ASSESSING OPPORTUNITIES AND CHALLENGES OF CBE – BIRR MOBILE

MONEY SERVICE: CASE STUDY ON COMMERCIAL BANK OF ETHIOPIA

A THESIS SUBMITTED TO MICRO LINK INFORMATION TECHNOLOGY COLLAGE IN

PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF
ARTS IN BUSINESS ADMINISTRATION (MBA)

By: Werknesh Zina

ADVISOR: Rezene Kahsay (Asst.Professor)

MICROLINK INFORMATION TECHNOLOGY COLLAGE

COLLAGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE

April 2024
Mekelle Tigray
 CHAPTER ONE
1. INTRODUCTION
1.1 Background of the Study
Information technology is highly affecting human activities and their ways of life.
Advancement in Information technology is changing every sector’s working practice.
Banking is one of the sectors which are rapidly evolving through information technology
(Ferdous, Al Mosharrafa, &Farzana, 2015)
In the last two decades mobile technology has flourished throughout the developing world
faster than any other technology in history. According to the International
Telecommunication Union, mobile phone subscribers currently constitute 5.9 billion, the
global penetration reaches a staggering 94 % in general and 79% in the developing world
(ITU, 2017 ).
With that growth comes an equally impressive surge of messaging services, providing not
just a broadly used means of personal communications, but also a number of valuable
information services, from agricultural data reports to healthcare reminders. The latest
phenomenon initiated by mobile technology is mobile money. Mobile money, which is a
subset of electronic money, refers to financial services and transactions made on a mobile
phone. It is not always the case that these services are tied directly to a personal bank
account.
Services offered on the mobile money platform is providing money transfer services to
millions of previously under – served people in the developing world, allowing them to
safely send money and pay bills for the first time without having to rely exclusively on cash (
Mas and Siedek, 2008).
Agent – banking is an arrangement by which licensed institutions engage third parties to offer
certain banking services on their behalf. Agency banking is branchless banking based on ICT
that allows financial institutions to offer financial service outside the traditional bank
premises (Mas and Siedek, 2008).
There are significant benefits to be gained by the use of mobile technology by financial
services providers’ i.e. agents, especially in rural and nonbank areas, in the form of cost
savings, efficiency, fraud and error reduction, foster flexibility, client security and
convenience (Admassu and Asayehg , 2014).
The global leader in mobile money is Kenya, where mobile network operator Safaricom
launched M - Pesa in 2007. Less than five years after launch, there are approximately 16
million users of mobile money in Kenya, conducting over 2 million transactions every day.
M- Pesa is not only being used for standard money transfers and airtime purchase, but also to
pay salaries, utility and other bills, and to buy goods and services at both online and physical
merchants.
Today, Kenya, where the M - Pesa mobile money transfer has been successful stands as a
world leader in the provision of mobile money services with about 19.5 million service
users and an annual transaction volume of about KES 672.3 billion (US$ 8 billion) or
24percent of Kenyan Gross Domestic Product (GDP) (CCK Report, 2012).
CBE-BIRR is an agent banking service introduced by Commercial Bank of Ethiopia in
accordance with NBE directive number FIS/01/2012. It was in testing phase from June 2017
to December 2017 and became live in December 12, 2017. Like other agent banking service
providers, CBE-BIRR customers can transfer money to subscribed or unsubscribed users,
deposit and withdraw cash from agents, buy airtime directly without scratching mobile cards,
pay for goods and services. Commercial Bank of Ethiopia has more than 1,200 branches in
Ethiopia and CBE-BIRR is taking advantage of this huge number of networked branches to
recruit new agents and customers. Currently commercial bank of Ethiopia had 3,211 CBE-
BIRR agents, 589,071 CBE-BIRR customers and mobilized 2.5 million birr (CBE annual
report, June 2018).
There are different researches done in different institutions on the adoption, challenges,
opportunities and factors that affects agent banking business in Ethiopia. However, any of the
studies didn’t include information from CBE-BIRR agents and customers because this
service is launched recently by CBE (it is only around one year in practice) so this research
tries to close the gap.
1.2 Statement of the Problem
1.2 Statement of the Problem
Nowadays there are large numbers of commercial banks in Africa, but most of commercial
bank branches are located in cities, in search of well-built infrastructure and market.
According to World Bank (2017), 61.73% of Sub-Sahara African population lives in rural
areas with lower level of infrastructure development. However, traditional branch based
banking discriminates this significant number of population from accessing modern banking
services (Atandi, 2013).

