Chapter One

1. INTRODUCTION

1.1. BACK GROUND OF THE ORGANIZATION

Wegagen bank has been playing a conspicuous role in economic development of

the country for about 25 years. Today more than ever before the Wegagen bank has
aggressively expanded its presence in all direction of the country.

Despite the flourishing of privet commercial banks, the Wegagen bank has
remained in the lead in terms of asset, deposits, and customer base and branch net
work. Currently, it has 617 branches, spanning the entire breadth and width of the
country. As on June 30th 2011 total deposits stood at birr 86.5 billion while total
assets and capital of the bank reached birr 114 billion and 6 billion respectively.
(www.bank.eth.com)

The commercial banks offers saving and checking account, extend short term loan,
deal with foreign exchange transactions, provide mail and cable money transfer
services, participate in equity investment, provide guarantee services and perform
all other commercial banking activities.

Now a day Wegagen bank has 50 automated teller machine and 250 point of sale
machines. It also have 23,000 private card (non-visa) and 60,000 visa card holder
customers.

1.2 Background of the study

The history payment goes the experience of exchange of goods by human beings.
Since then the human beings exchange value for the goods they bought and for the
services they enjoyed. The payment system involved to facilitate the exchange has
gone through different improvements all these times considering the convenience
and efficiency of the mechanisms used (Senait Mekeate, 2007).

Since 1950’s the payment system shows a dramatic improvement by switching

from the paper based payment to electronic payment system, which uses electronic
and computer technology as substitute for checks and other paper transactions.
This is the latest, efficient, easily accessible and fast payment system of the era.

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Banks are major player of this payment system as they are the leaders of financial
industry operating with the accounts of their customers (www.Ibid.com).

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

payment for buying and selling goods or services offered through the internet. The
electronic payment system, also known as electronic fund transfer encompasses
various payment mechanisms using computer and telephone technologies.
Electronic fund transfers are initiated through devices like code or cards that let the
user his/her account. Card holders usually have identification number (pins) for the
authorization purpose and some others may be required for signature or scan .The
concept of electronic payment is related with electronic banking, is simply the use
of electronic means to transfer funds directly from one account to another rather
than by check or cash (www.elec.payments.com).

The development of inexpensive computers and the spread of the internet now
make it cheap to pay your bills by mailing a check, but now banks provide
websites at which you just logon, make a few clicks, and there by transmit your
payment electronically. Now only do you save the cost of the stamp, but paying
bills becomes (almost) a pleasure, requiring little effort. Electronic payment
systems provided by banks now even spare you the step of logging on to pay the
bill. Instead, recurring bills can be automatically deducted from your bank account.
Estimated cost savings when a bill is paid electronically rather than by check
exceed one dollar per transaction. Electronic payment is thus becoming far more
common in the United States, bit Americans lag considerably behind Europeans,
particularly Scandinavians, in their use of electronic payments (Frederic S.Mish
kin, 1992).

Generally we think of electronic payments as referring to online transaction on the

internet, they are actually many forms of electronic payments. As technology
developing the range of devices and processes to transact electronically continuous
to increase while the percentage of cash check transaction continuous to decrease.
Today the payment system are becoming popular and used by large number of
people in other part of the world to effect payment safely in convenient manner.

In our country the system is used by CBE in 2000 GC. Wegagen bank is one of
the Competitive banks who introduced the payment system. However it will not be

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a simple task to go ahead successfully as a new product introduction which
obviously requires the attention of ever body to the bank. (www.bank eth.com)

1.3 Statement of the problem

Wegagen bank is a service proving organization having the primary objective of

providing efficient and effective service to the society. The bank uses an electronic
payment system in 2010 GC. By introducing the electronic payment system the
bank gives many advantages to the society. To provide an efficient and effective
service to the society a well and organized system is needed. But the disappointing
phenomena is a well and organized systems are not always present rather many
problems and challenges are here.

The advancement in e-payment is hindered by low telecommunication service of

the country in addition to its people especially nationals are less aware or such
banking service.

To this end this study will attempt to address the following basic questions:

 Has the introduction of e-payment contributed to increased usage

of e- payment?
 What are the obstacles to the introduction and use of e-payments
faced by bank?
 Are the customer aware of e-payment provided by Wegagen bank
in Hawassa branch?
 How did over come network problem in case of failure in
communication, Where such sole provider is ethio telecom?

1.4 Objective of the study

1.4.1 general objective

The general objective of the study is to identify the major challenges and prospects
of electronic payment system introduction in wegagen bank.

