Ethiopian Fintechs Brace for Impact with EthSwitch’s National Payment Gateway

Earlier this week, Ethiopia’s national switch operator, EthSwitch, officially introduced its National Payment Gateway, a product meant to serve as the bedrock of online payments in Ethiopia. The event, held at the Skylight Hotel, saw the launch of an interoperable payment gateway service that aims to simplify and make online payments more affordable.

“The National Payment Gateway is here to empower Ethiopia’s e-commerce and merchants. We will enable merchants to get paid from any financial institution,” stated Yilebes Addis, CEO of EthSwitch, during the ceremony.

The gateway enables customers to make fast, secure, and convenient online payments using various channels and payment methods, such as debit cards, bank accounts, wallets, QR codes, and aliases (phone numbers).

As EthSwitch is the national switch operator, no financial player is excluded. Its ownership is shared among the National Bank of Ethiopia, all banks, microfinance institutions, mobile money service providers, and payment processors. So is the right to use its latest product.

Founded in 2010, EthSwitch has previously enabled the interoperability of ATMs and POS operated by all commercial banks, resulting in millions of transactions worth billions of birr in value every month.

The National Payment Gateway has its footprints in Ethiopia’s national payment strategy, passed in 2021. The strategy states that the lack of a payment gateway is playing a significant role in limiting the uptake of digital payments in Ethiopia and mandates EthSwitch to revise and accelerate the plan to develop a payment gateway.

Pilot testing for the National Payment Gateway began in July 2023, after receiving pilot approval from the National Bank. The pilot testing was conducted with limited financial institutions, and now EthSwitch states the time has come to start full-scale commercialization.

“Currently, NPG enables online payments from debit cards, with almost all banks in Ethiopia onboarding the gateway. Payment using accounts, wallets, and aliases will be launched all together in early 2024,” Abenezer Wondwossen, Program Management Office Director at EthSwitch, told Shega.

The regulator is pleased with the progress of the project it initiated. “When the National Bank initiated this project, the objective was to establish a uniform and standardized payment system for the country,” said Solomon Desta Vice Governor of the National Bank of Ethiopia.

Solomon believes the payment gateway will contribute to the integration of the economy by connecting with regional and global markets.

But the latest development has some local fintech startups in a mode of panic, at least for now. It was only in 2021 that Ethiopia paved the way for non-financial institutions, also known as financial technology (Fintech) companies, to start offering payment processing and related services.

While several startups went after the Payment Gateway Operator license, three companies, Chapa, SantimPay, and ArifPay, traveled much further, raising millions of dollars along the way.

Chapa was the first to launch its online payment gateway API in August 2022, followed by SantimPay and ArifPay. The two startups quickly made headlines, achieving billions of birr transactions in a few months of launch.

However, Ethiopia’s seamless payment dream was far from achieved. The payment gateway of these startups was mostly connected to the digital wallets of financial institutions through direct integration with banks, and a significant amount of these transactions came for sports betting and donation use cases.

Experts and players state that payment system operators were never meant to facilitate transactions between separate financial institutions without going through the national switch.

“Ethiopia follows India’s model, where the National Payments Corporation of India (NPCI), an umbrella organization that facilitates services like UPI Payment and Bharat Bill Pay, owns the infrastructure behind interoperability. Financial institutions are meant to build services on top of these with a system shared among stakeholders,” one researcher told Shega.

This has been adopted in Ethiopia, among other things, and EthSwitch is meant to play this crucial role, creating a payment structure for all financial service providers equally.

However, EthSwitch does not intend to create a relationship with merchants directly. Its customers remain financial institutions and digital financial services providers who provide the payment gateway to merchants, stresses Abenezer. Still, fintechs are worried.

“Banks now have access to the payment API and can operate as payment system operators. With most of their business interests lying in other financial services, they can avail the services for little to no pay to attract merchants. This is on top of the massive resources they have, a manager at one of the fintech companies told Shega.

While this remains a possibility, the landscape that fintechs will navigate in Ethiopia’s digital financial ecosystem has been redefined.

“The sector has shifted its primary focus from technology to operations. We are confident that Ethiopian banks won’t emerge as major players in the online payment sector. It demands expertise and operational capabilities that banks were not originally designed to handle. Now, the purpose of fintechs lies in value addition,” said Abenezer Bekele, co-founder and CEO at SantimPay.

ArifPay’s payment gateway has already integrated with the National Payment Gateway, and the onboarding of merchants is currently underway.

EthSwitch has indicated that the fees for the use of its payment gateway have not been set and will remain free for at least six months. “Adoption remains key. We have a lot of work to do on raising awareness,” stated Abenezer from EthSwitch.

Abenezer is referring to Ethiopia’s nascent e-commerce sector, whose fall behind has long been blamed on the lack of an online payment system. But now, as steppingstones are being laid in place, hope is being placed on how the national payment gateway can stimulate the growth of e-commerce in Ethiopia.