- Utility billing next in line

By Asrat Seyoum

The National bank of Ethiopia’s (NBE) long-awaited project that set out to implement and support a nation-wide integrated payment processing system comprising an automated payment transfer mechanism, out of which Real Time Gross Settlement (RTGS) and Automatic Clearing House (ACH) are prime components, has successfully moved to its implementation stages.

Supported by the World Bank’s International Development Association, the financial sector capacity-building project, an envelop project, kicked-off in may 2009 with the aim of modernizing the national payment system in the small, yet growing, financial sector. Especially, projects which are meant to improve the payment system among the financial institutions and regulatory role of the banks were given a head start and the two complementary systems, RTGS and ACH, are now getting ready to take effect. Though most of the new systems in the pipeline at NBE, with an exception of few, require core banking applications from the side of the commercial banks, the majority of banks at the moment had selected, purchased and installed their core banking solutions.

Alemayehu Kebede, change management and communications directorate director at the NBE, told The Reporter that it would not be too long before the two banking systems become live in the industry. RTGS is a mechanism that is in use in most developed financial systems and its main purpose is to settle payments of large-value transactions among the financial institutions, in real time and on the basis of transactions, on the account held at the national bank. The system is specifically designed to handle payment settlements on a transaction-by-transaction basis without any time lag. Though RTGS does not necessarily require the core banking application as it is not expected to do any clearing on payment arrays, its is hailed for minimizing the risk in payments involving large transactions.

According to Alemayehu, the real-time nature of the settlement also takes into consideration the appropriate value of money, since time lag in payment settlement taxes away the value of money in the form of interest that would have been earned on the money.

On the other hand, ACH, which requires core banking applications in the banks to function, provides for transactions with low value and more of a retail nature that are exchanged among institutions to be cleared out automatically. This system is some sort of an electronic payment network which provide for clearing capabilities based on the payment orders exchanged among the institutions. A range of low-valued transactions among the banks would be netted and cleared by a central data-processing center avoiding physical payment instruments like checks to clear out payments, said Alemayehu. “With all of the above changes coming to effect, the banks will also be required to make their core banking applications ready to interface with the system.”

Furthermore, he noted that the automated system would also support utility billing mechanisms, which, however, takes time to work out with the providers. With the addition of the automatic switch system that would enable banks to use a limited number of Automated Teller Machines (ATM) and Point of Sales (PoS), the payment system in the industry would significantly change, Alemayehu added.

Ethiopian Reporter