The adoption of mobile money services in emerging economies is particularly important

because increased financial access can have a positive impact on long term economic growth
through reducing poverty and income inequality (Levine, 2005).
Ethiopian population has reached more than one hundred million and 80.5% of them live in
rural areas with poor level of infrastructure (UN, 2016) and according to NBE, 2017financial
institutions distributed unfairly across the country (most of bank branches are located in
Addis Ababa and other cities) but in Ethiopia there are 51 million mobile subscribers, which
is around 50% of the total population and 15 million internet subscribers (Asfaw, 2015).
So to extract this advantage and to play key role in the development of the country by
mobilizing money and by increase living standard, CBE –BIRR Mobile money service comes
up as a remedial solution since it allows offering financial service outside the traditional bank
premises to directly make cash transfer to beneficiaries through their mobile, deposit and
withdraw cash from agents, buy airtime directly without scratching mobile cards and pay for
goods and services.
However, despite this importance of
Mobile money service, closer observation shows that there is still slow adaptation, problem
of frequent network failure and inadequate awareness of available Mobile money services
(Balanchandler, 2010).
In order to encourage further Mobile money service adoption in developing countries, a better
understanding of the barriers and drivers impacting Mobile money service adoption is critical
(Zhao et al. 2008). By gaining an in-depth understanding of the challenges and opportunities
of Mobile money service and factors that influence its adaptation process so as developing
countries like Ethiopia be able to fully adopt and realize its benefit. So this research tries to
identify challenges, opportunities and factors that influence its adaptation of CBE –BIRR
mobile money services in Ethiopia and it tried to answer the following research questions.
1.3 Research Questions
Based on the above stated objectives, the following research questions were answered:
1) What are the opportunities of implementing and expanding CBE –BIRR Mobile
money service?
2) What are the challenges of implementing and expanding CBE–BIRR Mobile money
service?
3) What factors influence customers’ intention to use CBE –BIRR Mobile money
service?
1.4. Objective of the Study
1.4.1. General Objective
The general objective of the study is to assess the challenges, opportunities and factors
influence customers’ intention to use CBE –BIRR Mobile money service.
1.4.2. Specific Objectives
The specific objective of this study is to occur at the end of the study are:
 To identify the various aspect of potential and eminent challenges of
implementing and expanding CBE –BIRR Mobile money service.
 To identify the various opportunities of implementing and expanding CBE –
BIRR Mobile money service.
 To explore the factors that influence customers’ intention to use CBE –BIRR
Mobile money service in Ethiopia and to find the relationship between
dependent and independent variables.

1.5 Significance of the Study

Agent banking (Mobile money service) is a highly growing mechanism of addressing the un-
banked society. In addition, it also has a competitive advantage for financial institutions.
Furthermore, agent banking contributes to the development of financially inclusive economy
and it makes financial services accessible to the society.
This study was important because:
❖It tries to identify the challenges and opportunities regarding the CBE –BIRR Mobile
money service.
❖It tries to identify the major factors that affect customers’ adaption of CBE –BIRR Mobile
money service in Mekelle and to find the relationship between dependent and independent
variables.
Also this study tries to add on to the existing literature concerning challenges and
opportunities regarding the CBE –BIRR Mobile money service in the Ethiopian context so
that banks in Ethiopia can use the research as an indicator for what they should do.
Furthermore the research can also assist top level managements and policy makers of the
bank in understanding about these topics in commercial bank of Ethiopia and others bank that
are found in Ethiopia.

1.6 Scope of the Study

The major focus of this study is to assess the challenges, opportunities and factors influence
customers’ intention to use CBE –BIRR Mobile money service.
The study cantered on only some selected branches of commercial bank of Ethiopia which is
found in Mekelle.
1.7. Organization of the study
The research report is organized into five chapters: Chapter one focuses on the background of
the study, problem statement, objectives and significant of the study. In chapter two, a range
of literatures review is captured there to gather relevant information concerning E-banking. In
chapter three, detail of methodology followed to achieve results is outlined. It includes the
study design, sampling, sampling technique and data analysis. Chapter four contained results
and discussion from the study supported with findings from other research works. Chapter
five focuses on main findings, conclusions and recommendations of the study.
 CHAPTER TWO

REVIEW OF RELATED LITERATURE

2.1 Theoretical Framework

2.1.1 Definition of Agent Banking

Agent banking is a kind of branch less banking which is significantly cheaper alternative to
conventional branch-based banking that allows financial institutions and other commercial
players to offer financial services outside traditional bank premises (Hassan, Irfan,
Zaman,Akhtar, Raheja, Shafiq and Masood, 2011).

Agent banking is a retail or postal outlet contracted by a financial institution or a mobile

network operator to process client’s transactions. Rather than a branch teller, it is the owner
or an employee of the retail outlet who conducts the transaction and lets clients deposit,
withdraw, and transfer funds, pay their bills, inquire about an account balance, or receive
government benefits or a direct deposit from their employer. Banking agents can be
pharmacies, supermarkets, convenience stores, lottery outlets, post offices and many more
(Kumar, Nair, Parsons, & Urdapilleta, 2006).

Agent banking is the provision of financial services to customers by a third party (agent) on
behalf of a licensed deposit taking financial institution and/or mobile money operator
(principal). (CBE – BIRR procedure, 2017)

Agent banking, which leverages heavily on ICT, is a component of branchless banking that
allows financial institutions to offer financial services outside the traditional brick and mortar
bank premises (Mas and Siedek, 2008).

