ST.

MARY'S UNIVERSITY
BUSINESSFACULTY
DEPARTMENTOFACCOUNTING

CHALLENGES AND OPPORTUNITES OF AUTOMATIC TELLER

MACHINE(ATM) ON WEGAGEN BANK SHARE COMPANY.

BY

ABAYNESH DESTA

TIZITA DELELEGN

ENANAWERK GASHAW

JUNE2014

SMU

ADDISABABA
 Table of contents
Title page

Acknowledgment----------------------------------------------------------------------------------------------------------------1

Table of content--------------------------------------------------------------------------------------------------------------- 11

List of table and figures----------------------------------------------------------------------------------------------------- V

Acronyms------------------------------------------------------------------------------------------------------------------------VI

Chapter one

Introduction

1.1 Background of the study--------------------------------------------------------------------------------------------1

1.1.1 Branch network------------------------------------------------------------------------------------------2

1.1.2 Ict (information and communication technology-------------------------------------------- 2

1.2Statement of problem---------------------------------------------------------------------------------------------------- 3

1.3Research question------------------------------------------------------------------------------------------------------3

1.4Objective of the study------------------------------------------------------------------------------------------------- 4

1.4.1 General objective----------------------------------------------------------------------------------------4

1.4.2 Specific objective---------------------------------------------------------------------------------------- 4

1.5Significant of the study-------------------------------------------------------------------------------------------------- 4

1.6Scope of the study---------------------------------------------------------------------------------------------------------4

1.7Definition of terms-------------------------------------------------------------------------------------------------------- 5

1.8Research design and methodology-------------------------------------------------------------------------------5

1.8.1 Research design---------------------------------------------------------------------------------------- 5

1.8.2 Population and sample technique---------------------------------------------------------------- 5

1.8.3 Types of data collected------------------------------------------------------------------------------- 6

1.8.4 Methods of data collection-------------------------------------------------------------------------- 6

1.8.5 Method of data analysis------------------------------------------------------------------------------ 6

1.9Limitation of the study-------------------------------------------------------------------------------------------------- 6

1.10 Organization of the paper-------------------------------------------------------------------------------------------- 7

REVIEW OF RELATED LITERATURE

2.1 An over view of e-commerce-------------------------------------------------------------------------------------------- 8

2.1.1 Definition of e-commerce----------------------------------------------------------------------------------- 8

2.1.2 Advantages and limitations of e-commerce-------------------------------------------------------- 11

2.1.3 Value chain in e-commerce-------------------------------------------------------------------------------- 1 5

2.1.4 Integrating e-commerce----------------------------------------------------------------------------------- 16

2.2 An over view of electronic payment-------------------------------------------------------------------------------- 1 8

2.3 Types of electronic payment media--------------------------------------------------------------------- 20

2.3.1 Trusted third partytype(TTP)--------------------------------------------------------------------------- 20

2.3.2 Notational fund transfer-related type---------------------------------------------------------------- 21

2.3.3 Digital cash or electronic money---------------------------------------------------------------------- 21

2.4 Payment fromthree perspectives-------------------------------------------------------------------------------- 25

2.4.1 Merchant--------------------------------------------------------------------------------------------------------26

2.4.2 Customer--------------------------------------------------------------------------------------------------------26

2.4.3 Financial service provider------------------------------------------------------------------------------- 26

2.5 The financial service provider as a risk manager----------------------------------------------------------- 27

2.6 Characteristics of payment system------------------------------------------------------------------------------28

2.7 Challenges ofe-payment-------------------------------------------------------------------------------------------- 31

2.7.1 Security--------------------------------------------------------------------------------------------------------- 31

2.7.2 Infrastructure-------------------------------------------------------------------------------------------------- 33

2.7.3 Regulatory and legal issues------------------------------------------------------------------------------ 33

2.7.4 Socio cultural challenges---------------------------------------------------------------------------------- 34

2.7.5 Resistance to changes in technology among customers and staff------------------------ 35

2.7.6 ICT equipment costs---------------------------------------------------------------------------------------- 35

2.8 Opportunities of e-payment--------------------------------------------------------------------------------------36

Chapter Three

DATA REPRESENTATION, ANALYSIS, AND INTERPRETATION

3.1 Introduction

3.2 Data collected from secondary sources-------------------------------------------------------------------39

3.3 Data collected from primary sources------------------------------------------------------------------------------39

3.3.1 Analysis of questions relatedtoelectronic payment system----------------------------------------- 40

Chapter Four

SUMMARY, CONCLUSION,AND RECOMMENDATION

4.1 Summary-----------------------------------------------------------------------------------------------------------------48

4.2 Conclusion--------------------------------------------------------------------------------------------------------------- 49

4.3 Recommendations----------------------------------------------------------------------------------------------------51

Bibliography

Appendices
List of tables

Tablel .Written electronic payment systems and procedures and efficiency in dealing with
conventional(traditional) payments systems----------------------------------------------------------------------------------------------------------------------------------
------------------ 37

Table2.Draw backs of traditional payment system--------------------------------------------------------------------------------------------------------------------- 37

Table3.Employess knowledge about electronic payment system and the importance of electronic payment
for the bank----------------------------------------------------------------------------------------------------------------------------------------------------------------------38

Table4.Issue realated with the important of to make the whole system computerazid------------------------------------------------------------------------39

Table5.Easiness of ATM and effect of language in the ATM-------------------------------------------------------------------------------------------------------- 42

Table6.The requirement to be ATM card holder------------------------------------------------------------------------------------------------------------------------43

List of diagrams

Figure1 .Rate of employess skill in electronic(autaomated)payment system----------------------------------------------------------------------------------39

Figure2.Challenges in relation to electronic payment in the bank-------------------------------------------------------------------------------------------------40

Figure3.Opportunites of e-payment to the bank----------------------------------------------------------------------------------------------------------------------41

Figure4.Challenges of electronic payment------------------------------------------------------------------------------------------------------------------------------43

Figure5.Opportunites in relation to electronic payment- 44

ICT -Information Communication Technology

SWIFT -Society for Worldwide Interbank Financial Telecommunication

ATM- Automatic Teller Machine

DB-Domestic Banking

DIB-Department and International Banking Department

 Chapter One

E-payment are payments that are made directly to payee from your bank

accounts using security features over the internet to process positive

Transaction on internet.

E-payment is a subset of an e-commerce transaction to include electronic

payment for buying and selling goods or service offered through the internet.

E-payment is a way of paying for goods or service electronically instead of using

cash or a check, in person or by mail.

Information and communication have a vital role in a society's social, political

and economic activities. In the modern economy, information is used as an

input like natural resources, labour capital and entrepreneurship. However, it

happens to be unique from other resources in the sense that it can be used,

reused, processed, shared and exchanged without losing value. The incredible

growth and sophistication of Information Communication Technology (ICT) is

changing the society's way of life throughout the world.

The success and growth of e-commerce, which yielded from the development in

ICT, depend on efficient e-payment system. The slogan- 'it is no e-commerce, if

you cannot getpaid' witnesses the importance of e-payment for e-commerce. E-

payment, the electronic transfer of value, in turn depends on secure ICT

infrastructure, efficient legal and regulatory administration and widespread

awareness among the public and business. (Wondwossen et al., 2005)

This study was designed to assess the challenges and opportunities of e-

payment in the case of Wegagen Bank S.C. Wegagen Bank is one of the private

banks in the Ethiopia.Currently, the bank is playing a significant role in

deposit taking, credit extension, E-payment such as, SWIFT (Society for
Worldwide Interbank Financial Telecommunication), various International

Money Transfer Mechanisms, Card Based payments, Automatic Teller Machine

(ATM) services. The bank is also working as an intermediary of Foreign Trade of

the country.

Wegagen Bank is a privately owned share company which started operations on

June 11, 1997 with a subscribedcapital of Birr 60 million and a paid up -

capital of Birr30 million. The number of shareholders reached 2,130 while the

total capital (including paid-up capital, share premium and legal reserves)

reached over Birr 1.5 Billion as at March 31,201 2

1.1.5 Branch Network

Wegagen Bank has a network of 63 branches of which 28 are in Addis Ababa

and the remaining 35 are located in other cities and towns of the country.

Expansion of the network of branches will be pursued appropriately.

1.1.6 ICT (Information & Communication Technology)

Wegagen Bank is a pioneer Bank to introduce a core banking system in July

2000, thereby managed to network the Head Office organs, City Branches and

some of the Outlying Branches.

At present, migration of the existing Core Banking System into a more versatile

and ISO-standard solution is completed.

The Bank has also implemented afull-fledged Card Payment System, enabling

its customers to get 24/7 banking services, on its ATM network, and on POS

Terminals, as well.

E-payment system was first introduced in Ethiopia by Dashen Bank in March

2005. Then the Commercial Bank of Ethiopia, in 2009, and Wegagen Bank

Share Company (S.C.), in November 2010 have followed it. Currently almost all

the banks provide their customers withthe e-payment services. However this

does not meanEthiopia is enjoying theadvanced e-payment system the way the

rest of the world is doinq(www.weqaqenbanks.com).

E-payment is the financial exchange that takes place between buyer and seller.

