Hidden Transaction Fees Hamper Ethiopia’s Digital Financial Progress

Confused by hidden fees in your digital transactions? You’re not alone!

Digital financial services are booming in Ethiopia, but many providers aren’t transparent about their fees. This lack of transparency hinders trust, especially in countries like Ethiopia where financial inclusion is a work in progress.

Read the latest from AKOFADA (Advancing Knowledge on Financial Accessibility and DFS Adoption), a project working to increase knowledge and transparency within Ethiopia’s DFS ecosystem.

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I recently came across a post on my X feed (though I still call it Twitter) where someone complained about their experience with the Commercial Bank of Ethiopia’s (CBE) mobile banking service. This individual had transferred 2,000 birr and was surprised that the transaction fee was 10 birr, which is 0.5% of the transfer amount. He didn’t know about transaction fees for person-to-person (P2P) transfers being charged by CBE. In comparison, if they had used telebirr to make the transfer amount to the same CBE account, the fee would have been 2 birr, which is only 0.1% of the transferred amount.

Financial services in Ethiopia are undergoing an evolution as more and more people are using digital channels (ATM, mobile banking, mobile money, and internet banking) to conduct their financial transactions. According to Myriam Said, Digital Advisor to the PMO, over 4 trillion birr has been transacted via digital channels between October 2022 and March 2023, with digital transactions overtaking cash transactions in the Ethiopian economy.

However, the increase in digital transactions in Ethiopia is bringing a new set of challenges, one of which revolves around the transparency of transaction fees. Many digital financial service providers in the country charge transaction fees, but when not communicated, such fees hide the cost of using their services.

This phenomenon results in what is commonly referred to as junk fees. Junk fees are surprise charges added to goods and services. They are often mandatory but not disclosed upfront. Financial service providers frequently hide the cost of using their services, making it difficult for consumers to compare prices accurately.

The justification and necessity of transaction fees in Ethiopia have been a topic of public discourse recently, especially concerning commercial banks. However, discussions about the transparency of these fees are rarely brought to the forefront.

Customers pay service charges and fees according to the bank’s terms and tariffs. Banks face expenses associated with vendor payments for essential systems like core banking and mobile banking services, as well as rising costs for materials such as ATMs and POS machines. One way they recoup these costs and make a profit is by imposing transaction fees. However, most banks are not sufficiently transparent with the public about their fee structures.

“It’s puzzling why such essential information is not readily available on ATM screens, displayed at ATM locations, inside mobile apps, bank branches, or even on the banks’ websites. It is remarkable that acquiring this information necessitates conducting extensive research,” Tewodros Tassew, a digital financial services (DFS) expert, shares his observation in an article published in 2023.

Customers deserve clarity and transparency in understanding the costs associated with their financial transactions. Price transparency and fee disclosure empower consumers to make informed decisions, compare products, and foster healthy competition among financial institutions.

When they are not transparent, customers, particularly those with limited banking experience, may face unexpected charges and lose trust in digital financial services. The low awareness and lack of transparency regarding junk fees could significantly impact trust among users. This is especially crucial in countries like Ethiopia, where the median transaction value is low and financial inclusion is a work in progress. The lack of transparency can increase disputes between financial service providers and users, ultimately affecting financial inclusion efforts through various digital finance channels.

What type of fees exist in Digital Financial Services in Ethiopia?

Different kinds of junk fees exist globally in various sectors, from banking and online shopping to subscription services, and travel. According to the American National Economic Council, ten specific kinds of junk fees amount to $90 billion per year in the United States, averaging more than $650 per household per year.

In Ethiopia’s DFS space, there are fees associated with ATM withdrawal, P2P transactions, mobile account maintenance, loan services, and foreign exchange (forex).

In addition, fees imposed on digital transactions differ from bank to bank, channel to channel, and amount to amount. For example, withdrawing 1000 birr from an ATM operated by CBE using a debit card issued by CBE costs 3.50 birr. In contrast, withdrawing 1000 birr from the same ATM using a card issued by a different bank costs the customer 5 birr.

Use Case: A cashless experiment in Addis Ababa unveils hidden transaction fees

Nine months ago, Fitsum Admasu, founder and CEO of FIRMA Communications, a local creative agency, made a social experiment where he tried to live cashless for a month and a half in Addis Ababa.

His experiment was surprisingly successful. Armed with multiple ATMs from different banks and diverse mobile banking options at his fingertips, he was able to switch between accounts and payment methods, doing 410 transactions.

But his experiment also revealed that transaction fees cannot be ignored if we intend to become a cash-lite society. Fitsum racked up nearly 4,000 birr in card transaction fees alone.

Which Ethiopian financial institutions publicly disclose information about their DFS transaction fees?

The transparency of transaction fees in Ethiopia varies across different digital financial channels. For instance, most banks do not display the transaction fee charged to the customer when withdrawing money from ATMs. However, while these fees are printed on the receipts, this action may not be sufficient to argue that customers are adequately informed of the fees before making a decision.

On the other hand, transparency is better when it comes to mobile banking and mobile money. Some banks, such as Awash Bank, Dashen Bank, Zemen Bank, and the Cooperative Bank of Oromia, display the transaction fees they charge when users make P2P transactions on their respective mobile banking platforms.

One notable exception is CBE, the largest commercial bank and the leading mobile banking platform in Ethiopia. Between June 2022 and June 2023, around 2.4 trillion birr worth of transactions were conducted through the CBE mobile banking platform. However, CBE does not provide a fee struct