Guide : How to Get Started As A Payment System Operator in Ethiopia

Officially referred to as “Licensing and Authorization of Payment system Operators Directive (ONPS/02/2020), this effectively brings new opportunities for new players in the market to start offering Payment Switch, ATM Operators, POS Operators, and Online payment gateway operators’ services.

This follows the recent wave of regulatory reforms that are being rolled out by the national bank that gives recognition to fintech as financial institutions and allows them to provide digital financial services directly to consumers.

Up to now the payment system operators business was undertaken by banks who needed to build their own network of merchants using point of sales (POS) devices for processing retail payment and ATM’s for cash withdrawals.

As of July 2020, there are 10,000 POS devices and 5,059 ATM machines, and a little over 15 million debit cards in the country. While the banks have made significant efforts to introduce this digital channels to their customers for the last 15 years,they are yet to make a significant impact in the market and unable to get a return on their investment considering the cost of 13,000 Birr ($400) per POS and 360,000 Birr ($ 10,000) per ATM and operational costs.

The high cost of doing business and in-ability of the banks to develop an income generating business model for the digital channels has hampered the immense potential of POS, Aggregators, and ATMs to drive digital payments.

With the introduction of this new directive, the national banks looks to be betting on specialized payment operators to take the digital channels business to the next level by widening the space for new players ready to make the required investment and innovation that seems to be missing in the market at this moment.

Similar to the Payment Instrument Issuers directive that came out a few months earlier, fintech companies would still be required to be established and operate as per the somewhat strict supervision of the national bank of Ethiopia which includes close scrutiny of the governance structure, operations, and compliance requirements.

On the other hand, the payment system operator directive tends to be more flexible when it comes to the capital requirements to get a license. Notably, it also opens a space for foreign-owned companies in the payment gateway area.

It’s however ever important to note the payment system operator directive is a different directive from the Payment Instrument Issuer directive which regulates digital Financial Service providers like Mobile Money and Digital wallets.

 

Read Our Analysis On Payment Instrument Issuer Directive

Type of Licenses – Payment System Operator

The payment system operator directive covers 5 categories of licenses of which a company can choose to apply for one or multiple licenses as per its need while the regulation prohibits a payment system operator from engaging in other business activities including payment instrument issuer business ( Mobile money and the likes).

1. National Switch operator

This license allows processing interbank debit-credit transfers and cheque payments at a national level and offers interconnectivity, interoperability, and clearing amongst all payment service providers in the country.

This license is exclusively reserved for Ethio Switch which has been active since 2011. It is a share company owned by all banks operating in Ethiopia and the National Bank of Ethiopia.

 

2. Switch Operator

A switch operator is a company that serves two or more financial institutions for interbank interoperability and shared facilities and services. Such Switch operators are still required to be connected with the national switch for the purpose of routing, clearing, and settlement of inter-institutional payments.

A typical example would be Premier switch solutions (PSS) S.C which is established and offers switching services to 6 banks.

3. Automated Teller Machine (ATM) Operator

An automated Telle Machine ( ATM) operator can establish a private network of ATM machines that can be used by financial institutions as payment networks to enable cash withdrawals.