Electronic payment brings difference among business enterprises. The growth

of internet and World Wide Web made e-commerce possible; however, the

success of e-commerce strongly depends on e-paymentsystem. Besides, the

increaseduses of new communicationmechanisms have led to development of

e-payment. Whenever payments are transferred electronically, their efficiency

gets increased, transaction costs become reduced, and thepaying becomes

convenient.

However many customers of several banks are seen complaining about the

qualities and effectiveness of the e-payment services they are provided by their

respective banks. The banks also give different reasons to their customers for

the lower quality service and related problems in e-payment. Due to some

reasons such as electric power interruption and the cost of ictequipments this

research paper attempted to examine the challenges and the opportunities in

the provision of e-payment service, particularly in Wegagen Bank S.C.

1.3 Research Question

So as to meet its objectives, the study based itself on responding to the following

basic research questions:

1. What are the major challenges of E-payment?

2. What are the benefits of E-payment?

3. How does e-payment affect the profitability of the Bank?

1.4 Objective of the Study
1.4.1 General Objective

The general objective of the study was to identify the challenge and opportunity

of electronic payment system in Wegagen Bank S.C.

1.4.2 Specific Objective

In order to achieve its general objective the study aimed:

> to identify the major challenges of electronic payment,

> to identify the benefits that the bank earned from electronic payment,

> to check whether e-payment affects the profitability of the bank

> to show how it contributes to foreign currency remittance, and

1.5 Significance of the Study

This study remains to be very significant for some reasons. First and most, as it

tries to identify the challenges and opportunities that the bank faces with

regard to e-payment, the findings definitely help the bank's management to

improve the possible pitfalls and increase the level to which it benefits from

providing the service to its customers. By implementing the recommendations

made for the shortcomings in the service, which this study came up with, the

bank will also increase its customers' satisfaction. This, in turn, increases the

bank's profitability. In addition to this, the study is significant in a way that it

helps in increasing the employees' awareness on what is expected least, the

study is significant as it can be a springboard for other researchers who might

be interested in researching further on the topic.

1.6 Scope of the Study

Basically, the study was concerned with challenges and opportunities of e-

payment in Wegagen Bank S.C. This research would be more significant had it
been conducted widely by including other similar firms. However, due to scarce

resources and different constraints, it was conducted only on the e-payment

service of Wegagen Bank S. C. Moreover, it would be ideal if all the branches of

the Bank for maximum precision. The researchers were delimited to branches

only in Addis Ababa, specifically Gerji Branch, Bole branch and Head Office -

Domestic Banking(DB) Department and International Banking Department(IBD)

especially with employees who are working in e-payment system.

1.8 Research design and Methodology

1.8.1 Research Design
Both qualitative and quantitative research methods were used in the study through
somewhat close ended questions and observation. In order to answer the above

research question the researchers used descriptive type of research method.

Descriptive research primarily aims at gathering knowledge about description

and explanation of the objectives of the study. The target population of thestudy

comprises employees (mangers and customer officers) of Wegagen Bank.

1.8.2 Population and Sampling Techniques

Our population included both the Bank's employees and customers. Regarding

sampling technique, we employed the non-probabilistic judgmental technique to

pick our samples among the Bank's employees and stratified sampling

technique was used to sort our sample among the Bank's customers. We

preferred these techniques because we purposefully wanted to include those

employees working in the area of e-payment in our sample. The technique we

used for the customers is chosen because we wanted to get effective

representation of the heterogeneous population. The sampling frame took into

account, the employees within the DomesticBanking Department and IBD, who

are working in e-payment activities from three branches. We took 20 employees

as a sample From the total population of 50 employees: 5 employees from Gerji

(2 from IBD and 3 from DB), 7 employees from Bole (4 from IBD and 3 from
DB), 8 employees from Head- office (4 from IBD and 4 from DB). Related to the

bank's customers From the total population of 150 customers a sample of 30

customers will be taken.

1.8.3 Types of Data Collected

The data was collected from both primary and secondary data sources. Primary

data was collected through predesigned questionnaires and observation.

Secondary data was also collected from books, internet, magazines, etc

1.8.4 Methods of Data Collection

Thestudy used both primary and secondary data as its source of information.

Primary data was collected based on structured questionnaire and observation.

The secondary data was collected by reviewing books, magazines and online

information available. Based on the research objective, a questionnaire was

prepared to elicit customersexperience and the observation helped to get

information about challenges and opportunities of electronic payment system.

The questionnaire consists of two parts. Part one was prepared to gather

general information about the respondentsgender, age, education, occupation,

monthly income and for how many time the customer using the bankservices.

Part two was prepared to ask respondents to answer E-payment opportunity

challenge questions. This part consists of 26 questions to customers and

employees and measures the challenges and opportunities of electronic

payment system.
The researchers analyzed the data gathered through somewhat close ended

questionnaires and

observation which consisted of descriptive statistics in terms of percentage,

tables, figures, charts. In addition to this, the researchers were also concerned

with the interpretation and the representation ofjustification.

1.9 Limitation of the Study

The major limitation that we faced was shortage of documented information

about the E-payment service of the bank as the service is a recent one.

Moreover, we lacked enough amounts of reference materials for little has be

written and studied about the service in the case of Ethiopian commercial

banks. As a solution we used to support our study with deep and exhaustive

interviews with the Bank's officials.

1.10 Organization of the Paper

The study is consisted of four chapters. Chapter one included background of

the study, statement of the problem, objective of the study (general and specific

objectives), significance of the study, limitation of the study, research

methodology and organization the paper. Chapter two presented the review of

related literature. The third chapter contained presentation, analysis and

interpretation of the primary and secondary data collected. The last chapter

deals with the conclusions drawn and the recommendations that originated

from the analysis. Finally, lists of bibliography and annex are included.
 CHAPTER TWO
LITERATURE REVIEW
2.1 An Overview of E-commerce

2.1.1 Definition of E-commerce

The new economic policy introduced in November 1991brought the command

economy to its end, heralding the establishment of market oriented one. This

created conducive environment for establishment of private financial

institutions and helped to bring a meaningful economic rule in the development

of the economy.

Wegagen BankS.C. is one of the private banks in Ethiopia. It was established

on April 30, 1997 with subscribed capital of 60 million Birr and License No.

LBB/004/97before it started operation on June 11, 1997. Wegagen Bank is

governed by a Board of Directors, president and two vice presidents and other

12 department managers, namely: Domestic Banking, Information System (I.S.),

Finance and Treasury, Corporate Planning, International Banking (IB.),

Marketing, Administration and Human Resource, Risk Management,

Engineering, Control, Credit and Legal departments.

Wegagen Bank S.C. is playing significant role in deposit taking, credit

extension, E-payment services (such as Visa, Dihabshil and Agar Card), SWIFT

(Society for Worldwide Interbank Financial Telecommunication), various

International Money Transfer Mechanisms, Card Based payments, and

Automatic Teller Machine (ATM) services. The bank also works as an

intermediary in Foreign Trade of the country.

Wgagen Bank S.C. has started its operation with only two branches, by now, it

is providing its services with 63 branches, out of which 28 are located in Addis
Ababa and the remaining 35 in regional states of the country. The Bank's Paid

Up Capital, Legal Reserve and total asset have reached Birr

779,316,000;290,136,763 and Birr 8,060,937,378, respectively. Out of \

stated total asset Birr 1,051,971,662 is deposit at foreign banks (which is

closely related with E-payment). (Wegagen bank S.C 2012/13 annual report -

Balance sheet).

E-payment system in Ethiopia was first introduced by CBE in March 2005,

next by Commercial Bank of Ethiopia in 2009, and then Wegagen Bank Share

Company started the task in November 2010.

The background of the organization showed that there is an implication of

electronic payment system with its challenges and opportunities.

Welcome to the wired world of business, where technology, human talent, and a

new way of doing business make up today's growing worldwide economy. The

backbone of this electronic commerce is the internet. The wired world is not

about the technology; it is about information, decision making, and

communication. The wired world is changing life for everyone; from the single

household to the largest corporation. No business can afford to ignore the

potential of a connected economy.

E-commerce brings the universal access of the internet to the core business

processes of buying and selling goods and services. It helps generate demand

for products and services and improves order management, payment, and other

support functions. The overall goal is to cut expenses by reducing transaction

costs and streamlining all kinds of processes. The internet's worldwide reach

helps businesses discover new markets while increasing the speed of access and

the speed of transactions.

Most people e-commerce and e-business uses interchangeably, which is wrong.

E-commerce is the marketing, buying and selling of products and services on

the internet. E-commerce (EC) can be defined in several ways

> From a communication perspective: e-commerceis the ability to

deliver product, service, information, or payment via network such as

internet and World Wide Web.

> From an interface perspective: e-commerce involves various

information and transaction exchange; business-to-business, business

to consumer, consumer to consumer.

> From a business process perspective: e-commerce include activities

that directly support commerce electronically by means of net worked

connections within a business process (Manufacturing, inventorying&

operation) and business to business process (supply chain

management) are managed by the same networks as business to

consumer process.

> From online perspective: e-commerce is electronic environments that

make it possible to buy and sell products, services and information on

internet.

> From structural perspective: e-commerce involves various media

data; text, webpage, internet& telephone.

