Digital Payments Are Booming 🚀

Welcome to the latest edition of ፍራንክ Digest!

Your weekly brief on all things Finance and Investing. Quick, enjoyable reads for busy professionals in 5 minutes or less.

Here’s what’s coming your way:

• 🔏 Tap, Pay, Repeat: Digital Payments are Ethiopia’s New Crush

• 💼 Breaking Records, Building Futures: DBE’s Big Win

• 🗝️ The Key Takeaways

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Ethiopia’s Digital Payments And The One Company Leading The Way

Banking Tech

In Ethiopia’s leap toward a cashless economy, EthSwitch is proving to be the unsung hero of our financial system.

For the fiscal year 2024, EthSwitch reported a pre-tax profit of 1.06 billion Birr—a measly 97% jump from the previous year! But before we cheer “እልል እ-ል-ል!” what exactly is EthSwitch, and why should you care?

What is EthSwitch?

In a country where cash has ruled for centuries, EthSwitch acts like the quiet disruptor, making digital payments not just possible but practical.

Think of it as Ethiopia's payment matchmaker. Established in 2011 and jointly owned by multiple banks in Ethiopia, EthSwitch ensures your ATM, POS, or mobile transactions go through smoothly, even if your bank and the recipient’s bank don’t see eye-to-eye—digitally speaking.

It’s the national payment switch that powers interoperability across financial institutions. In simpler terms, it’s the digital bridge that connects us all.

What’s driving their growth?

The numbers are in.

• Interoperable transactions boomed: Over 94.5 million ATM transactions, valued at 123.2 billion Birr, were processed this year—a 32% increase from 2023.

• POS transactions skyrocketed: A 125% growth brought in over 5.7 billion Birr.

• Person-to-person transfers exploded: P2P mobile money services handled 49.7 million transactions totaling ETB 271 Billion, marking a 251% year-on-year increase.

This all points to one thing: we Ethiopians are embracing digital payments like never before. Even cross-border payments are becoming easier, thanks to EthSwitch’s pilot projects with global partners like MasterCard.

Why Is This a Big Deal?

For consumers:

• Convenience: No more carrying wads of cash or queuing endlessly at banks.

• Security: Digital transactions reduce risks like theft and fraud.

• Inclusivity: Mobile money opens doors for rural communities often excluded from traditional banking.

For businesses:

• Sales Growth: More payment options mean happier customers.

• Easier Transactions: Faster settlements streamline cash flow.

Fewer long lines at banks, fewer chances of your payment being declined, and more businesses accepting digital payments.

What’s not to love?

Well, not everything is that rosy.

Sure, technology is paving he way for seamless payments, but every advancements comes with its unique collection of drawbacks.

Digital payments can sometimes be prone to system failures 'ሲስተም የለም' and connectivity issues can further exacerbate the situation where for instance you might be swiping your card to pay for some goods only for the cashier to tell you that your payment didn’t go trough. Come to find out that your account has been debited twice!

Incidents like this are not too frequent but it does show the overall technical vulnerabilities.

Not to mention, transactions fees are pilling up. Interbank/Telebirr transfers are costing more than they did a few years ago—heck, a few months ago! They might seem small at first but they do pile up over time! The government also wants in on the game and is now charging Value Added Tax (VAT) on certain banking services.

Despite all of this, EthSwitch is playing a big role in Ethiopia’s financial system, as the dedicated national switch, it is well positioned to be a juggernaut of a company in the next few years!

Key Takeaways

1. Bye-Bye Cash, Hello Convenience:  With well over 51 million mobile wallet users and services like Telebirr leading the charge, it’s easier than ever to pay without breaking out a single note.

2. EthSwitch, Ethiopia’s Payment Superhighway: Ensures all banks and payment services play nice, enabling seamless transfers between platforms. It’s the quiet backbone of your next cashless coffee purchase.

3. What’s in It for You? Faster transactions, safer wallets, and even fewer awkward moments fumbling for exact change. Businesses also win big with broader access to customers and streamlined payments. But keep some cash in case of system failures, connectivity issues and avoiding those transfer fees. So make sure to leave your cash relationship status to ‘It’s Complicated’ 😉