There are three widely practiced models to conduct the Mobile and Agent Banking business
worldwide. These are: the Bank-Led Model, the Telco-Led (The Mobile Network Operator
(MNO)-Led Model) and the Mixed Model. The Bank-Led Model is the one which Banks are
granted vested right to run the Mobile and Agent Banking business by the National Bank.
The Regulation of Mobile and Agent Banking Services Directive No. FIS/01/2012 issued by
National Bank of Ethiopia (NBE) clearly stated that Ethiopia has adopted the Bank Led
Model. Accordingly, only commercial banks are allowed to provide the service in Ethiopia
with prudent supervision by the National Bank of Ethiopia.
The other Model is the Telco-Led Model which is implemented by most successful countries
in Mobile and Agent Banking business. However, the issue of fund protection is one of the
most challenging in the non-bank led model: Non-bank issuers are taking funds from the
public, MNOs are not regulated/ supervised prudentially and what if the m-banking provider
goes bankrupt, to whom claim presented. Unlike the Bank-Led model, the loose established
mechanisms to protect users’ funds make the risk of the Telco-Led model higher than the
Bank-Led Model (Laurent, 2011).

2.2 Drivers of Agent Banking

Agent banking business increased income through commission; bank agents are usually
awarded commissions whenever they perform transactions on behalf of the bank. Increased
customer traffic brings additional benefits to the agent; the increased traffic brought about by
customers performing banking activities also translates to more people getting to know your
business hence more sales, the question comes at the initial stage there might not be sufficient
number of customer who frequently visit the agent premises (Chiteli, 2013).

Customers are also one of the drivers of Agent Banking business. Most financial institution
closes their doors early, but with agents, for as long as the business premise remains open,
you can do your transactions, and this gives flexible hours. This has proven to be very
convenient especially for people who are busy during the day. The other benefits to customer
are financial institution agents have proven to be cost-effective especially to people who live
in rural areas that are far away from banks (Veniard, 2010).

Financial institutions have recorded an increase in their profits and Agent Banking is one of
the main attributes to such huge profits. Banks are finding it cheaper to set up agents as
opposed to opening a branch where they will incur extra costs of staffing, rent, electricity etc.
With Agent Banking, the agent incurs almost all the costs. Agent banking has made it
possible for bank products and services to penetrate areas that at first seemed impossible.
With Agent Banking banks have reached even the smallest of villages. With regards to wide
customer base Bank agents are paid commissions when they sign up new customers and this
has led to an increase in According to (Berger, 1998), agent banks offer similar services as a
real bank. This ranges from cash deposits and withdrawals, disbursement and repayment of
loans, payment of salaries, pension, transfer of funds, and issuance of mini-bank statements,
among others. Berger further argues that, the agent also facilitates new account opening,
credit and debit card application, cheque book request, hence eliminating the need for the
financial institutions to have branches all over. This is being replicated across the country,
especially in rural areas.

The Government will be highly beneficial through the high rate of financial inclusion so that
the government can benefit from effective utilization of resources. It enhances saving and
growth in the economy thereby serves as a way out to combat poverty reduction. The Kenyan
situation remains an important case study in this regard. In Kenya, the Central Bank has
already licensed four banks to carry out agent banking business and approved 8,809 agents.
Many others are expected to be licensed in due course. This is expected to deeply boost
penetration of low cost banking services in the country (Barasa, et al, 2013).

The MNO (the Mobile Network Operator) or Network Service Provider will be beneficial
from different angles such as enabling the Operator to provide financial services for all
subscriber segments (in the case of MNO Model), serves as a means for the creation of new
services around its core distribution system, enhances the subscriber retention and serves as a
new revenue stream as more and more subscribers join the service provider in need of the
specific Agent Banking Services.

2.3 Challenges of Agent Banking

When building, incentivizing, and managing a network of retail agents, banks must address
the operational, legal, infrastructural, social, structural and economic challenges in a way that
fosters a positive and consistent customer experience that will create and maintain trust in the
system.

Managing the structure, as one of the challenges by financial institutions towards the
provision of Agent Banking, refers to the approach that financial institutions establish
relationship with their agents. The relationship can be direct, indirect or hybrid. A direct
relationship with banking agents is one in which a financial institution uses its own staff to
identify and evaluate potential agents and then contract and manage them. An indirect
relationship involves contracting and the number of customers for banks. Banks are finding it
effective to increase their customer numbers in this manner as opposed to using sales people
(Lehman, 2010).

When financial institution does not have branches that are close to the customer, the customer
is less likely to use and transact with their service. However, the emergence of new delivery
models as a way to bank has played a key role to drastically change the economics of banking
by the poor. By using retail points as agents, banking providers can offer banking services in
a commercially viable way since they are able to reduce fixed costs and encourage
entrepreneurs to use the service more often and in the process provide access to additional
revenue sources (Kumar et al, 2006). However, challenges have to be considered, such as
technological acceptance, trust, traditional ways of conducting financial transactions and the
massive use of cash in developing countries (Kumar et al, 2006).