> As a market: e-commerce is worldwide network. A local store can open

a web storefront and find the world at its door step-customer,

suppliers, competitors and payment services.

E-business enabling organization to accomplish the following goals:

S Reach new market

S Create new product or service

 S Building customer loyalty

S Enrich human capital

S Make the best use of existing and emerging technologies

S Achieve market leadership and competitive advantage.(Awad,2003: 3­

5)

E-Business is connecting critical business systems and constituency directly

via the internet extranet and intranet. It means using electronic information to

boost performance and create value by forming new relation between and
among business and customer. (Awad, 2003:2-4)

According to Elias Awad e-commerce means commerce with anyone anywhere,

any time. It emphasis new business opportunity, that result in greater efficiency
and more effective transaction.

The information and communication applications are paramount concern to the

banks in today's business environment and Internet has become the major

platform for all financial, banking and commercial transactions in the present
scenario. (Gardachew w. 2010:2)

2.1.2 Advantages and Limitations of E-commerce

Changes in telecommunication are affecting the way we receive and transmit

information, product and announcement, purchase order, etc. Like the

telephone, fax machine, pcs and printers have become ingredients in doing

business.

Advantages

E-commerce has several advantages such us:

24*7Operations

Round-the-clock operation is an expensive proposition in the 'brick-and-mortar'

world, while it is natural in the 'click-and-conquer' world.
Global reach

The net being inherently global, reaching global customer is relatively easy on
the net compare to the world of bricks.

An Extended Enterprise is Easy to Build

In today's world every enterprise is a part of the 'connected economy'; as such,

you need to extend your enterprise all the way to your suppliers and business

partners like distributors, retailers and ultimately your end customers. Internet

provides an effective (often less expensive) way to extend your enterprise beyond
the narrow confines of your own organization.

Cost of Acquiring, Serving and Retaining Customers

It is relatively cheaper to acquire new customers over the net; thanks to 24x7

operations and its global reach. Through innovative tools of 'push' technology, it

isalso possible to retain customers' loyalty with minimal investments.

(P.T.Joseph 2004:10)

Lower cost

Doing e-business on internet is cost effective; it reduce logistical problem and

put small business on part with giants. In a commercial bank for example, a

basic over-the-counter transaction cost $1.07 to process, over the internet, the

same transaction cost about penny. Every financial transaction eventually turns

into an electronic process. The sooner it makes the conversion, the more cost
effective the transaction become.

Higher Margin

E-commerce mean higher margin along with higher margin business can gain

more control and flexibility and able to save time when manual transactions are
done electronically.
 Team work

E-commerce helps people to work together; email is one example of how people

collaborate to exchange information and work on solution. It has transformed

the way organization interacts with suppliers, vendor, business partner and

customer. More interaction means better overall result.

Knowledge market

Electronic market places improve information sharing between merchant and

customers and promote quick just on time delivery. Convenience for customer

is a major driver for change in various industries; consumer and merchants

save money.

Customization

Digital products are highly customizable. They are easy to recognize, revise, or

re-edit with information about customer test and preference, product can be

differentiated (customized) and assisted to individual need. (Awad, 2003: 14-16)

Limitations

Although, we can generate a long list of advantages and benefits, there are still

problems and draw- backs to consider before plunging in to the Web business.

Here has just a few of these problems.

Security and Privacy

Security continues to be a problem for online business. The security of financial

transactions and privacy of personal details are a concern to many users and
potential users of e-commerce.

Inspecting goods
The web can provide a good picture, an expressive descriptions and even

customer review or virtual reality displays but you cannot actually see, feel or
try on the goods you are buying.

Return of goods

Having to return faulty goods takes time and is embarrassment. Returning

goods to an online vendor can seem even more problematic. (Whitely: 2004:156)

System and data integrity

Data protection and the integrity of the system that handles the data are

serious concerns. Computer viruses are rampant, with new viruses discovered

every day. Viruses cause unnecessary delays, file backups storage problems,

and the like. The danger of hackers accessing files and corrupting accounts
adds more stress to an already complex operation.

System Scalability

A business develops an interactive interface with customers via a Web site. After

a while, statistical analysis determines whether visitors to the site are one-time

or recurring customers. If the company expected two million customers and six

million shows up, Web site performance is bound to experience degradation,

slowdown, and eventually loss of customers. To keep this problem from

happening, a Web site must be scalable, or upgradable on a regular basis.

Scalability: - Ability of a computer system, database infrastructure, or network

to be upgraded to new standards.

Fulfilments problems

Shipping delays, merchandise mix-ups, and web sites crashing under pressure continue to

be a problem in e-commerce. Customer confidence in e-commerce's ability to

deliver during heavy shopping seasons continues to be a headache. Even happy
customers say the experience could be improved.

Corporate vulnerability

The availability of product details, catalogues, and other information about a

business through its web-sites makes itvulnerable to access by the

competition. The idea of extracting business intelligence from the competition's

web pages is called web framing.

Lack of Blueprint for Handling E-Commerce

There is a continuingshortage of e-literate people in the workplace. In a survey

published in computer world (Copeland: 54), nearly nine out of 10 respondents

said only a few of their key managers have e-commerce skills, internet

experience, and foresight. Sixty six percent also said they are having to a

thought time attracting people wanting to take advantage of online

opportunities. Finally, traditional organization structures and cultures were

found to inhibit progress in e-commerce. (Awad, 2003:18-20)

2.1.3. Value Chain in E-Commerce

Value chain is a way of organizing the activities of a business, so that each

activity adds value or productivity to the total operation of the business.

Within an online merchant's business, value-added activities work together to

make the business-to-customer interface operational.

Competitive advantage is achieved when an organization links the activities in

its value chain more cheaply and more effectively than its competitors. (Awad,
2003:21)

Value Chain Model: value chain moves businesses away from discrete streams

of data about the product being made to one unified pool of information-one

that extends outside the company to suppliers and customers. The goal is to
develop full and seamless interaction among all members of the chain, resulting

in lower inventories, higher customer satisfaction and shorter time market.

(P.T.Joseph, 2004: 63-64)

The value chain is a useful way of looking at a corporation's activities and how

the various activities add value to other activities and to the company in

general. E-commerce can play a key role in reducing costs, improving product

quality and integrity, promoting a loyal customers base, and creating a quick

and efficient way of selling products and services. By examining the elements of

the value chain, corporate executives can look at ways of incorporating

information technology and telecommunications to improve the overall

productivity of the firm. Companies that do their homework early and well
ensure themselves a competitive advantage in the marketplace. (Awad, 2003:23)

2.1.4 Integrating E-commerce

The trend in e-commerce is to integrate the entire transaction life cycle, from

the time the consumer purchases the product on the Web site to the time the

product is actually received. This life cycle centres around three major e-
commerce applications:

> Business-to-consumer (B2C), done on the internet

> Business-to-business (B2B), done on the internet and extranets

Business-within-business (BwB), done on the intranet.(Awad 2003:24)

Business-to-Consumer (B2C)

Consumers are increasingly going online to shop for and purchase products,

arrange financing, arrange shipment or take delivery of digital products such as

software, and get service after the sale. B2C e-business includes retail sales,

often called e-retail (e-tail), and other online purchases such as airline tickets,

entertainment venue tickets, hotel rooms, and shares of stock.(P.T.Joseph

2004: 30)
Business-to-Business (B2B)

The real power of e-commerce lies not in the direct sale of products to

consumers, but in the integration of relationship among merchant's and

suppliers for prompt & quality customer service. (Awad, 2003: 25)

B2B is that model e-commerce whereby company conducts its trading and other

commercial activity through the net and the customer is another business itself.

This essentially means commercial activity between companies through the

internet as the medium.

This is supposed to be a huge opportunity area in the web. Companies have by

and large computerized all the operations worldwide and now they need to go

into the next stage by linking their customers and vendors. This is done by

supply chain software, which is an integral part of your Enterprise Recourse

Planning (ERP) application. (p.T.Joseph: 34)

Business-within-Business (Intranet)

The intranet plays a role as a corporate and product information centre and is

strictly a "within company” type of information exchange. This networked

environment is restricted to internal employees and customers, with firewalls to

keep out non-employees. E-mail replaces paper for the communication of

messages, order acknowledgement and approvals and the other forms of

correspondence within the firm. (Awad, 2003:28)

2.2 An Overview of Electronic Payment

The growth of e-commerce is dependent, among other factors, on the existence

of secure, user- friendly and cost-effective payment systems.

E-payment systems are becoming central to e-commerce ascompanies look for

ways to serve customers faster and at low cost. Emerging innovations in the

payment for goods and services in electronic commerce promise to offer a wide

range of new business opportunities. Ancient traders faced a number of

 obstacles such as conflicting local laws and customs regarding commercial

practices and incompatible and nonconvertible currencies that restricted trade.

To circumvent some of these problems, traders invented various forms of

payment instruments such as promissory notes, bills of exchange, gold coins,

and barter. The merchants also developed commercial law surrounding the use

of these instruments that proved to be one of the turning points in the history of

trade and commerce. We are on the verge of a similar short of development

today with regard to e-payment systems.

