Sunday, September 24, 2023
BusinessBank partnership mandatory for digital remittance

Bank partnership mandatory for digital remittance

Prior approval still required for digital remittance, credit, saving, and insurance services

A draft directive requires payment instrument issuers to enter into a “written outsourcing agreement” with financial institutions in order to provide international remittance services. It will be a condition that service providers must meet in addition to obtaining written approval from the National Bank of Ethiopia (NBE).

The existing directive, which closed the sector to foreign competition, did not require payment issuers to enter into an outsourcing agreement with financial institutions for the digital remittance services.

The draft directive that is prepared to oversee payment instrument issuers, including foreign mobile money operators, intends to execute the amended national payment system proclamation published earlier this month. The new proclamation’s primary aim is to include foreign players in the sector.

If issuers seek to provide digital saving, credit, and insurance services, they will be subject to the same approval process from the NBE and an outsourcing agreement with banks.

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Local money transfers, electronic to bank account transfers, the issuing of payment instruments, payment of utilities, and payment to merchants are all services and products that payment instrument issuers can provide without further permission.

The yet-to-be-abolished directive necessitated outsourcing agreements with financial institutions for the provision of micro-lending, savings, and insurance services. Telebirr, mobile money platform of ethio telecom, went through a similar process, striking an agreement with Dashen Bank before launching the services in August 2022.

However, with the existing directive, payment instrument issuers merely needed a formal clearance from the NBE to provide foreign remittances. Six months after the company’s initial debut, Telebirr began accepting foreign remittances through its platform.

A market insider told The Reporter that signing an outsourcing deal will only empower banks, and the payment instrument issuer will just enable “banks’ outsourced services.”

“There will be little opportunity for innovation, and it also narrows the chance of cutting remittance cost for senders. This would also put an end to efforts to reduce remittances coming through the parallel market,” he said.

“Just a channel is added in the process and there is nothing new creative here. It will save clients from wandering around branches, but it does not guarantee a reduction in remittance costs,” he added.

The draft directive also recommends that foreign mobile money operators intending to operate in Ethiopia pay a license cost of USD 150 million as an investment protection fee. M-Pesa, a Safaricom-owned mobile money operator in Kenya, is likely to apply for the license and pay the same license cost.

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