Ethiopia, located in the eastern part of the African continent, is a new player with regards to fintech. How has its landscape been in the space and wider digital aspect?
Ethiopian fintech presents a unique opportunity in the sector. While constructing the country’s wider digital financial services ecosystem, a major challenge that persists is its comparatively low penetration levels compared to its other neighbours in East and Southern Africa. According to the United Nations Capital Development Fund (UNCDF), this is mainly due to the low performance of the mobile money environment, which is the primary driver of accessing and using digital financial services in the region.
The government has seen its potential and has started making strives to improve its fintech inclusion. First, in 2016, Ethiopia’s Council of Ministers ratified the National Financial Inclusion Strategy (NFIS) as a firm indication that it recognises financial inclusion for all as a strategic priority. In addition to this, in 2020 the National Bank of Ethiopia (NBE) amended a payment system law, whereby foreign investors were permitted to set up businesses in Ethiopia as digital financial services providers for the first time.
Africa has seen huge adoption of mobile money, and while this is a trend across most of the continent, not every country has seen the full potential of the technology. Ethiopia is not one of these though, as it is slowly being converted: local non-bank actors are now allowed to offer mobile money services, showing the country recognises the tech’s potential.
The government, as part of its wider economic development strategy, launched the Digital Ethiopia 2025 national strategy in 2020. According to the government’s website, it admits that despite its own growth, it hasn’t adopted digital transformation nor fully embraced it, however, the strategy will help transform the nation to a digitally friendly one. According to 2025’s strategy summary, “Through a robust gap assessment, the strategy provides recommendations across the four foundational cross-sector areas of (i) infrastructure, (ii) enabling systems, (iii) digital interactions (iv) digital ecosystem. These recommendations have been selected to catalyse the realisation of Ethiopia’s broader development vision, including job creation, forex generation, and achieving middle income status by 2025.” Similar to other national economic development strategies, Ethiopia’s digital adoption will help boost job creation and future economic growth.
There is huge potential for fintech in Ethiopia. First of all, it is big. According to the United Nations (UN) it has a population of at least 120 million people, making it the second most populated country in Africa after Nigeria.
Banks especially have also been adapting and embracing technology in the last few years, reflected in their customers’ usage of said technology. The use of mobile and internet banking increased from 2017/8 to 2019/20: in 2019/20 transactions worth ETB 15billion ($290million) have been conducted using internet banking, an increase from ETB 1.8 billion ($25million) from the previous time period. Despite this, from last year 98 per cent of transactions are still in cash and over 80 per cent still go to a bank to withdraw money – according to the Ministry of Innovation and Technology.
As a whole, it is estimated that 65 per cent of the population remains to be unbanked.
Ethiopia shows plenty of potential. This year it is expected that the market’s largest segment will be digital payments, with an estimated total transaction value of almost $1.5billion ($1.485). Additionally, it is expected that by 2026 the number of users is expected to reach over 48 million users, with the digital investment segment also expected to have revenue growth of over 40 per cent in 2023.
Before any predicted growth, in particular by foreign players (for example, it is expected that Safaricom and Vodacom’s M-Pesa will enter the market when they can), the state-owned telecom operator, Ethiotelecom launched Telebirr in May last year – Ethiopia’s first telecom mobile money service. From the same source in QZ, there are now 19 million customers within a year – almost a third of its telecom customers.
Partnerships continue to make ways in fintech and Ethiopia is no exception, as payment giants Visa and Mastercard both partner with leading Ethiopian banks. Last year, Zemen Bank announced a partnership with Mastercard that aimed to see the arrival of the first ever Mastercard branded prepaid contactless travel card in Ethiopia (and the first contactless card issued in the country). That announcement also said Zemen Bank would roll out Mastercard’s contactless tap to pay service, the first of its kind in Ethiopia. Through Z-Tap, all Zemen point-of-sale (POS) machines and most ATMs accept contactless Mastercard cards.
Similarly, in 2020 Visa and Bank of Abyssinia (BoA) announced a strategic partnership to drive e-commerce acquiring through Visa CyberSource payment gateway, therefore becoming a member of Visa’s global payments ecosystem. This partnership also makes BoA the first bank in Ethiopia to drive e-commerce acquiring thus enabling businesses accept online payments using credit cards.
Although infant compared to much of the world, Ethiopia’s sudden opening of foreign direct investment (FDI) and wider liberalisation of its digital ecosystem, alongside local aspirations to develop it, will be an exciting space to see it grow to 2025 and beyond.