Everyone agrees that the payment and settlement process is a potential

bottleneck inthe fast-moving electronic commerce environment, if we rely on

conventional payment methods such as cash, cheques, bank drafts, or bills of

exchange. Electronic replicas of these conventional instruments are not well

suited for the speed required in e-commerce purchase processing. For instance,

payments of small denominations (micropayments) for bits and pieces of

information must be accepted by vendors in real time. Conventional

instruments are too slow for micropayments and the high transaction costs

involved in processing them, add greatly to the overhead. Therefore, new

methods of payment are needed to meet the emerging demands of e-commerce.

These new payment instruments must be secure, have a low processing cost,
and be accepted widely as global currency tender. (P.T.Joseph:1 71-172)

From Barter to Money

Money began with the concept barter or exchange. Farmers for example

exchanged crops for clothes, cattle's for farm tools, etc.

Eventually, the economic system got complicated and a standard medium of exchange was

born. The first medium involved tokens (items that carried intrinsic value).

Precious stones and shells were early tokens. Later, coins were minted in

precious metals, and were given specific values. For example, a silver dollar was
 first minted in silver; it carried its weight (and its value) in silver.Later, the

government minted thesame dollar coin using cupper and other metals. Paper

notes are similar in that they carry value as a matter of consensus. The paper
note has become a marker representing a certain value.

fter tokens were detached from their inherent value, the next step was notational money in

which value was stored and exchanged by formal authorization. An example is a

check. As a document, the check is worthless. Its notation carries value; it is

directly tied to value stored in a unique account at abank. Even the back

account does not contain real cash, but is arepository representing cash.

Notational money is tied to actual value stored in a specific location. After

notational money, the credit system developed, represented by the credit card.

For the first time, a person could pay for goods and services not directly tied to

value stored elsewhere.When you credit card, you simply becomeliable for the

value of the merchandise. Most electronic payment systems use notational

systems. They either transfer funds electronically or send credit card

information over the internet.

Real-world Cash

For centuries, we have known money as a medium of exchange to simplify

transactions, a standard of value to make it easier to decide on the worth of

goods, and a store of value to facilitate the concept of saving. For the purpose of

e-commerce, electronic money must fulfil the firstfunction. When you carry

cash, youare making on-the-spot payments. Payment online (using credit cards

and the like) is not very different from cash transactions in the real world,

except for speed of transfer, ease of handling, and safety of not having to carry

cash. (Awad, 2003:209-210)

Electronic Transaction System

An electronic transaction system makes it possibleto process transactions over

the internet, whether the customer uses Visa, MasterCard, Discover, American
Express, or any other form of card. An electronic transaction processing system

to pay the merchant against the customer's credit or debit card. (Awad,

2003:215)

2.3 Types of Electronic Payment Media

There are dozens of electronic payment media already in use. Electronic

payment media can be grouped into three types, depending on the information
being transferred online. (Awad 2003:220)

2.3.1. Trusted Third Party Type (TTP)

Since there is no face-to-face interaction in most e-commerce transactions, the

payment system must be strongly secured. Trust is also another important

factor that has to be considered. Towards this end, most electronic payment

systems used for e-commerce are based on the idea of Trusted Third Party

(TTP). TTP provides trust, security, identification and authentication, which are

highly desirable in these kinds of payment schemes. The specific role of the TTP
varies from one payment system to another. (Wendwosen&Tsegai 2005:10)

2.3.2 Notational Fund Transfer-related Type

National fund transfer related type is the visa/MasterCard (Secured Electronic

Transaction) SET-based transaction. A customer submits his or her credit a

merchant for payment. The merchant transmit the credit card number via a

phone line to the issuing bank for confirmation. The issuing bank, in turn,

adjusts the customer's and the merchant's accounts accordingly. Because it is

all online, the information transmitted is encrypted for security. This does not,

however, prevent a hacker from tapping your account by intercepting your

message or credit card number and running up charges before any electronic

system detects it. Despite these issues, this medium has been the core of online
payment system for years and now is being extended to the internet. More

sophisticated protocols are being tested to ensure transaction integrity. (Awad

2003:223)

2.3.3 Digital Cash or Electronic Money

Digital cash or electronic money type of transaction allows the transfer of money

itself, which carries value. In thiscase, serial numbers representing actual

money are encrypted all the way to their destination and can then be converted
into real money such as U.S. dollars.(Awad 2003:223)

One of the earliest efforts to electronic payment is the concept of digital money

or digital cash. Electronic cash or digital cash is an equivalent form of physical

cash backed by real money. It enables storage and exchange of values digitally.

In digital cash, funds or value is stored in electronic device in a consumer

possession [21]. Electronic cash has got some similarities with real money such

as privacy, transferability and convenience. Like real money, digital cash is

totally anonymous. However, there is also a type of digital cash called an

identified e-money, which reveals the identity of the person who first withdrew

the money from the bank. But unlike real cash, digital cash cannot be instantly

converted to other form of value without the involvement of a third party like

bank. Privacy in digital cashis achieved using blindsignature without the

involvement of TTP. This is in contrast with other e-payment systems. Digital

cashalso differs from other e-payment systems in that what is transferred over

the network in the case of digital cashis monetary value. In the other e-

payment systems what is transmitted over the network is sensitive payment

information such as credit card numbers, bank account information or payment

authorization. Digital cash can be either online or offline. In the case of online

there is a need to interact with the bank, whereas in the offline case transaction

can be conducted without having to contact a bank directly.

(Wondweson&Tsegai 2005:12)

Credit Card as E-Payment systems

Credit card is a plastic card with prearranged spending limit based on the credit

card holders credit rating, employment record etc. To sell things on the web you

must accept credit cards. Credit cards have proved popular for a number of
reasons as the following:

1. The system is familiar to users and was widely used before the advent of

e-commerce, thus bolstering the users' confidence.

2. Transaction costs are hidden from users (i.e. basically met by sellers, and

passed on to customers, notjust credit card users).

3. Payment is simple anywhere and in any currency, thus matching the

global reach of the Internet.

4. The credit issuing company shares the transaction risk; helping overcome
customers' fear and reluctance to buy goods.

But it has its own limitations: the relatively high transaction cost makes them

impractical for small-value payments; they cannot be used directly for

individuals to make payments toother individuals (peer-to-peer transactions);

protecting the security of transactions is vital, especially on the virtual world

where there is no payment guarantee to the merchant by a bank. Users' fears

about security issues seem to be a consequence of newness and relative

unfamiliarity of the medium, rather than the real risks involved in the system.
(P.T.Joseph:1 75)

Debit Card as E-payment systems

Debit card is a kind of payment card that transfers funds directly from the

consumer'sbank account to the merchant's. It can be used with or without a

personal identification number (PIN) almost everyone retail stores, gasoline

stations, restaurants, pay phones.

There are two ways to make payments on a Web site; debit cards and credit

cards pull out your ATM. Chances are it is a debit card with a Visa or

MasterCard logo. Debit cards are upgraded ATM cards branded with the Visa,
MasterCard, or other familiar credit card company logo. They look exactly like

credit cards, except they directly tap your checking account every time you

make a purchase or withdrawal. They are easier, more convenient, less

burdensome, and offer greater access to your money than do check, ATMs, or

credit cards. They are descendants of the ATM cards that become popular in the

early 1980s. Debit cards are different, however, because transactions are

processed through the issuing bank's credit card network. When a debit card is

used with a PIN, as in using an ATM machine, it is called an online transaction.

You simply insert the card in the machine, enter the PIN number, and proceed
as you do when using an ATM card.

All debit card purchases are reflected in the monthly hard copy statement the
debit mails each customer for reconciliation.

Needs to know about debit card

1. Using a debit card frees you from having to carry cash or a check book.

You don't have to carry traveller's checks, show identification, or give out

personal information at the time of the transaction.

2. Debit cards are more readily accepted by merchants than are checks,

especially in countries where check cashing and check processing are not

widely used.

3. It is generally easier to get a debit card than a credit card. You can get a

debit card the moment you have a checking or a saving account.

4. Returned debit card purchases are treated just like returns for items

purchased by cash or check.

5. The debit card is a quick pay now process. There is no grace period as

there is for credit card payments.

6. A majorproblem at this timeis that using a debit card may mean less

protection for items that are never delivered, for defective items, or for

items that were misrepresented. With credit card purchases, you can

contest the charge and put a hold on payment within 60 days.

 7. A cardholder might overspend his or her limit before anyone finds out.

Retailers do not have verification machines to see your bank account

balance before the sale (Awad, 2003:227)

Electronic Funds-Transfer (EFT) and Automated Clearinghouse (ACH)

Electronic funds transfer (EFT); is a computer-based system that facilitates

the transfer of money or the processing of financial transactions between two

financial institutions the same day or overnight. Interbank transfer is one of the
earliest forms of electronic payment systems on private networks.

An international electronic fund transfer is mainly carried out through

SWIFT.SWIFT is acronym for the Society for Worldwide Interbank Financial

Telecommunications. SWIFT provides around-the-clock international payments

between banks-foreign exchange and trade transactions, andcash flows due to

international securities transactions. By 1999 there were over 6500 financial

institutions in 175 countries using SWIFT's secure messaging (electronic funds

transfer system).It is a estimated that the average daily value of payments

messages on the SWIFT network is over $2 trillion.

