In May this year BPC Banking Technologies and EthSwitch of Ethiopia announced that 18 banks in Ethiopia have been interconnected for inter-bank transactions. The key technology platform that has facilitated this interoperability is SmartVista from BPC. With this implementation 1,500 ATMS, 13,000+ POS-terminals, and 2.5 million cardholders in Ethiopia are interconnected.
“SmartVista is a brand name and the flagship product. It is a suite of products and it is modular. Depending on the needs we tailor the solution for customers,” explains Angelo Bertini, Managing Director, Spain, Middle East, North & West Africa, BPC Banking Technologies. The SmartVista portfolio covers switch, digital banking, e-commerce, merchant management, card and wallet management, ATM management, and fraud prevention.
In 2009, the National Bank of Ethiopia instructed all commercial banks to cooperate in the establishment of the central and national switch system focused on electronic retail payments. Creating interoperability amongst the payment systems and expanding access to financial services was the objective of the National Bank’s instruction.
EthSwitch is the owner and operator of the national electronic retail payments switch of Ethiopia, National e-Payment Switch. This has been legally established with the purpose of providing electronic retail payment switching and clearing, card issuance and management, and infrastructure services in country at large. In November 2011, the National Bank of Ethiopia became an EthSwitch shareholder and board member. In addition, 18 Ethiopian banks are also shareholders in EthSwitch.
The National e-Payment Switch is one of the four major components of the National Payment Systems strategy being implemented by the National Bank of Ethiopia, in which modernisation is at the core.
The National Payment Systems strategy includes the following four components:
- Real Time Gross Settlement System
- Automated Clearing House
- National Switch
- Central Security Depository
“EthSwitch is independent of the Ethiopian central bank and is not an extension of the central bank. EthSwitch is part of the national payment systems strategy and our strategy is based on the national payment strategy,” states Bizuneh Bekele, CEO EthSwitch. The Ethiopian central bank is the central settlement bank of all the Ethiopian banks. For this purpose it has implemented the Real Time Gross Settlement System. The National e-payment Switch managed by EthSwitch is integrated online with the Real Time Gross Settlement System. “Everything is automated between us. The settlement is done on the accounts held by the central bank between the banks, on which we send our net settlement instruction.”
Bikele continues, “Our technology strategy is not driven by central bank. The national payment strategy sets policy and strategic guidelines. Financial inclusion is one of its policy and strategic objectives. We share the financial inclusion agenda of the country. By integrating all the banks into one network the access to financial services is expanded and it is easier to expand to the rural population.”
EthSwitch is the sole clearing house for interbank electronic retail payments in Ethiopia. On an ongoing basis, it does settlement between the banks. Whenever there is an inter-bank transaction, the transaction will come to the EthSwtitch infrastructure and will be completed within its infrastructure. “We process interbank transactions.”
If an ATM card of one bank is used in another bank’s ATM machine, payment is made immediately to the card holder on behalf of the card holders bank, on the spot. But clearing is an automated multilateral netting process with result of Net Settlement Instruction happening in the EthSwtich infrastructure. On the next business day, claims are settled between the banks passing through Net Settlement Instruction directly to Real Time Gross Settlement System through an automated and secured process.
If it is an intra-bank transaction, that is a person is using a bank’s card in the bank’s own ATM machine, the transaction will not come to the EthSwitch infrastructure. But even for inter-bank transactions, each bank is keeping their own data and there is a process of settlement and reconciliation between the systems. “It is an integrated system.”
The turnkey procurement process for the National e-Payment Switch took three years, from April 2011 until end of March 2014. The procurement contract was signed with Banking Production Center BV in March 2014, for only the National Switch and related Systems Application Software part of the project. After completion of the procurement process, from March to September 2014, the internal Function Specification Document was prepared.
“This was a natural project to connect all the banks into a common switch, and to offer additional services to some of the banks that may not have the technology. It was won on the merits of SmartVista,” comments BPC’s Bertini. “A lot of countries today do not have the national switch. There are a lot of initiatives from the World Bank and governments and other organisations to make sure those countries provide a national switch.”
The SmartVista solution from BPC is hosted in the EthSwitch datacentre. The EthSwitch datacentre contains storage, network, and security technologies from various vendors including Oracle, Cisco, EMC, Thales, and others.