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 1.4.2 Specific objective

In addition to the above objective the following are specific objectives which are
answered by this study.

a) To assess challenges and opportunities of electronic payment system

of Wegagen bank particularly Hawassa branch.
b) To evaluate the effects of e-payment in facilitating transaction
process f the bank and satisfaction of customers.
c) To determine the presence of separate internal control system
primarily designed for the use of e-payment system in wegagen
bank.
d) To suggest possible recommendation and conclusion.

1.5 Significance of the study

This study attempt to find out challenges and prospects of electronic payment
system. Furthermore it would be helpful for administrator of wegagen bank to
assess their challenges in payment system. Finally it may contribute for further
research studies under taken and it would contribute the following.

1. It helps the banking sectors particularly wegagen bank to take corrective

action on the bases of suggested solution and recommendations.
2. It gives to the researcher in case of developing research experience.
3. It initiates further study by making of available for those interested in the
topic.
1.6 Scope of the study

The study focus on challenges and prospects of electronic payment system

introduction in Wegagen bank. But also time and resource constraint the researcher
would collect data only Hawassa branch of Wegagen bank.

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 Chapter Two
2. REVIEW OF RELATED LITERATURE

2.1. Definition of E-commerce

E- commerce is the online process of developing, marketing, selling, delivering,
Servicing, and playing for products and service transacted on inter world, global
market places of customers, with the support of a worldwide network of business
partner. it uses technologies like, internet, intranet, and extranets as the net work
infrastructure of foundation .For the marketing to be effective customers must be
provide with a range of secure information, marketing, transaction, processing, and
payment services, trading and business partners rely on the internet and extranets
to exchange information and accomplish secure transactions, company employees
depend on a variety of internet and intranet resources to communicate and
collaborate( Mesfin 2008).

E-commerce: the online exchange of value, without geographical or time

restrictions, between companies and their partners, employees or customer. In
many ways e-business encompasses the above definition for e-commerce.
However, the wider implication must be considered. This for example would be
the macro factor commonly known as the PEST factors (Jonathan Groucutte and
Paul Grlstry, 2004).

2.2. Over view of current E-commerce payment system

The emergence of e-commerce has created new financial need that in many cases
cannot be effectively fulfilled by traditional payment system. For instance new
types of purchasing relationships such as auctions between individuals online have
resulted in the need for peer, to peer payment methods that allow individuals to e-
mail payment to other individuals. New types of online information product
require micro payments merchants would like to deal online products such as
individual music tracks, columns from news papers, and chapter of text books. In
turn e-commerce technology offers a number of possibilities for creating new
payment system that substitute for existing system, as well as for creating
enhancement of existing system. In the US the dominance of online credit card
payment is being challenged by a number of new types of electronic payment.

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Although consumers have been slow to adopt these new forms of electronic
payments (Kenneth G. & Carl 2012).

 Digital cash-payment that generate a private form of currency that

can be spent at e-commerce sites.
 Online stored value system-system that rely on prepayment debit
cards or checking account to create value in an account that can
be used for e-commerce shopping.
 Digital accumulating balance payment system-system that
payments are especially suited for processing micro payments for
digital context.
 Digital credit accounts-systems that extend the online functionally
of existing credit card payment system.

2.3. Importance and challenges of E-commerce

In the developed countries today, consumers and businesses have recognized the
potential and benefits of adopting computer enabled networks. Consumers now use
computer network to identify sellers, evaluate products and services, compare
prices, and exert market leverage. Businesses use them to conduct and re-engineer
production processes, stream line procurement processes, and manage internal
operations. Recently, merger of computers and communication technologies is
producing technological convergence. Mobile phones can send and receive
pictures and text messages, remember the short message services (SMS) Message
service provided to you by Ethiopian Telecommunication Corporation (Mesfin
2008).

E-commerce has gained growing attention in many countries, particularly since

1990s from both entrepreneurs and consumers. In 1991, the internet has less than 3
million users around the world, and its application to e-commerce was nonexistent.
By 1999, as estimated 250 million users accessed the internet and approximately
one quarter of them made purchases online from e-commerce sites, worth
approximately $ 110 billion.

The major benefits of e-commerce include the following among other things.

 Improved response time: communication and flow of information

become quick and cost efficient.

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  Communicating, making order, buying, selling, and paying occurs 24
hours a day, 7 day a week and 365 days a year.
 Extend market reach and revenue potential, and a wide range of
choices and convenience for the customer. Geographic barriers or
boundaries are removed. A merchant can reach a customer who is
physically too far away. The customer on the other hand, can make
purchases from a merchant who would otherwise not have been
accessible to him.
 Improves competitive positioning the benefits of e-commerce are not
limited to large entities. Small and medium enterprises are also equal
participants in the virtual environment.
 No one owns the market: E-commerce on the internet is the closest
thing to a global free market. No one can even come close to
dominating the internet market. This is best example of perfect free
market economy structure.
 Reduced cost for the business firm and reduced price for the
consumer. Consider a normal auction on one hand and an internet
auction on the other hand. In the first case, one has to pay for the
person conducting the auction and the place where the auction is
being held. In the second case, one just has to pay for the web
application conducting the auction, which in general will be too
cheap or might even come for free. This coupled with the fact that
there is increased competition in e-commerce would force businesses
to avail their products and services at lower prices but with enhanced
quality. However, there are some problems related to e-commerce
that have greatly held its progress.