Rigid security standards are enforced, each message is encrypted (secretly

coded), and every money transaction authenticated by another code. These

security measures are important to the members as well as toSWIFT, which

assumes the financial liability for the accuracy, completeness, and

confidentiality of transaction instructions from and to the point of connection to

member institution circuits. One area of increasing concern has been electronic

fraud, and SWIFT is using advanced smart card technology to improve its

security system. Additionally it will automate the process by which financial

institutions exchange secret authentication keys with each other.

(B.Block&A.Hirt 2002:181)
The automated clearinghouse (ACH): routes bank transactions involving more

than one financial institution so that the correct accounts held by the correct
financial institutions can be debited and credited.

In purchasing goods on the internet, ACH credit takes place when a transfer of

funds from customer to merchant bank account isinitiated by the request of

the customer. The procedure followed in authenticating and processing

electronic payments over the internet. (Awad 2003:236)

2.4. Payment from Three Perspectives

2.4.1 Merchant

Merchants want tosell product and service. To that end, it is important that

customer feed comfortable using payment methods the merchant accept, and it

should be easy for potential customer to make impulse purchase. The potential

customer base and is of particular importance to merchant and is limited in

part by number of customers able to use particular payment method.

Merchant are also concerned with the transaction fee that are incurred to clear

payment, the time required to complete a transaction, and exposure to risk from

counter feet or stolen payment instrument or customer with insufficient fund to

compete payment. Some of these characteristic may be affected by the payment

model and used or the payment method selected, while other characteristics are

established in the contractual relationship between the merchant and financial

service provider.

2.4.2 Customer

Customers want to feel that the money is safe and want to use that money to

make purchase with as many merchant as possible. Customer do not want to

invent time learning how to use new payment system, and they usually don't

want to maintain separate account for different merchants they don't like

paying transaction fee, and they don't like waiting for their payment to be

processed or for an account to be established, they want instant gratification.

As was the case with merchants, some of these desires are affected by technical

choice of payment method, but many are established in the contractual

relationship between the customer and the financial service provides.

2.4.3. Financial Service Provider

Financial service provider wants to make a profit for the services they provide.

One way to increase profit is to have more customers, and the ideal situation

for a financial service provider is to be the only server in town, with all

transactions processed by their server or servers. Customers and merchants,

on the other hand, want a choice and are distrustful of payment mechanism

that forces payment through a single financial service provider.

Competition between providers is encouraged by mechanism that supports

multiple services and allows payment to clear between providers. Such system

allow customer and merchants to independently select financial service

provider and, financial provider are forced compete on basis of price,

performance, reliability and value added services. In such system, financial

services providers are compensated less for the processing function but more

for their true contribution that of managing risk. (Whiston, 1997:230)

2.5. The Financial Service Provider as a Risk Manager

Risk management is one of principal service provided by financial service

providers. Merchants want to make sure they get paid for the services and

product they provide to customer. Customer want to be sure that merchant

provide the product and service for which they paid customers and merchants

want to be sure their funds are safe when in the custody of the financial service

provider, and the financial service provides want to be sure that it will be paid

by customers for the charge it honours' from merchants, and that merchant

will return the found collected disputed changes.

 For financial service provides, risk management has two aspects; contractual

and technical. Risk is allocated across parties through the contractual aspect

for example; merchant may agree to accept the risk of purchases. Alternatively

the risk may be borne by the financial services provider, who collects a great

percentage of transaction for accepting the risk.

Financial service provider might require customer to place fund on deposit

before changes are authorized, alternatively, financial service provider can

extend credit to customer and assume the risk of non-payment. The customer

who places fund on deposition in advance assumes risk from a failed service

provider. If the providers extend credit, it assumed the risk of making payment

on behalf of dishonest or insolvent (dead beat) customer credit checks and

third party endorsement can reduce, but not eliminate, the risks and interest

charge and other fee can compensate parties increasing this risk. (Whiston,

1997:231)

2.6. Characteristics of Payment System

When comparing network payment system it is important to consider several

characteristics, including security, reliability, scalability, anonymity,

acceptability, customers' base, flexibility, convertibility, efficiency, and ease of

use. Some characteristics will be more important than other at different time. A

payment method should not be judged on an absolute basis but instead in

terms of how well it meets the needs of the kindof transaction for which it is to

be used.

Security

One expects payment system to be the target criminal, sincebreaching an

attacker. For this reason the payment system must be hardened against all

forms of attacks, and vulnerability of the system to attacks through the internet

should be considered. These attacks will take the form of passiveeaves

dropping, active modification of message, impersonation, and attacks against

the computers involved in the transaction, including the customer's PC or work

station, the merchant's computer system, and the system of the financial

service provider. (Whiston,1997:235)

Security should allow financial transactions over the open networks.

(P.T.Joseph 2004:172)

Reliability

If electronic commerce becomes widespread, business will come to depend on

the proper functioning of net work payment infrastructure. For this reason the

payment system must be prone to failure, whether the result of failed

computers, software bugs, or intentional attack by vandals. The best way to

improve the reliability of a system is through redundancy. A payment system

should not present a single point of vulnerability those failures will bring down
the entire system. (Whiston 1997:235)

Reliability should avoid single points of failure. (P.T.Joseph 2004:1 72)

Anonymity

If appropriate for transaction, a payment system should prevent disclosure of

the identity of the partners to the transaction, and it should not be possible to

monitor an individual's spending patterns. The levelof anonymity that is needed

must be balanced with the cost in terms of other characteristics, and with the

need for accountability. If anonymity is desired, the strength of anonymity

guarantees should be sufficient so that the cost of tracking a transaction out

weight the value of information obtained by doing so. (Whiston 1997:235)

Through anonymity identity of the customer should be protected. (P.T.Joseph

2004:172)

Acceptability
Payment infrastructure needs to be widely accepted. (P.T.Joseph 2004:172)

Customers don't want to keep track of more than couple of accounts for this

reason they would like a payment method to accept widely. The more widely
accepted a payment method is, the more worthwhile it is for a customer to

maintain account, and ultimately use the method one way to improve

acceptability is to make it possible to clear payment through multiple financial

service provides, allowing customers registered with one provider to make

payment to merchants registered with different providers. (Whiston, 1997:236)

Customer Base

From the merchants' perspective, customer base is the flip side to acceptability

merchants want to sell product and without a large enough base of customer

using a payment mechanism once critical mass for a payment method is

reached, more customers will adopt the method, which will in turn encourage

more merchants to accept it, bringing in even more customers. (Whiston,

1997:236)

Flexibility

Different situation dictate different relationships with respect to the timing of

payment and risk management. They also call for different characteristics in

terms of anonymity, accountability and other characteristics described in this

section with slight change come payment systems support arrange of

characteristics. By using such anadaptable payment system, the infrastructure

supporting the mechanism can be reused, saving the cost of rich lamenting sit
for other payment mechanism. . (Whiston, 1997:236)

Convertibility

Under convertibility money should be able to be converted to any type of fund.

(P.T.Joseph 2004:172)

In some cases the difference in characteristics that are needed may be so great

that different payment methods are required. In such case users of the internet

will select financial instruments that best suit their needs for a given

transaction. To be useful in combination with other payment method, funds

represented by one mechanism should be easily convertible into funds

represented by others. (Whiston, 1997:237)

Performance efficiency

Merchants want business, and customer don't like waiting in line. If a merchant

has a popular product, the merchant will want to take orders as quickly as

possible for a given number of computed accepting orders, the performance of

the payment system will affect the rate at which orders van be accepted.

Additionally some applications will make multiple purchases on behalf of a

user, and the longer it takes for each purchase, the longer the user has to wait

for this reason the performance of payment system is important. (Whiston,

1997:237)

Economic Efficiency

Cost per transaction should be near zero to be payment efficient. (P.T.Joseph

2004:172)

Some payments will be a couple of pennies, for example, paying for the result of

a data base quarry or similar operation for application that require such

payment, the cost per transaction of using the infrastructure should be small
enough that it is not noticeable.

Ease of use

Merchants want customer to make impulse purchases, and many customers

want instant gratification. For many situations, the ease of use of a payment

method must be considered. Users do not want to be interrupted to provide

payment information for each page they browse; so the integration of payment

system should allow the specification of situation for which payment should be

automatic. However, users still want to have some say in what is charged and

will be concerned if an error in the rule set can cause them to spend more than
they intend for this reason payment beyond a threshold should require explicit

approval user should be able to monitor their spending easily. (Whiston,

1997:238)

2.7. Challenges of E-payment

2.7.1 Security

Security - where disclosure of private information, counterfeiting and

Illegal alteration of payment data may be rampant.(Ibrahim H.2009:17)

Securing the paymentprocess involves authenticating both the customer and

the merchant and protecting the information to be transmitted from

interception. In addition a means must be provided that prevent repudiation

both by the merchant and customer once the payment process has taken place.