- Banks looking to provide new features for customers, cost savings
- Banks want flexible and innovative products from vendors
- BPC usually works direct, in some countries we use partners
- Costing a lot to maintain legacy systems in banks
- Ethiopia switch project won on basis of merits of SmartVista
- First stage in Africa is to interconnect all banks
- For vendors opportunities are around cost savings
- General trend is most banks are looking for better technology
- Lot of countries today do not have the national switch
- Mobile money is an opportunity in Africa
- Satellite latency and hops do not make a difference for banking
- Time to market is a key issue for banks
- Very expensive to add and change functionality in legacy systems
- Establish a national central financial switch system
- Establish system for card payment and management
- Provide advisory services for member financial institutions
- Provide call center service and maintain service level agreement
- Provide card and retail payment switch and clearing service
- Provide card production and personalisation services
- Provide gateway service for international card payments
The scope of implementation originally covered 19 commercial banks. During the process of implementation, two banks were merged into one, and the number was reduced to 18 commercial banks. The scope of work also included the central bank and therefore the project required 19 interfaces for the switch. Out of the eighteen banks, 6 banks had their own switch; another 6 banks were connected using their core banking application; and the last 6 banks used a common consortium shared switch. This existing situation was integrated into the platform at the time of implementation and testing.
BPC was the prime contractor for the switch and related software solution. The implementation was started in September 2014. For BPC the scope of the project was mainly on the software side. This included deployment and implementation of interfaces with all the banks. Stresses Bekele, “It is a complex task. It is not just deploying the software and making it work.” For BPC it was almost literally as many implementations as there were banks. Each of the six banks with their own switch had to be individually integrated into EthSwitch. For the six banks using their individual core banking system, integration had to be done individually again. And finally the consortium switch had to be integrated.
On the other side of the switch interface a common messaging standard ISO 8583 had to be set up and integrated across the different technologies used by the individual banks. Another part of the implementation requirement was for the switch to function as a payment hub. This meant that all payment channels including cards, ATM, POS, mobile, internet, voice, and their functionalities had to be supported by the switch.
The end to end switch implementation was divided into project stages and project phases. In the beginning of the implementation, each bank took care of the customisation of the interface based on specifications provided by BPC. This was followed by two stages of testing, namely system integration testing and user acceptance testing.
The implementation was also divided into three phases. The first phase involved go-live of two ATM products including cash withdrawal, balance inquiry, reversal; and go-live of six POS products including pre-authorisation, purchase , refund, reversal, balance inquiry, pre-authorisation completion. This was completed in May this year after a duration of two years and seven months. This was enabled by the interoperability between the 18 banks and the central bank. After completion of phase one bank card holders in Ethiopia are able to withdraw their money or check their balance on any ATM deployed by any bank, irrespective of the bank which issued their card.
Prior to go-live the switch operations were pilot tested in a production environment. The pilot testing was run for a period of two months with limited number of card holders.
The next two phases are currently under implementation and are running in parallel. Phase two includes around 50 product functionalities and services including additional ATM and POS functionalities, mobile and internet and voice interoperability. Phase three includes certification with international cards schemes including Visa and Mastercard. EthSwitch has an objective to work as international gateway for all banks. When the project is fully completed, over 50 e-Payment products and services will be supported in EthSwitch covering card delivery channels like ATM, POS, mobile, internet, and voice. EthioPay is the brand given to the National e-Payment Switch of Ethiopia.
According to Bekele, EthSwitch’s metric of success for the project is the number of transactions being processed through the switch system. The system infrastructure for the interconnectivity between banks and the central bank is designed for 100 transactions per second. As per the current implementation the system can operate at 50 transactions per second. At present due to the user adoption curve the number of transactions is still well below this mark. “Since this capacity is quite high, we do not have any performance issue,” explains Bekele.
Since May this year the number of inter-bank transactions has been growing. This is expected to increase as the Ethiopian population becomes aware of the interoperability and ease of use of using cards in any bank’s ATM machine. Along the way there have been some transactions declines due to connectivity failures and those limitations are being addressed. Automatic reversal of transactions due to power and dispensing failures has been tested and is currently part of the system. However as the number of transactions scale, this operation will also need to be monitored. There is also an online dispute resolution portal similar to those maintained by the global card companies. “Reversal is a normal transaction it has to happen. But it is ongoing work as we add transactions.”
Bekele also stresses that what has been implemented is just a platform. “A lot of work has to be done to develop local markets and local products.” According to the 2016 Brooking Financial and Digital Inclusion report only 22% of the adult population has financial accounts in Ethiopia. This shows there is a lot of potential for inclusion and diversification of banking products in the country.
Amongst the future activities is to include mobile as part of the financial inclusion policy. Another active area is the recent launch of the domestic card called EthioPay. Across a national population of 100 million, there are 2.5 million card holders and 40 million mobile users. Sufficient opportunity for Bekele and his team in the time to come.
List of banks connected to EthioPay
- National Bank of Ethiopia
- Abay Bank
- Addis International Bank
- Awash International Bank
- Bank of Abyssinia
- Berhan International Bank
- Bunna International Bank
- Commercial Bank of Ethiopia
- Cooperative Bank of Oromia
- Dashen Bank
- Debub Global Bank
- Development Bank
- Enat Bank
- Lion International Bank
- Nib International Bank
- Oromia International Bank
- United Bank
- Wegagen Bank
- Zemen Bank