The agent offers front-line customer service including physical space and operation of the
POS device. The agent intermediates bank transactions through its balance sheet,
transforming cash in the-till into money-in-the-bank, and vice versa. This is actually not so
different from the normal business of a store: transforming inventory into cash (or
receivables) and back (i.e., store stocks goods, which ties up its working capital until the
goods are sold). In the agent mechanism described, the store also ties up working capital, but
in the form of cash-in the- till and balance- in-its-account rather than in the form of physical
inventory. The agent needs to go to the bank from time to time to rebalance its cash in the till
versus its money in the bank account (Lyman, 2006)

The agent absorbs/provides excess liquidity from/to the community of bank customers and
deposits that into/withdraws from the bank on their behalf. In effect, the community delegates
the bothersome business of going to the bank to the agent. This delegation introduces
economic efficiencies. By netting the community’s overall net cash position (offsetting
withdrawals against deposits), the total amount of cash that needs to be transported to/from
the bank is reduced. And by pooling the cash requirements of all customers, the required
number of trips to the bank is reduced (Laurent, 2011). external management company to
manage the entire process. There is also a hybrid approach in which a financial institution
assumes responsibility for parts of the process, for example, selection and contracting, while
a management company is contracted to oversee the day-to-day management of the agent
networks (Mas, et al 2008). Building agent network is also a challenge which focuses on
establishing effective agent with well-trained manpower; trusted by customers; strategically
and conveniently located; and properly incentivized to follow procedures, keep sufficient
float on hand, and serve customers. When agents provide a range of services (e.g., account
opening, deposits, withdrawals, bill payments, etc.) they are able to generate transaction
volume and balance liquidity. An agent must maintain adequate cash and e-money float
balances to meet customer cash-in/cash-out requests. If too much cash is taken in, the agent
may run out of e-float and not be able to accept more deposits. If there are too many
withdrawals, the agent will accumulate e-float but run out of cash. In either case, customers
will get discouraged if the agent cannot provide the services they need when they need them.
In addition, a secure mechanism needs to be in place to transport cash needs to and from an
agent (Flaming et. El 2011).

Availability and Quality of Infrastructure is one of the challenges which impact the Agent
Banking business. Interruption in services of Telecommunications due to technical or
nontechnical issue and non-availability of any parallel system or alternative may cause
disruption in service availability. Similarly, congestion in network may become a bottle neck
in providing Quality of Service to Agent Banking user. The inconsistent availability of power
supply in the country particularly in the rural area is one of the challenges for the
implementation and continuous availability of Mobile and Agent Banking service.

Therefore, Utility disruptions or software or hardware failures can cause a lack of service
availability and information loss. Financial Institution without business continuity and
disaster recovery planning may be on risk of non-availability of services in case of
catastrophic events, power breakdowns, fire etc and natural disasters (flooding, earthquake
etc).

Agency Banking represents a significant opportunity to reduce transaction costs such as

travel for clients by bringing financial services to hard-to-reach and geographically dispersed
areas.

This is especially true in Africa where some areas are sparsely populated leaving long
distances between the customer and the bank. Obviously, the set-up of agent banks is less
costly and more flexible than for traditional bank branches since it reduces the need to invest
in staff and physical infrastructure (Barasa et al, 2013). Barasa (2013) contends that Agent
Banking systems are up to three times cheaper to operate than branches for two reasons. First,
Agent Banking minimizes fixed costs by leveraging existing retail outlets and reducing the
need for financial agent banks to invest in their own infrastructure. Second, acquisition costs
are lower for bank-enabled agents and bank wallets.

Agents require a lot of capital because they need to have enough cash on hand and electronic
float for customers to withdraw and deposit on demand. Other costs also require upfront
investment, though in much smaller amounts. Agents may need to acquire a business license,
bring the look and feel of their store up to standards (paint, counter, etc.), or make security
improvements beyond all this they need to keep a prepaid balance/Collateral at the bank
premises (Flaming et al. 2011).

In the countries studied, the banks and non-banks involved undoubtedly devoted significant
effort to researching the relevant laws and regulations before investing in agent-assisted
branch- less banking approaches, and in most cases, they also consulted with regulatory
authorities to understand better how authorities were likely to apply existing rules to the new
model. But because regulators have had little experience with both models and are still
adjusting existing rules to address them (or have yet to begin this process), some level of
legal and regulatory uncertainty and ambiguity for both the banks and to a lesser extent also
for retail agents remains (Makin, 2012).

Product Image in the Society and Social Issue is also another concern area for financial
institutions when retail agent’s underpay-from or are robbed, banks’ public image may suffer.

Many operational risks mentioned (such as the loss of customer records or the leakage of
confidential customer data) also can cause reputational risk, as can liquidity shortfalls in the
retail agent’s cash drawer. This and other mismanagement of the product image because the
bad image on the public towards the new product refrain them to usage of the product
(Laurer, 2011).