E-payment system has to take into account the need of multilateral security i.e.

security needs of all participating parties in the e-payment system must be

given due attention. An e-payment system that is not secured may not get trust

from its users. Trust is one of the crucial factors for the acceptance of e-

payment system the major security challenges of e-payment system are;

counterfeiting is the creation of new data or duplication of existing data, which

are technically valid but not legallyadmissible. Cloning of e-money for double

spending and creation of accounts are examples of counterfeiting. One popular

form of counterfeiting attacks is duplication of electronic data from a payment

cards (e.g. ATM card) which is used,create duplicate cards and withdraw

money from the accounts; illegal alternation of payment data may result in loss

money. This may again results in the loss of customer confidence. Alternation

could be made to the transaction account numbers resulting in misdirected

payments, to the payments amounts or to electronic balances on electronic and

usage of a fraudulent websites by an attacker to collect credit card number and

other personaland/or financial information; disclosure of private information,

in e-payment there are many ways in which private information may be

accessed by attackers. For insurance hackers may intercept network traffic to

get confidential data. It is also possible to access private data stored on a

computer connected to the internet. This data could be used to make fraudulent

transactions that could lead to a loss ofmoney. The approaches for enhancing

e-payment-related security includes, securing e-payment involves the use of

technological mean such as information security functions (cryptographic-based

technologies like encryption, digital signature, etc). Since securing the payment

system will reduce its efficiency by making it slower compromise has to be made

between security and efficiency. (HayalReta 2007:28-29)

2.7.2. Infrastructure

Lack of Technological Infrastructure - the implementation of e-payment is been

impeded by unavailability of ICT infrastructure. Most rural areas where majority

of small and medium scale industries are concentrated haven no access to

internet facilities. (Ibrahim H.2009:17)

For the effective deployment of e-payment, it is necessary to havea reliable and

cost effective infrastructure that can be accessible to the majority of the

population. The most common communication infrastructure for e-payment is

computer network such as Internet. Most e-payment systems use Internet to

communicate with their customers. The other communication infrastructure

available for e-payment users is the mobile network used for mobile phone.

Automating the banking activities is another prerequisite for e-payment system.

Closed financial network that links banks and other financial institutions is

necessary .This network is usually used between banks or other financial

institution for clearing and payment confirmation. Both the mobile network and

Internet are readily available in developed countries. Users in these countries do

not have problem associated with communication infrastructure. In Africa both

mobile networks and Internet are not easily accessible. Poor communication

infrastructure is one the reasons that hinder the e-payment system in Africa.
User access devices such as PC and mobile phone are not also readily available

in Africa, another reason that hinders e-payment in Africa. (Wondweson&Tsegai

2005:25)

2.7.3. Regulatory and Legal Issues

Inexistence of proper legal and regulatory framework is one challenge of legal

issues. (Ibrahim H.2009:17)

National, regional or international set of laws, rules, and other regulations are

important prerequisites for successful implementation of e-payment schemes.

Some of the main elements include rules on money laundering, supervision of

commercial banks and e-money institutions by supervisory authorities,

payment system oversight by central banks, consumer and data protection,

Cooperation and competition issues: the virtual and global nature of e-payment

also raises legal questions such as which jurisdiction will be competent and

about applicable lawsin disputed cases, validity of electronic data, electronic

contracts, and electronic signature. Moreover, a legal and regulatory framework

that builds trust and confidence supporting technical efforts to meet the same

is another important issue that needs

_Q

addressed. National regulatory and

O

<D

legal framework that is in line with regional and international agreements is

crucial in creating a certain and reliable environment. (Wondweson&Tsegai

2005:26)

2.7.4 Socio-Cultural Challenges

Cultural and historical differences in attitudes and the use of different forms

of money (e.g. use of credit card in North America and use of debit cards in

Europe) complicate the task of developing an electronic payment system that is

applicable at international level. Difference in the degree of the required security

and efficiency among peoples of different cultures and level of development

aggravates the problem.

Consumer's confidence and trust in the traditional payment system has made

customers less likely to adopt new technologies. New technologies will not

dominate the market until customers are confident that their privacy will be

protected and adequate assurance of security is guaranteed. New technology

also requires the test of time in order to earn the confidence of the people, even

if it is easier to use and cheaper than older methods. (Wondwossen and Tsegai

2005:26)

2.7.5 Resistance to changes in technology among customers and staff due

to:

• Lack of awareness on the benefits of new technologies,

• Fear of risk,

• Lack of trained personnel in key organisations,

• Tendency to be content with the existing structures, and

• People are resistant to new payment mechanisms;

2.7.6ICT Equipment Costs

Where available, the cost of ICT is a critical factor relative to per capital income.

This makes the cost of entry higher compared to developed countries.

2.7.7 Non-readiness of banks and other stake holders (acceptability)

Even though some have shown impressive willingness, some banks are still not

fully ready to for this new payment regime. Especially the non-regular banks

that do not enter clearing e.g. Microfinance banks, mortgage houses and

Savings and Loans banks. This is a concern because many civil servants are

indebted to these non-regular banks through mortgage loans. (Ibrahim

H.2009:17)

In case of Ethiopia:
E-payment in Ethiopia is has some major challenges. Some of these challenges

are the following.

• Poor telecommunication infrastructure

• Frequent power disruption

• People are resistant to new payment mechanism

• Lack of skilled manpower

• Unavailability of payment laws and regulations particularly for e-payment

(www.uneca.org/e.../e-Payment)

2.8. Opportunities of E-payment

E-payment offers substantial advantages to net-dwellers in the form of

enhanced convenience, time saving and ability to buy and sell in many market

places, and in the emergent market space. Electronic transactions between

citizens and governments render the opportunity for latter to collect 'customer'

information that can be used as an important input to operational and policy

decision making. For private sector, that information is an increasingly

significant source of business advantage. Online identification technologies

have, thus been sophisticated allowing access to individuals personal details,

purchasing history and commercial value. (HayalReta 2005:30)

Electronic payments can benefit your business by extending your customer

base; boosting cash flow; reducing costs; enhancing customer service and
improving your competitive advantage.

Five reasons why Electronic payments improve customer service - the five 'Cs'

Choice - like your competitors, you can offer a wide range of payment options

Convenience - they remove the need for invoices, cheques, cash and BACs

Credit - they may allow purchases that would otherwise be delayed

Concessions - small discounts to encourage online purchases improve the
perception of value

Competitive Edge - if you don't offer the full range of payment options but your
competitors do, what does this say about your business?

Five reasons why Electronic payments increase profitability

Convenience - removing administrative resources required by invoices, cheques

and cash

Immediacy - credit cards enable instant purchasing (without delay)

Improved cash flow - payment at the time of purchase reduces the pressures
caused by 30-day invoicing

Growth - open additional payment channels via the phone, mail order and
Internet and increase your customer base. More customers mean more revenue.

Competitive advantages - match and beat the services of your competitors and
gain the edge.

(http://www.electronicpayments.co.uk/docs/Electronic Payments Benefits)

It has also other advantages

Speed and convenience

The primary advantage for e-payment is the same advantage to applies to most

e-commerce business in general. Consumers can find what they want to buy

and purchase it quickly. These immediate transfers of funds benefit business in

several ways. Buyers are generally more willing to make purchases if the

purchasing process is easy and immediate. Convenient and well made e-

payment systems also show consumers that the business cares about its

customers and acts as a type of customer service.

Flexible payment arrangements

E-payments are flexible. Many payment schedules allow for later billing or

payment instalments using third party vendor. Business websites typically give

several options for customers to buy using credit card, debit card or even direct

transfer from a bank account. This also allows several types of transactions that

are only available online, such us peer-to-peer electronic transfers.

(www.ehow.com/info)
 CHAPTER THREE
DATA ANALYSIS

3.1 Introduction

This chapter generally discusses about presentation .Interpretation and data

analysis. The first sub topic focuses on data collected from secondary sources;

related to background information on Wegagen Bank Share Company. The

second sub topic analyses data collected from primary sources; which includes

analysis of the questionnaire which is presented in percentage & pie chart.

3.3 Data Collected From Primary sources

A questionnaire was prepared on various aspects of Wegagen Bank Share

Company electronic payment systems. This questionnaire was distributed to

the employees of Wegagen Bank S.C. that were selected by non-probabilistic

judgemental sampling technique. Besides, the customers of Wegagen Bank

S.C, which were selected by Stratified and simple random sampling and by

taking simple observation.

The questionnaire was distributed to 20 employees and 30 customers of the

bank in Addis Ababa; specifically three branches: Head Office, Bole and Gerji.

The whole questionnaires could able to be collected back filled out.

 Table 3.1 Written Electronic Payment Systems and Procedures, and
efficiency in dealing with conventional (traditional) payment systems

Does the Bank has written Electronic Bank is efficient in dealing with
payment Systems & procedures Traditional Payment System

I don't I don't
Yes No know Total Yes No know Total
No. 6 14 0 20 6 12 2 20
% 30 70 0 100 30 60 10 100

Source: Employees Questionnaire

The rest 6 (30%) of the respondents said there is a written electronic payment

systems and procedures. Beside this, 6 (30%) of the respondents said the Bank is

efficient in dealing with traditional payment system, 12 (55%) of the respondents

said the bank is not efficient in dealing with conventional (traditional) payment

system and the rest 2 (10%) of employees said that they don't know. It can be

taken from the above data that the Bank is not efficient in dealing with traditional

payment systems in connection with the bank's productivity.