The impact and policy challenges of e-commerce can be viewed from three
perspectives.

 From legal and regulatory point of view

There virtual environment of electronic markets makes it more difficult to
determine who the contracting parties are, where e-commerce operator is
established, and whether that operator is complying with all relevant legal
obligation and regulatory bodies, and hence uncertainty about which

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 jurisdiction will be competent and about the applicable laws in disputed cases
will arise.

 From social and technical point of view

There are problems related to security and privacy, acceptability of
electronic signatures and documents, and contract enforcement.
 From economic point of view
E-commerce is likely to bring significant effects on the structure and
functioning of the economy. Such are likely to manifest themselves on price,
composition of trade, labor market and taxation revenues. There is a
mounting concern among tax authorities on the implication of growth of e-
commerce on tax revenues. E-commerce has the potential to undermine
domestic and national tax policies. In value added tax system, for example,
e-commerce offer the difficulty on the side of suppliers to prove the location
of consumers to collect consumption tax. Another policy challenge the
deserve a special attention related to monetary policy. The development of
internet and e-commerce could modify the cyclicality of economies and how
payments are made (www.Ibid.com).
2.4. Electronic payment process
The success and growth of e-commerce, however, depends on efficient electronic
payment. The slogan ‘’it is no e-commerce, if you can’t get paid”, witnesses the
importance of e-payment or e-commerce payment greatly increase payments
effectively by reducing transaction cost and enabling trade in goods and services of
very low value. They may also increase the convenience of making payments by
enabling them to be made swiftly and remotely from various devices connected to
global networks. But such processes are complex because of many different
reasons. Some of the typical reasons complicating e-payment processes are:
 Near anonymous nature of transactions
 Security issues
 Wide variety of debit and credit alternatives
 Wide variety of financial institutions and intermediaries

Because of the above reasons, a variety of electronic payment systems have

evolved over time to meet the security and technical challenges of e-payments over
the internet. In addition, new payment systems are being developed and tested to
meet the security and technical challenges of e-commerce over the internet
(www.Ibid.com).

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 Chapter Three
3. METHEDOLOGY

3.1 Source of data

For efficient and successful achievement of the research the data were collected
from primary data (questionnaire and unstructured interview). This source of data
provides sold and reliable information.

3.2 Data collection method

The main data gathering instrument is questionnaire and unstructured interviews.

Questionnaire is used to collect empirical data of the study. With these objectives,
two types of questionnaire would be developed. Where the first 12 are designed for
the e-payment staffs out of 60 employees and the second type is for 5 sample e-
payment users.

3.3 Population and Sampling techniques

The target populations of the study are e-payment employee, and general manager
of the head office. The total number of population near to 60.

The sample size of the study is 11% of the total target population. The simple
random sampling method would be used in doing the senior essay paper because it
considers researcher time, cost and resources.

3.4 Method of data analysis

The tools that used to analyze the data to be collected on challenges and prospects
of electronic payment system in Wegagen bank were simple descriptive statistics
mainly by using percentage, table, and other summarizing method.

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 Time Schedule

In order to manage the overall research process it needs time budget. The table
given bellow shows that the time that will be taken from topic selection to final
presentation.

No Activity Jan. Feb. Mar. Apr. May June July

1 Title proposal selection x
2 Literature survey x x
3 Proposal formulation x x
4 Proposal development x x
5 First draft Proposal submission x X
6 Data collection x X
7 Data collection x X
8 Data analysis X x
9 Data interpretation and report X x
10 Submition of final research x x
11 Presentation x X

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 Budget Break down
In order to undertake the research process effectively and efficient, it is necessary
to prepare cost budget. The table given below shows the cost that is expected will
be incurred in the research process.

No. Activity/Item description Measurement Quantity Duration Unit cost Total cost
unit in day
1. Secretary - - 15 25 375 Br
2. Photo copy 15 3 45Br
3. Paper - 150 150
4. Pen 3x50 1.50 225 Br
5. Pencil 2 100 200 Br
6. Ruler 4 5 20 Br
7. Miscellaneous expenses 2 2.5 5 Br
8. Padding tools 1 10 10 Br
9. CD 450Br
10. Internet and print 1480 Br
11. Personal cost

12. Transportation cost

Total

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