Managing the Risk has remained a challenge in association with technologically innovative
products like Mobile and Agent Banking. Technological related risks are risks with regard to
technology and could be characterized by unparalleled speed of transformation related to
technological and customer service innovation, the nature of electronic network is open
everywhere in the globe, the mobile banking application systems are integrated with the
financial institutions legacy core application systems and with the hardware. And the
necessary information technology service increases the financial institution dependency on
the third parties.

Whereas Infrastructure and Software Application Risks are attributed to financial institution
without laying down proper information business continuity plans, security policies and
procedures will be in a haphazard condition of performing information security operations of
Agent Banking. This may result into serious IT operational risks like data backup issues,
segregation of jobs, succession planning, capacity planning, and disaster recovery and
business continuity (Chiteli, 2013).
2.4 Benefits of Agent banking

In many developing countries, banks have expanded their network through trusted local
“agents” or “correspondents” to offer their services. For instance, whereas previously many
banks focused on traditional banking, agents in a number of countries are now authorized to
offer a many of the traditional products offered by banks. Banks have, therefore, moved up
the ladder of product range to offer more sophisticated banking products such as bank
supported insurance and asset financing products.

2.4.1 Cost of Banking

Agency banking represents a significant opportunity to reduce transaction costs such as travel
for clients by bringing financial services to hard-to-reach and geographically dispersed areas.
This is especially true in Africa where some areas are sparsely populated leaving long
distances between the customer and the bank. Moreover, in these areas overall literacy levels
are fairly low. Also, banks and other financial institutions often do not have sufficient
incentive or capacity to establish formal branches in these areas. Obviously, the set-up of
agent banks is less costly and more flexible than for traditional bank branches since it reduces
the need to invest in staff and physical infrastructure. These views are supported by Kithaka
(2001) and Kasekende (2008) among other researchers.

2.4.2 Enhanced Accessibility to Banking Services

According to Berger (1998), agent banks offer similar services as a real bank. This ranges
from cash deposits and withdrawals, disbursement and repayment of loans, payment of
salaries, pension, transfer of funds, and issuance of mini-bank statements, among others.
Berger further argues that, the agent also facilitates new account opening, credit and debit
card application, cheque book request, hence eliminating the need for the commercial bank to
have branches all over. This is being replicated across the country, especially in rural areas.

2.4.3 Wider Market Coverage and Customer Loyalty

According to Christopher (2002) the process of loyalty building can be seen in the form of a
ladder in which the customer has to be converted into a client then into a supporter, an
advocate and ultimately to a partner. Finding loyal entrepreneurs requires targeting those
segments to which the bank can deliver superior value. The economic benefits of customer
loyalty often explain why one bank is more profitable than its competitors. Therefore,
building a highly loyal customer base cannot be done as an add-on; it must be integral to a
bank’s basic business strategy. The agency banking model has played this role in a great way.

According to Cohen (2002) the ongoing global expansion of a high-tech telecommunications

infrastructure, coupled with the increased availability of advanced information technology
services, is having an impact on almost every emerging industry. Emerging industries are
newly formed or reformed industries that have been created by technological innovations,
shifts in relative cost relationships, emergence of new consumer needs or other economic and
sociological changes that evaluate a new product or service to the level of a potentially viable
business opportunity. The agency banking model is expected to continue playing a catalytic
role in expanding the reach of banks within a rapidly changing technological environment.

2.5 Technology Acceptance theories and Models

The main models advanced in information and communication studies literature include the

Technology Acceptance Model (TAM), the Innovation Diffusion Theory (IDT) (Rogers,
2003), and the Unified Theory of Acceptance and Use of Technology (UTAUT) (Venkatesh
et al., 2003).

2.5.1 Technological Acceptance Model (TAM)

TAM is an adaptation of Fishbein and Ajzen‘s Theory of Reasoned Action (TRA) that
proposes that behaviour is a direct consequence of behavioural intention, Koenig-Lewis et al.
(2010). Most literatures on mobile services show that TAM is the most widely used, validated
and replicated theoretical model in the prediction of future consumer behaviour (Legris et al,
2003). Davis argues that the intention to use a particular technology is based on a person‘s
behavioural intention which is determined by two beliefs; perceived ease of use and
perceived usefulness (Sangle & Awasthi, 2011). Many authors have established that the TAM
constructs are insufficient in examining a user‘s acceptance of mobile money services and
have employed different extended versions of the model (Davis, 2000).
2.5.2 Diffusion of Innovation (IDT)

The other widely used theory is IDT, which helps to understand customer‘s behaviour in the
adoption or non-adoption of an innovation. In the theory, diffusion is defined as the process
by which an innovation is communicated through certain channels over time among the
members of a social system‖ (Rogers, 2003). The theory highlights five perceived
characteristics that influence the adoption and non-adoption of an innovation which are:
relative advantage, perceived compatibility, simplicity or complexity of use, trial ability and
observability (Rogers, 2003) as the key characteristics that enable an innovation to be taken
up by a population. Some of the main construct of the theory are;

Relative advantage

Rogers (2003) defines relative advantage as the degree to which an innovation is perceived as
better than the idea it supersedes. It refers to whether the innovation is perceived to be
superior to the product or service from which it evolves (Laukkanen & Kiviniemi, 2010).

