Automated Teller Machines (ATM) have finally been able to interconnect, enabling any debit cardholder to withdraw funds from any bank’s ATM machine. Launched in the middle of last week, the service is not yet known to many of the 3.5 million cardholders across the country. This is surprising, considering how many transactions have been taking place since the inter-bank switch system went national.
ET Switch S.C., the industry-owned company behind the project, was created with the sole purpose of bank-to-bank integration. The first service after six years of its establishment became operational on April 20, 2016. The company’s senior managers are yet to make a public announcement of the service. This is one of the reasons there were only 100 transactions up until our press time on Friday afternoon, with transaction value of 86,000 Br. More than 60 people simply queried their balance from ATMs not operated by a bank with which they do business.
One of these transactions was made by Melat Tekalign, a depositor with Bank of Abyssinia, one of the 17 banks included in the national switch system.
She was one of the few ecstatic customers on Wednesday, the day the service went live. She withdrew from Premier Switch Solution (PSS), another syndicated payment system run by six banks to which Abyssinia is not a member.
“Yes!” Melat Tekalign yelled upon collecting her money, amounting to couple of hundred Birr.
As the group of people queuing for a taxi nearby looked around, frowning at the oddity of the girl who yelled for no visible reason, she explained what a relief this was to her.
“My bank’s nearest ATM machine is a five minutes walk, a five-minute taxi ride, and another five minutes walk from where I work,” she said. “Making the trip would mean that I’d have to skip lunch.”
Her excitement comes from the fact that since the launch, she is able to use any of the ATMs that are right beneath her office building, the Tegene Building on Sierra Leone St., in the Beqilo Bet area.
Little did she, and few of the depositors who used the service, know that the convenience comes with some extra cost.
Unlike previous times, depositors are now exposed to service charges of the bank that owns the ATM machine in addition to the one that hosts their account. ATM users are now subjected to a 25-cent service fee for each 100 Br withdrawn, split between ET-Switch and the bank that owns the machine, in addition to the service charge paid to their banks with each ATM transaction.
“The charge is a matter of agreement between the cardholder and the issuing bank,” an information technology expert knowledgeable of ATM transactions explained.
But the management of most banks do not yet know that customers have been able to access their accounts from other banks’ ATMs. Ironically, many of the staff members of almost all the banks were puzzled last week when the new service began without their having been notified in advance. Almost all the banking industry officials admitted to Fortune that, to their knowledge, the system was still in the piloting phase.
“The banks need to be able to control their service charges, and their operations,” said an industry veteran working for decades, “not notifying them is funny.”
Although piloting was expected to take three months, and a corresponding announcement was made in May of last year signaling its launch, piloting did not begin until just a few months ago.
“There was a lot of back and forth in trying to agree on the methods employed for configuration,” said a person involved in the implementation phase, citing it as the main reason that held back the project from achieving its intended time line. “That alone took two years.”
One challenge was the different modalities employed. Some banks have already gone through the process of setting up their network of ATMs, and therefore have already set up their own switch systems. Others have PSS, while the rest have only been able to set up CORE banking – some as late as the end of last year.
While those that have systems already setup connected theirs to ET Switch’s, those that do not, had to be directly connected onto ET Switch’s solution.
There are benefits and drawbacks to being connected directly to ET Switch’s network. These banks get to be connected, and even issue ATM cards without having to go through the expensive process of acquiring a network of ATMs. They will not benefit in the future when the system starts generating revenues.
“Currently, the ATM system is more a tool used for attracting clients than one of revenues generation,” said a banker who has been in the industry for decades. “But later, as the economy keeps growing, incomes increase, and more of the un-banked join the system, the volume of transactions will start to generate profits.”
The last few purchases of ATM machines put the price of a single ATM between 150,000 Br and 420,000 Br, excluding running cost. There are over 1,900 ATMs, and 13,250 POS functional across the country.
But contrary to the assumption that the system could discourage future ATM purchases by the banks, one major ATM supplier thinks it will remain unchanged.
“Since the ratio of the number of ATMs to people is still very low, it will not be affected.”
The veteran banker concurred with the supplier, adding that acquiring ATMs will continue to grow until the demand is fully met.
Spain, the United States and Japan are recorded by the World Bank for having the highest penetrations of cash machines where 126, 120, and 113 ATMs serve 100,000 people in these countries, respectively. Only two ATMs serve that many people in Ethiopia.
ET Switch, established in 2011 with a registered capital of 80 million Br, is the industry’s answer to these challenges. Owned by 17 banks, with the central bank also a shareholder, it is entrusted to administer the national switch system. It hired a Dutch-based IT vendor, BPC Banking Technologies BV, which was one of two companies short-listed after submitting proposals worth over 10 million dollars – a far cry from the resources the company had budgeted.
“The initial quote was high, as the specifications required were demanding,” said a person who had been part of the proceedings but requested to remain unnamed. “Negotiations later took place and both sides lowered their expectations.”
In the end, the national switch deployed last week cost four million dollars.
The model employed operates at a much smaller size, but is scalable whenever the industry’s requirements increase, according to these person. Nevertheless, those involved claim its current size lets it easily handle all the transactions that currently take place, and then some.
Yet, ET Switch has not officially launched the programme, though it is an achievement that is a huge milestone, industry actors opined. The complexity of system integration and fear of instability of the system seem to be the reasons behind the quiet operation.
Bizuneh Bekele, CEO of ET-Switch, was not available for comment despite repeated efforts by Fortune to reach him.
The solution, or Switch, is a conglomeration of many elements. It comprises the country’s network, the network and database of each member bank, and even individual ATMs. The malfunction of any of those parts could result in a malfunction of part or all of the system.
The successful implementation of the system could have a negative effect on other businesses that have sprung up following the machines. In addition to bank branches, ATMs are placed in storefronts, in public buildings and hotel lobbies. As more and more banks started to utilize the system, buildings in key locations took notice of both demand and supply. They started to prepare convenient places in which place ATM machines. Not only do their occupants benefit from the foot traffic generated, but they also make the banks pay rent.
One shopping mall around Megenagna rents out booths for different ATMs at 6,000 Br each a month. Still, they were availing more space and making more booths to accommodate machines from more banks.
“We may slowly lose that business,” a concerned manager said.
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