATM) card from Commercial Bank of Ethiopia (CBE), the largest and oldest state owned bank.

She regularly receives money from her elder brother residing in the United States (US) and goes to the bank twice a week to withdraw money from her account.

She was issued the card following CBE’s implementation of a centralised, online, real-time, electronic (CORE) banking solution system, as ordered by National Bank of Ethiopia (NBE).

In order to implement modern payment infrastructure (replacing the old manual system), NBE is automating its payment system.

All electronic interbank money transactions are to be integrated into NBE’s new national payment system (NPS). All banks would need CORE banking solutions to be able to transact with it, as of June 2011, and were ordered by the central bank to install it by that time.

Following this order, CBE paid Temenos Group AG over 70 million Br to implement the system in all of its 219 branches, in August 2010.

With CORE banking, Selam is able to withdraw and deposit money from any of the branches of the bank where she has an account. These transactions are immediately relayed electronically to the bank’s server as all bank branches have access to applications from centralised data centres.

To date, only nine banks have connected all of their branches. They are CBE, Dashen Bank, Wegagen Bank, Zemen Bank, United Bank, Awash International Bank (AIB), NIB International Bank (NIB), Lion International Bank (LIB), and Berhan International Bank (BIB).

However, Selam complained that the ATMs are hardly functioning, forcing her to continue carrying cash around in her purse.

Banks such as Dashen Bank and CBE have had trouble with their ATM services continuously failing, an expert told Fortune on condition of anonymity.

Earlier this year, some Dashen Bank customers discovered their deposits had increased, overnight; in some cases with thousands of Birr. The bank denied the occurrence that was attributed by experts to a software malfunction.

Oracle Flex, the leading information technology consultancy firm, was contracted by Dashen Bank, Zemen Bank, United Bank, and Abay Bank to set up their CORE banking systems. Along with CBE, Bank of Abyssinia (BoA) and Construction and Business Bank (CBB) purchased software from Temenos Group, the world’s third largest international software provider.

BoA and CBB, along with Development Bank of Ethiopia (DBE) as well as Cooperative Bank of Oromia (CBO) are installing their CORE banking systems, while Oromia International Bank (OIB) has put the system in place only at its head office, to date.

“The central bank is confident that most banks will complete the installation of their CORE banking solutions before the deadline,” Alemayehu Kebede, director of change Management and communications at NBE, told Fortune. “The remaining ones will finish since many of the banks are in the implementation stage. Only a few have not started the process.”

NBE is to go online with its automatic cheque clearing house (ACCH) and real-time gross settlement (RTGS) services, which transfer high value interbank payments without cheques on May 27, 2011, Fortune has learnt.

These services will clear cheques online by recording the deposits in real time, eliminating the current practice of physically taking cheques collected from the bank’s branches to the central bank to manually clear them.

Using the NPS, both high value and low volume transactions are cleared and settled right away while low value and high volume transactions are cleared and settled in the next clearing cycle, told Fortune.

“Clearing cheques online will also reduce the number of bounced cheques from transactions,” Alemayehu said.

NBE will not impose fines on banks who do not meet the deadline of June 2011, but it would be to a bank’s own detriment not to be online, sources told Fortune.

“Although the deadline will not be extended, the situation will be reviewed by the central bank,” Alemayehu said.

The NPS Proclamation that has been proposed by the central bank is yet to be approved by Parliament before the system can go online.

NBE expects the proclamation to be ratified in the coming two weeks, sources inside the bank told Fortune.

Not only are new banks installing CORE banking, but the ones that previously had the system are partially or totally migrating from their previous systems to upgrade them.

With the aim of transforming its CORE banking system to delivering new services, Wegagen Bank has purchased new software from Infrasoft Tech at a cost of two million dollars. It previously installed software from Transitional Computer Technology in 2001.

Each bank has paid over one million dollars to install the system in their respective banks.

The price of the purchase depends on the system’s features and vendors’ brand, with the minimum being 800,000 dollars for the purchase and implementation in a small number of branches, according to Melaku Kebede, vice president of technology at Zemen Bank.

Banks have installed the system with the support of the vendors, local IT consultants, and their staff members who are experts in information technology.

Zemen Bank saved over three million Birr by installing the software itself, using its staff members, Melaku said.

For the money banks spent to implement the system, CORE banking offers more than only sophisticated ATM use.

It would enable banks to provide Internet banking with which customers like Selam can view their balances, transfer funds, and pay bills online. Banks could also offer mobile banking services through which Selam can check her balance and transfer funds by short message service (SMS), as well as phone banking to check balances and make account inquires by phone.

However, some experts in the banking industry speculate that underdeveloped telecommunications facilities may hinder the visibility and practicality of the CORE banking system.

“The existing network continuously fails due to the poor Internet connection,” Solomon Mammo, director of information systems at BIB, told Fortune. “The bank has only one Internet line, and we are considering increasing the number for a better connection.”

However, Bahirenegash Belete, a private consultant, believed that the connectivity problem will only come to the fore once the volume of transactions between local and international banks increase along with the CORE banking services offered locally.

“The current connection will be sufficient to support the new NPS and CORE banking services banks are providing,” he told Fortune.  

The government is planning to increase the availability of reliable and affordable Internet by launching a better connection, which is essential to support CORE banking, with the new management of Ethio-Telecom, Fortune has learnt.

The Credit Information System software records transactions and customer records in addition to calculating interest on loans and deposits as well as balance of payments and withdrawals.

“The CORE banking system allows a bank to check a customer’s background with other banks in servicing loans before approving new ones,” Alemayehu said.

Customers are also able to access current interest rates and the transfer of funds through the system which reduces time and manual work.

The CORE banking technology will allow customers to conduct their banking transactions from their computer, according to Zemedeneh Negatu, managing partner of Ernst & Young (EY).

Shortening the time it takes for transactions to clear will make money available for use in the economy.

“The NPS will contribute a lot to the growth of the country’s economy since banks will be able to provide technology oriented services,” Zemedeneh told Fortune. “It will also enable banks to provide credit and debit card services alongside efficient services and reliable financial reports.”

Ethiopia is set to become the third largest economy in Africa in 15 years with a projected GDP of close to one trillion dollars, according to EY, which implemented the NPS with Motran, a US software company, at a cost of 2.2 million dollars donated by the World Bank (WB).

The entire project included capacity building and the procurement of hardware and software and cost nine million dollars, sources from the WB told Fortune.

The investment may pay off once the CORE banking system is deployed, as the financial sector’s contribution to the GDP will scale up to between five per cent and six per cent over the next 10 to 15 years, according to a forecast by EY.

In Ethiopia, the sector contributed close to two per cent of the GDP last year, a figure that is set to remain the same this year, according to the Ministry of Finance and Economic Development (MoFED) annual report in 2010/11.

The financial sector’s contribution was 10pc in the United Kingdom (UK), around seven per cent in Kenya, and six per cent in the US in the 2010/11 fiscal year, while it contributed more than 22pc to South Africa’s GDP in 2009, according to Zemedeneh.

However, using the system poses unique challenges as it openes the sector up to online crime.

“The NPS and CORE banking have built-in security features that are highly secured to prevent unauthorised persons from gaining access,” Zemedeneh said. “However, it needs robust and sophisticated security to continuously check the system.”

Bahirenegash agrees with this as it is difficult to say the NPS is 100pc safe from security risks despite being provided with its own security and password versions.

Yet, these concerns are not at the top of the priority list of bank customers like Selam, who looks forward to an improved service in accessing her money.

 

By  EDEN SAHLE,
FORTUNE STAFF WRITER

 
 
   
 
 
 

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