Complexity

Rogers (2002) describes complexity as the degree to which an innovation is perceived as

relatively difficult to understand and use. Complexity is similar to the perceive ease of use
component of TAM and is a significant predictor of the intention to use and adopt an
innovation as the more complex an innovation is the slower its rate of adoption will be (Liu
& Li , 2009).

Compatibility

Rogers (2003) defines compatibility as the degree to which an innovation is perceived to be

consistent with existing values, past experiences and the need of potential users. In the
context of mobile money, compatibility refers to the extent to which m-money is consistent
with consumers’ lifestyle and current needs (Kleijnen et al., 2004)

Observability

Rogers (2002) argues that observability is the degree to which the results of an innovation are
visible and tangible to others. Cruz et al., (2010) affirm that probability of adopting an
innovation increases when the benefits and usage of innovation can be easily observed.

Trial ability
Trial ability is defined as the degree to which an innovation can be tried on a limited basis

(Rogers 2002). For financial services, however, Aldas-Manzano et al (2009) assert that
customers are unable to try them before adoption.

2.5.3 Unified Theory of Acceptance and Use of Technology (UTAUT)

A broad, powerful and robust theory that consolidates TAM, IDT and other models is the

Unified Theory of Acceptance and Use of Technology (UTAUT) model, developed by

Venkatesh et al., (2003). Zhou (2011) asserts that it is robust than other theories of
technological adoption. The UTAUT aims to explain user intentions to use an Information
Systems (IS) and subsequent usage behaviour. The theory holds that four key constructs
(performance expectancy, effort expectancy, social influence, and facilitating conditions) are
direct determinants of usage intention and behaviour (Venkatesh et. al., 2003).

2.6 Agent Banking Practice in Ethiopia

In Ethiopia eleven commercial banks and six microfinance institutions have got permission to
provide agent banking service (NBE, 2017). Among these institutions five micro finance
institutions from different Ethiopian regions have started agent banking service, M-BIRR. M-

BIRR provides simple financial related services, i.e. cash transfer and deposit, cash
withdrawal and bill payment. However agent banking service in Ethiopia has lower rate of
penetration. It has limited number of customers with partially available services.

CBE-BIRR is an agent banking service introduced by Commercial Bank of Ethiopia in

accordance with NBE directive number FIS/01/2012. It was in development phase for long
period of time and became live in 2017. Like other agent banking service providers, CBE-
BIRR customers can transfer money to subscribed or unsubscribed users, deposit and
withdraw cash from agents, buy airtime directly without scratching mobile cards and pay for
goods and services.

Commercial Bank of Ethiopia has more than 1,200 branches in Ethiopia and CBE-BIRR is
taking advantage of this huge number of networked branches to recruit new agents and
customers. In addition to this, there are a number of agents banking services administered by
various financial institutions, mostly banks. There is also slight difference regarding the
channel used to provide the service. Some banks recruit agents to provide financial services
when customers appear physically and others are using modern technologies like mobile
phone, which enables customers to maintain their account remotely without visiting agents.

2.7 Agent banking Practice in Kenya

Different literatures have different information about the emergence of agent banking.
According to Tobbin (2012) it was first introduced in Philippines in 2003 but according to
Demirgüç-Kunt et al. (2015) South Africa is the first country to have agent banking in 2004
and other scholars like Ngugi et al., (2010) argued that Kenya is the first. Regardless of its
emergence Kenya’s M-PESSA is the most successful agent banking service provider. M-
PESA is introduced by safari com, the biggest mobile service provider in Kenya. M stands
for mobile and PESSA is money in Swahili. Currently it is providing financial services i.e.
cash transfer, payment for goods and services, salary payment and other services (Ngugi et
al., 2010).

After two years of implementation M-PESSA had 8.6 million customers and $328 million
transactions per month. Vodacom, telecom service provider in Tanzania also copied M-
PESSA model to Tanzania but it couldn’t be as successful as it was in Kenya. In Kenya there
were 2.7 million customers after one year of operation. However, Tanzanian Telecom
Company could only have 280,000 customers at the same time (Ngugi et al., 2010).

Kenyan community is slow to adopt other technologies like new technology of farming,
manufacturing, transport and others. But mobile money banking was much successful.
Different researchers tried to identify the success factors that make M-PESSA successful in
Kenya (Ngugi et al., 2010).

2.8 Success Factors of M-PESSA in Kenya

According to Ngugi et al., (2010) before the introduction of M-PESSA, 14.3% of Kenyan
rural population was dependent on its urban relatives. On the other side people in urban areas
were in need of cheap and fast way of sending money to their families leaving in countryside.
He also identified the following success factors for M-PESSA in Kenya.

