Ethiopia drafts bill to regulate interoperability among financial, non-financial institutions

Ethiopia is drafting a bill meant to lay the infrastructure for interoperability, a system that enables financial and non-financial institutions to work with or use the parts or equipment of another system.

The National Bank of Ethiopia (NBE), the country’s financial services regulator, has drafted the directive dubbed Payment System Operators that aims at promoting financial inclusion and released for public consultation on April 16, 2020.

The bill, which has been in the making for the past year, considers licensed financial institutions as payment system operators by default. However, other non-financial institutions have to get authorisation from the NBE to operate payment systems.

Payment system operators include non-bank automated teller machines (ATM), payment switch operators other than the national switch, non-bank point of sale operators (PoS), non-bank mobile point of sale (m-PoS) operators and online payment platform processors. The authorised payment system operator has to be owned by Ethiopian nationals or an Ethiopian in the diaspora, but no individual can hold a stake of more than 40 per cent in the firm.

Eth-Switch, an entity owned by a consortium of all banks established with 80 million Br in capital seven years ago, is the national switch operator. Any financial institution other than the central bank cannot own a stake of more than 20 per cent, whereas individuals cannot own more than a share in the national switch operator at first entry or afterwards.

The minimum paid-up capital to function as a payment switch operator is 20 million Birr ($620,00), whereas a non-bank ATM operator has to cash in paid capital of 15 million Birr ($465,000) and should have no less than 15 ATMs.

In the case of non-bank PoS and m-PoS, one has to present a minimum paid capital of 1 million Birr ($31,000) and at least 50 machines either owned outright or leased. Any payment system operator that juggles more than one system has to issue a paid capital of the sum of the individual systems.

An applicant has to fulfill comprehensive documentation with detailed data that demonstrates the operator’s knowledge of the subject, signed documents on the features and modalities of the system and other documents requested by the national bank.

Upon receiving the application, the central bank has to give a response within 60 days. The pilot period of the system shall remain for three months after a detailed pilot plan is given a green light by the central bank. The payment system operators are also expected to write up rules on the governance, management and operation of the system with detailed information on the risk, objective and disclosed criteria for participation.

“Eth-Switch shall be the national switch for retail payment, ensure inter-connectivity with other switch operators and payment service providers, and clear the way for all of the electronic transactions,” reported Addis Tribune.

“Switch operators will connect with the national switch operator and will have to report all of their transactions to the national switch operator or financial institutions as set by the standards of the duo. They should also have two network links, one for service providers and the second dedicated to the national switch.”

The ATM operator should also denominate with local currency for withdrawals and deposits, whereas a foreign exchange ATM shall show the status of the functionality. The terminal stalls of the ATM shall have international and domestic card schemes with an updated version each time it is available.

The downtime of an ATM shall not be more than 24 hours, and, if not fixed, the operator shall post a notice on the display of the ATM. International online payment processors are allowed to provide a service in Ethiopia if they come after having an exclusive agreement with a financial institution and are approved by the NBE.
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