Table 3.2 Drawbacks of traditional payment System

Draw backs of No
Traditional Payment %
System
Time taking 6 30
Compel to carry cash 4 20
Fear of theft 5 25
Outdated system 5 25
Total 20 100
Source: Employees Questionnaire

The table above shows why the bank was inefficient in dealing with traditional

payment system. All the respondents put different reasons; 6 (30%) of

respondents said it is time taking, 4 (20%) said compel to carry cash, 5 (25%)
said fear of theft and 5 (25%) said it is out-dated. In relation to all the above

reasons traditional payment system (cash, check, letter of credit...) were

inefficient to the bank. As indicated earlier, the above responses witness that

there are different drawbacks of traditional payment system; however, its 'time

taking' nature is seen to be the popular drawback.

Table 3.3 Employees Knowledge about Electronic Payment System and the
Importance of Electronic Payment for the Bank
Do you have any knowledge E-Payment System is Important for
about E-Payment System the Bank & its Customers
Yes No Total Strongly Agree Dis­ Total
Agree agree
No. 7 13 20 15 5 0 20
% 45 55 100 75 25 0 100
Source: Employees Questionnaire

As described on the above table 11 (55%) of employees have not any knowledge

about E-Payment system, which shows there is no any further training about

the system they only worked with their prior knowledge of their profession. The

other 9 (45%) of the employees have knowledge about E-Payment system. On

the other part of the table also presents how employees rate the importance of

e-payment for the Bank as well as for customers. 15 (75%) of respondents

strongly agree with the importance of E-Payment System, 5 (25%) of

respondents are agree with the system and no one was dis-agree with this

system.So, it shows most of the employees accept the importance of the system,

however, the employees' fear of losing theirjobs remaining as their risk.

As the above graph indicates, 10% of respondents rated the employees' skills in

electronic (automated) payment system to be excellent, 20% rated it very good,

20% said rated it good, 40% rated it satisfactory and the rest 10% rated it poor.

From the above graph we can conclude that most of employees have a

satisfactory skill in relation to electronic payment system. This shows most of

them have low skill in the system.

Table 3.4 The importance to make the Whole System Computerized

Is it important Importance of to make the Whole System

to make the computerized
whole system
computerized
Yes NO Total
No. 17 3 20
% 85 15 100
Source: Employees Questionnaire
As indicated in the above table 17 (85%) of the respondents agreed with making

the whole system computerized and the other 3 (15%) are not agreed with

making the whole system computerized. As directs the above responses, most

of the respondents agreed to make the system computerized.

Figure 3.2 Challenges in Relation to Electronic Payment in the Bank

The above pie chart indicates the challenges in relation to electronic payment

system of the Bank. 19%of the respondents stated that inexistence of proper

regulatory and legal frame work faces the e-payment system as a challenge,

30% said socio-cultural attitudes of customers to, 13% blamed cost of ICT

equipment, while 8% pointed at network interruption, and the remaining 30%

said resistance to change in relation to new technology are the major challenges

of the Bank. Socio cultural attitude of customers means, customers have low

attitude about e-payment, they are not eager to know the system, the culture of

the society has impact in what already exists like cheque, cash, letter of credit,

etc. Regarding cost of ICT equipment, expensiveness of ICT like ATM, different
software, and recruiting of experts (mostly from abroad), and the resistance to

change means, employees are resistant to change because the new technology

might cause them to lose theirjobs.

As the above responses indicated, there are different challenges of e- payment

but socio-cultural attitudes and resistance to change are the most challenges of

e-payment in the Bank.

opportunities of E-Payment in the Bank

5%

Increases cash flow

increases productivity

Increases convenience of
payments
Reduces transaction costs

Saves time and additional

labour cost

Source: Employees Questionnaire

Figure 3.3 Opportunities of E-Payment to the Bank

The above pie chart shows opportunities of E-Payment to the Bank. 27%, 21%

and 27% of respondents said it increases cash flow, increases productivity and

increases convenience of payments and 20% of respondents said it reduces

transaction costs, respectively. And other 5% responded by mentioning different

advantages like it saves time and additional labour cost, uses to available cash

at any time and it minimizes risk of theft.

Cash flow increment means that millions may be deposited and withdrawn in

cash within a minute through electronic payment. Regarding to productivity the

system by itself serves more customers than human beings. In connection to

convenience of payments, machine is more effective in doing activities than

man, without error. In relation to transaction costs, system reduces different

costs like material cost, labour cost, etc.

Based on the respondents' answers, increasing cash flow and increasing

convenience of payments are the best opportunities of e-payment. .

Table 3.5 Easiness of ATM and Effect of language in the ATM

Do you think ATM is Does the two ATM's
easy to use? languages have effect on
you
Yes No Total Yes No Total
No. 27 3 30 10 20 30
% 90 10 100 33 77 100
Source: Customers Questionnaire

As presented in the above table 27 (90%) of the respondents said the ATM is

easy to use, and 3 (10%) of them also said it is not easy to use. On the other

hand, 10 (33%) of the respondents complained that the two languages of ATM

machine are not enough for smooth use; while the remaining 20 (77%)

supposed it does not have any effect. It can be learnt from the data presented

above that an ATM machine is easy to use for our respondents and the two ATM

machine languages (Amharic and English) have not any negative impact on

them.

Table 3.6 the requirement to be ATM card holder

Is the requirement to be cardholder fair?
Yes No Total
No. 25 5 30
% 83 17 100
Source: Customers Questionnaire
As above table shows 25 (83%) of the respondents said the requirement is fair

and 5(17%) of them said it is not fair. The requirement means the joining fee of

25 Br., the charges of 0.25 Birr made for every withdrawal of 100 Br. and the

maximum withdrawal of 5000 Br. Per day. Most of the respondents accepted

the requirements to be fair and few of them said it is unfair.

40%
30%
20%
10%
0%

No cash at ATM
Machines Lackof skilled man
power on the field

Source: Customers Questionnaire

Figure 3.5 challenges of Electronic payment
As the above graph indicates, 37% of the respondents complained about

frequent power interruption, while 29% said no cash at ATM machines and 19%

said securities are electronic payment challenges of the bank. And the other

15% of the respondents mentioned different challenges such as; network

failure, lack of skilled man power on the field, moreover the bank does not give

enough orientation for the would be customer. Security means disclosure of

private information, counterfeiting, and illegal alteration of payment data. As

the above figure shows, frequent power interruption and no cash at ATM

machines are the major challenges of customers of the Bank.

 Opportunities of E-Payment

3%

Makes payment flexible

Facilitates withdrawal

Provides speedy and

convenient service
Beginning of cash less
society
It minimizes theft risk

Source: Customers Questionnaire

Figure 3.6 Opportunities in Relation to Electronic Payment

As the above pie chart indicates 26% of the respondents believe electronic

payment makes payment flexible, 33% think facilitates withdrawal, 29% say it

provides speedy and convenient payment service, 9% also say it creates the

beginning of cashless society and the rest 3% present different reasons, like: E-

payment is available 24 hours without involvement of labour power, it

minimizes theft risk and it saves time. As can be understood from the chart,

respondents believe it facilitates withdrawal and provides speedy and

convenient services are the best advantages of them.

As per the simple observation the researchers conducted, it could be observed

by inserting our colleagues Visa Card of the Bank the minimum withdrawal of

10 birr and the maximum withdrawal of 5000 birr per day, the availability of

two languages (Amharic and English). And also we have seen customers

properly use ATM Machines by inserting their cards without assistance of

employees.
 CHAPTER FOUR
SUMMARY,CONCLUSIONS AND RECOMMENDATIONS

Every business has numerous processes, some has simple, others have

complex and cumbersome. But as the business grows, acquires new

customers, enters new markets, keeps the needs and wants of the

customers and to be survive and competent in the market must develops

it is service and follows the new technology. The company needs to

maintain highly accurate and up-to-date payment system. Electronic

payment system helps to simplify, integrate, and streamline all the

business process, cost-effectively and easily.

The objective this study is to assess the challenges and opportunities of

electronic payment system in the case of Wegagen Bank S.C and to

recommend to avoid the challenges and to continue with the

opportunities.

Data was collected from both primary and secondary sources to obtain

the necessary information. The data was collected through questionnaires

from employees and customers of the Bank. The collected data was

presented and analysed by using different statistical tools like;

percentage, table, graph and pie-chart.
 4.1SUMMARY
The objective of the study is to assess the challenges and opportunities of
automatic teller machine(ATM) in the case of wegagen bank share company.

The main findings of the research can be summarized as follows.

> The bank is not efficient in dealing with traditional payment systems in

connection with the bank's productivity.

> The employees accept the importance of the system, How ever the

employees fear of losing theirjobs remaining as their risk.

> Most of the employees have low skill in the system.

> Branch networking of the bank is some what good.

> Customers of the bank have low attitude about the system,they arenot

eager to know the system.

> The cost of Ictequipments are the challenges of the bank by affecting its

profitability.

> The system also reduces the transaction cost of the bank.

> The company uses the automatic teller machine or(ATM) to increase the

productivity of the bank.