1. Illiteracy: the un-banked society in Kenya is illiterate to handle all paperwork of operating
formal bank account.

2. Cost: Kenyan banks require minimum balance and have charges if that amount of money is
not maintained in customer’s account. On average single current account has $19 cost per
month which is not affordable for most people. In contrast M-PESSA has no minimum
balance requirement and has minor charge for money transfer.

3. Location of banks: while 70% of the population in Kenya lives in rural areas, most of the
bank branches are located in cities.

4. Big market share of Safaricom: Safaricom has 79% of the country’s telecom market share,
this allows the company to have huge market and to implement modern technologies easily
(no need of migration from other telecom companies).

5. Sense of ownership: as a home grown technology, Kenyan community has real sense of
ownership. The major challenge in Tanzanian case was the people considered it as foreign
technology and brought to generate income to the telecom company. Due to these factors M-
PESSA in Kenya became successful and could generate 8.6 million customers within two
years.

2.9 Empirical Literature Review

The researcher tried to review related researches works pertaining to the topic in order to
demonstrate through understanding of the research topic. Based on the objectives and main
findings of each research works under consideration, the review tries to make a link between
the theoretical and empirical reviews in light of the underlying themes towards the provision
of mobile banking services; such as the various challenges posing to the business, the
prospects towards the drivers of Mobile and Agent Banking services, the models employed
by various countries and the success or failure factors behind such innovative banking
services towards financial inclusion in such a way that addressing the concept behind the
statement of the problem. Gichana, (2013) in Kenya has made a study on “Challenges of
Agent Banking Experiences in Kenya” with the objective of determining the extent to which
insecurity affects agent banking, investigating the extent to which capital availability affects
agent banking, establishing the effect of liquidity/float related problems and how perceived
credibility affects the agency banking. The study has found out the uptake of agent banking in
Kenya has not been well appreciated by the target beneficiaries who include among others the
micro and small enterprises in the rural areas in Kenya who were expected to benefit from
this technologically innovative service. The paper is based on a study conducted to reveal the
challenges which are hindering the rural people of Kenya benefiting from agent banking. In
as much as it has been witnessed that there is an increase in penetration of agent banking
services clients have not fully made use of the available agents at their localities to cut down
on transaction costs occasioned by travelling to traditional branches and also time wasted on
queuing for services. The researcher also identified some of the factors hindering the well-
functioning of agent banking despite mounting financial literacy, lack of mobile network
services and float, lack of capital, issues of insecurity and fear of robbery. The study tried
also to indicate the CGAP(2010) report that states the usage of semi- formal financial
services in Kenya including m-banking platforms such as M-PESA increased from8.1% in
2006 to 17.9% in 2009, while the proportion of the population with access to only informal
financial services decreased from 35% to 26.8%. The share of the population excluded from
any financial service decreased from 38.3% to 32.7%, these statistics suggest strong gains in
financial inclusion coinciding with the introduction of M-PESA.

Mosoti and Mwaura. (2014) “An Investigation on Slow Adoption of Agent Banking Services
in Kenya as Strategic Response by Commercial Banks” The objective of the study was to
investigate on the factors influencing slow adoption of agent banking services by customers
as a financial inclusion tool by commercial banks in Kenya. The study has found that costs
charged due to use of Agent Banking services were high this is because they were much
higher compared to normal bank charges such as ATM charges. Transport is also an issue for
those areas where there is no wide network coverage, trustworthiness, security of transacting,
infrastructure challenges such as system and power failure and liquidity concern were some
of the challenges that contributed to the slow adoption of Agent Banking. The study also
found out that other competing services offered by banks which are far much convenient,
reliable, guarantees confidentiality and which operate for 24 hours such as ATMs, Internet
Banking and Mobile Banking creates slow adoption of the Agent banking business. Wolela,
(2014) “Prospects and Challenges on the Implementation of Mobile and Agent Banking in
Ethiopia” The objective of the study was to investigate prospect and challenges of Mobile
and Agent banking in Ethiopia based on structural, organizational, infrastructural, economic,
social and legal aspects. It was exploratory type of research design and data was collected
through conducting interviews with key informants from different stakeholders such as
selected Financial Institutions, Technology providers, NBE and Ethio - Telecom. Data were
discussed with narrative method of qualitative data analysis. The researcher found out that the
challenges revolve around on: having competitive price with the traditional banking
offerings, improper articulation of organizational structure, infrastructure issues like
Telecom, Power and road, failure to realize interoperability among financial institutions and
 financial literacy level of the society. Moreover, the research identified that the strangest
regulatory framework drafted by NBE has missing and ambiguous articles which casted
shadow on the provision of Mobile and Agent Banking in Ethiopia. The research
recommended the Mixed Model approach for Agent Banking business in Ethiopia and the
requirement of experience sharing with countries following similar model with Ethiopia for
the successful implementation of Mobile and Agent Banking.

