Assessment of Digital Transformation in Ethiopia’s Financial Sector: A Case Study of Selected Bank’s in Ethiopia

Abstract

In today’s world, digital transformation has become the most important driver of differences among firms’, industries', and countries’ performances. It can enhance competitiveness by increasing productivity, agility, customer engagement and satisfaction, and profitability. The purpose of this study is to assess the Digital Transformation in Ethiopia’s Financial Sector with focus on Ethiopia’s Banks. The study begins with an overview of Ethiopia’s current legal and institutional framework and efforts made to promote digital transformation since effective national digital strategies require the existence of a conducive regulatory and institutional environment, be it for the private or public financial sector. Using qualitative research methodology, this research explores and examines the policy, legal, and institutional frameworks of the current digital banking system in Ethiopia. The actual progress in digitalization of the banking sector was examined through interviews with selected banks in Ethiopia. Based on findings, the regulatory analysis underscores the policy and regulation empowerment of the National Bank of Ethiopia, revealing gaps in directives related to fraud handling, transaction limits, usage of terms and conditions for digital products, ATM reconciliation, and charges for digital products and services. In addition, a comprehensive study of ten banks shows all ten banks added digital banking structures to their corporate structures. Additionally, credit cards and virtual banking were introduced in Ethiopia by Awash Bank and Bank of Abyssinia, respectively. Also, Cooperative Bank of Oromia, Bank of Abyssinia, and Dashen Bank adopted mobile digital loan platforms. In line with the findings, factors influencing digital banking adoption are elucidated, encompassing challenges such as power shortages and network failures. The study shows Ethiopia's digital transformation compared to its African counterparts, addressing challenges in cyber security readiness and infrastructure and low mobile money usage.