 4.2 Conclusions

As it has been discuss in literature part,the increase use of new

communication technology and the need for specific payment mechanism

for e-commerce have led to the development of e-payment, i.e. payment

that are initiated and processed electronically. The convergence of money,

commercial, and personalcomputer represents one of the great new

markets of modern time and unforeseenopportunities can be expected to

arise once a secure and cost effective mass-market, electronic system for
making payment is successfully established.

Wegagen Bank Share Company has been working for the last 15 years,

using traditional payment system. It is comfortable to use something that

is known and understood. There is also fear involved to switching from

known tounknown (new) one. Besides, there are manythings needed to

change from old to new system, like, time to learn the new system,

training cost, resources cost, etc. However, the change is essential to be

competent in the market and to satisfy customers.

Wegagen Bank Share Company is implemented the new system

(electronic payment system) in the past two years . Electronic payment

system means a process of transactions through internet whether the

customer uses Visa, Master Card, Discover, Agar Card, American

Express, and any other form of card. Electronic Payment System has

several opportunities such as; increases cash flow, increases productivity,

increases convenience of payments, reduce transaction costs, saves time,

make cash available at any time and minimizes risk of theft.

However it has also its own challenges; the study identifies the following

as challenges in adopting and using of e-payment system in the Bank.

Socio-cultural challenge that is; lack of awareness on the benefit of new

technology and fear of risk. security challenges related to use of e-payment

card , infrastructure problem such as; frequent connectivity failure in

telephone lines ,low bandwidth for internet and frequent power

interruption ;lack of skilled man power especially in e-payment system

;absence of legal framework and regulatory issue even if national bank of

Ethiopia is on the way to introduce national electronic system.

From this study we find the bank has several challenges and

opportunities of e-payment. The findings are to strengthen its

opportunities; by sharing knowledge with various similar organizations,

by giving further training for its employees and updating its technologies.

In addition to this, it should try to weaken the challenges; by

communicating with government agencies (such as Ethio-Tele com,

EPECO, NBE, etc), creating awareness of its customers about E-payment.

4.3 Recommendations

To mitigate the challenges and augment the opportunities of electronic

payment system of Wegagen Bank Share Company, the following
recommendations are provided by the researchers.
S The bank should have to raising awareness and offer training
program about opportunities of e-payment that target the business
community.
S Regulations - applicable regulations including those for electronic
approval processes, consumer protection and e-transaction should
be developed and standardized as needed.
S Public Education and Acceptability - e-payment is still new, series
of sensitization meetings should be arranged at all levels. The
banks and other stake holders must be educated and informed of
the need to consolidate efforts to make e-payment successful.
S The cost of ICT equipment's is quite high, but the bank shouldhave
develop its capacity or negotiate with suppliers to decrease the cost
or mode of payment.
S Security is one of the important factors for e-payment system and
builds confidence of users. But proper security has to be applied in
the system to gain users trust. If security of e-payment system is
accessible by hackers, it is dangerous scenario to the users. So,
system security that takes into account the technical and
organizationalIT infrastructure security must also be given the
necessary attention.

S Another important factor related to the e-payment infrastructure is

the reliable supply of electric power. The frequent interruption of
electric power is a challenge by itself. Electric power providers are
expected to deliver uninterrupted power. But the bank itself should
have take alternatives action to reduce the power interruption by
using diesel generators.

S Managers of financial institutions such as banks should be bold

enough to invest on ICT equipment and manpower training in the
field to ensure competitiveness in modern world of information. An
essential aspect of this task is to invest on efficient and secure e-
payment and e-banking system
 BIBLOIGRAPHY

Stanely, B.BlockandGofferyA.Hirt (1997).Foundationsof Financial

Management (8th edition).The Irwin Series infinancelnsurance andReal
State.

DavidWhitley (2010).E-CommerceStrategy,Techniques and

Appl ications.Canada: McGraw-Hill Education.

Elias,AwaMalaysia: Bajaj HR Services Mu. (2010)Commerce fromVision

Fulfilment. (3rd edition).

HayalReta(2007).Challenges and Opportunities of ElectronicPayment in

Ethiopia.Addis Ababa.

Joseph,P.T. (2004). E-commerce: A Managerial Perspective. New Delhi:

Prentice-Hallof India Pvt. Ltd.

Kalkaota, Ravi andWhiston(1997).Reading in Electronic

Commerce.Texas:Addison Wesley publishing Company Incorporated.

Robert,C.Elsenpeter and Toby J. Velte(2001).E-Business:A BeginnersGuider,

Osborn: McGraw-Hill Edition Illustrated.

WondwesenTadesse and Tsegai G/kidan(2005).Challenges and Opportunities

of E-Payment System in Africa Specifically in Ethiopia.Addis
Ababa:United Nation Economic commission forAfrica.

www.Electronic-payments.co.uk
This questionnaire is prepared by the student-researchers at Alpha University
College in partial fulfilment of the requirements of a B.A Degree in Accounting
and Finance. With this questionnaire the student-researchers intend to assess
the Challenges and Opportunities of Electronic Payment in the Case of Wegagen
Bank Share Company.

This questionnaire use only for academic purpose and we remain confidential.

Please answer the questions by putting a tick mark (■/) on the given box.

Section A; Personal Information

1 . In whichdepartment are you working?

Domestic Banking □ International Banking Department □

2. Level of education
Certificate □ Diploma □
B.A □ M.A □
Others specify___

3. Do you think employees are assigned in Wegagen Bank S.C. according to

their skills?
Yes □ No □ I do not know □
4. How long have you been working for Wegagen Bank share company?
1-5 □ 6-10 □ 11-15 □
5. Do you think the company uses its resource effectively?

Yes □ No □ I do not know □

6. Do you think managers get timely and accurate information to make
decisions?

Yes □ No □ I do not know □

7. Does the management have good communication with the employees?

Yes □ No □

8. Do you think the management gives favourable decisions on important

issues?

Yes □ No □ I do not know □

9. Do departments share issues that enhance the bank's productivity?

Yes □ No □ I do not know □

10. How do you see the attitude of employees' for change?

Positive □ Negative □ Neutral □ I do not know □

Section B; Questions Related To Electronic Payment System

1. Does the organization have written electronic payment systems and

procedures?

Yes □ No □ I do not know □

2. Do you think the bank is effective in dealing with the conventional
(traditional) payment system?

Yes □ No □ I do not know □

3. If your answer is "No", what do you think the reason is?

It is time taking □ Compel to carry cash □

Fear of theft □ It is out-dated □

Other specify________________________________

4. Do you have any knowledge about electronic payment system?

Yes□ No □

5. Electronic payment system is important for the bank's and customers.

Strongly agree □Agreed Disagree □

6. How do you rate your skills on automated payment systems?

Excellent □ Very Good □Good*

Satisfactory □ Not-Satisfactory □

7. Do you think it is important to make the whole system computerized?

Yes, I do. □ No, I don't. □ I do not know □

8. What are the challenges in relation to electronic payment in your Bank? You
may provide more than an answer if necessary.
 Inexistence of proper regulatory and legal frame work □

Socio-cultural attitudes of customers □

Cost of ICT equipment □

Resistance to change in relation to new technology □

Others, specify.______________________________________

9. What are the opportunities in relation to electronic payment in your Bank?

You may provide more than an answer if necessary.

It increases cash flow. □

It increases productivity. □

It increases convenience of payments. □

It reduces writing of cheques. □

It reduces transaction costs. □

Others, specify.___________________________

Questionnaire to be filled by customers of Wegagen Bank Share Company

Dear respondent,

This questionnaire is prepared by the student-researchers at St. Mary's

University in partial fulfilment of the requirements of a B.A Degree in
Accounting and Finance. With this questionnaire the student-researchers
intend to assess the Challenges and Opportunities of Electronic Payment in the
Case of Wegagen Bank Share Company.
This questionnaire is used only for academic purpose and the responses you
provide will strictly remain confidential.

Please answer the questions by putting tick mark (■/) in the box given against
each.

1. What is your occupation?

Employee □ Merchant □ Student □

Others, specify.______________________________________

2. How long have you been dealing with Wegagen Bank Share Company?

1-5 □ 6-10 □ 11-15 □

3. How do you rate branch networking of the bank?

Excellent □ Very Good □Good*

Satisfactory □ Not-Satisfactory □

4. Is Wegagen Bank's ATM machine easy to use?

Yes□ No □
5. The ATM machine works in two languages. Does it have any effect on you?

Yes□No □
6. Does the requirement to be a card holder is fair?

Yes□No □

7. What are the challenges in relation to electronic payment in the Bank You
may provide more than an answer if necessary.

Security □

Frequent power interruption □

No cash at ATM machines □

Low internet connection □

Other specify_________________________________________

8. What are the opportunities in relation to electronic payment in the Bank?

You may provide more than an answer if necessary.

It makes payment flexible. □

 It facilitates withdrawals. □

It provides speedy and convenient service. □

It is the beginning of a cashless society. □

Others specify_________________________
This work is licensed under a
Creative Commons
Attribution - Noncommercial - NoDerivs 4.0 License.

To view a copy of the license please see:

http://creativecommons.org/licenses/by-nc-nd/4.0/

This is a download from the BLDS Digital Library on OpenDocs

http://opendocs.ids.ac.uk/opendocs/

Institute of
Development Studies