On the other hand the descriptive study conducted by Afewerk (2015) also studded on
“assessment of agency banking innovation in Ethiopia: barriers and derivers”. The author
used a quantitative research approach sent out to respondents which is from the selected four
banks. The finding of the study revealed that the main factors influencing the adoption of
agent banking in Ethiopia are the prospects of cost reduction, availing services beyond
restriction of space and time through established third party with the application of
technology. The benefits were also classified as Perceived Ease of Use and Perceived
Usefulness. In the conclusion the study recommended banks to consider technology based
competition focusing on customer base expansion, cost reduction, awareness creation,
credibility, security, ease of use, and availability to exploit the benefit of agency banking
while the government should support banking sector by facilitating sufficient ICT
infrastructure development and issue workable legal frameworks to ease the adoption of
agency banking system.

2.10 Conceptual Framework of the Study

The measurements of customers’ intention to use commercial bank of Ethiopia CBE – BIRR
mobile money service is carried out with the aid of TAM model. But the researcher make
some adjustments instead of using copy of the TAM model by adding perceived risk and
perceived trust variables in to TAM model variables.

Figure 2.1. Conceptual Framework

Perceived Ease of Use

Customers’ Behavioural
Perceived usefulness
Intention to use CBE-birr
Mobile money Perceived Trust

Perceived Risk
Behavioural Intention: - Consistent to all models drawing from psychological theories which
argue that individual behaviour is predictable and influenced by individual intention. Given
that the ultimate goal of businesses (i.e., banks) is to attract consumers to adopt their services
rather than the intention to adopt services, extensive research has examined the relation
between behavioural intention and actual use (Sripalawat et al. 2011).

This thesis tried to examine the relationship between CBE- BIRR mobile money customer
behavioural intention and actual behaviour.
 Chapter Three
3. Research Methodology
3.1. Introduction
This chapter will present the methodological framework applied to solve the research
problem and to answer the research questions. The chapter starts with the chosen research
design and research approach. Afterwards, the sample selection and the data collection
methods will be presented.
3.2. Research Design
A research design is the arrangement of conditions for collection and analysis of data in a
manner that aims to combine relevance to the research purpose with economy in procedure.
In fact, the research design is the conceptual structure within which research is conducted; it
constitutes the blueprint for the collection, measurement and analysis of data (Kothari, 2004).
According to Robson (2002), the three purposes of conducting research are generally the
following: explorative, descriptive and explanative. Explorative research is characterized as
the seeking of new insights, the looking around, and the asking of questions or the bringing of
some phenomenon into new light. Explanative research aims at gaining an explanation of a
specific situation or problem, generally in the form of causal relationships. Finally,
Descriptive research is a type of research that is mainly concerned with describing the nature
or condition and the degree in detail of the present situation.
Creswell (2003) stated that the descriptive method of research is used to gather information
about the present or existing condition.
This study is focused on describing the current situation of the problem and answer the
research questions which are in the form of ‘‘what’’, and to highlight the most important
factors that can negatively or positively affect the adoption and development of E- banking in
Ethiopia. Moreover, this research aims to assess the challenges, opportunities and factors
influence customers’ behavioural intention to use CBE –BIRR Mobile money service for
financial inclusion in Ethiopia.

3.3. Research Approach

In order to attain the objective of the study and answer the research questions, the researcher
is adopted mixed research approach. The rationale of using a mixed approach is to gather data
that could not be obtained by adopting a single method (Creswell, 2003). Hence, the basis of
such approach helps to neutralize the limitations of applying a single approach in connection
with the qualitative and quantitative nature of the research questions.
3.4. Population, Sample Size and Sampling Techniques
In research methods, population is the entire aggregation of items from which samples can be
drawn (Yahiya, 2011). The population of the present study consists of public commercial
banks that have operated. Hence, According to National Bank of Ethiopia Quarterly Bulletin
(2015), the total number of Commercial Banks which had been operated in the year 2015 is
19, of which 16 commercial banks owned privately. In order to undertake this study, the
researcher purposely sampled one commercial banks, which are adopted E-banking
technological.
The procedure used for drawing the sample from the available lists is based on their
familiarity with E-banking technology i.e. long Challenges and Opportunities of Electronic
Banking in Ethiopia of 98 years services in providing E-banking products to public. Thus,
this research paper used purposive sampling method to draw the sample from the population.
Samples are chosen to represent the relevant attributes of the population. The researcher also
notes the caution by Graziano and Raulin (1997) where the samples are not perfect
representative of the population from which they are drawn, therefore the researcher unlikely
to be able to generalize the conclusions to the entire population.
3.5Sources of Data
The researcher use both primary and secondary sources of data in the study. The secondary
data is collected from publications including articles, researches and various materials that
have relevance to this study and the sources is used only for literature purpose in chapter two.
In this study, primary data is generated and presented through a structured questionnaire fully
applied. Data is collected personally by the researcher. The questionnaire is arranged in to
open ended questions and a five point Likert scale anchored with “strongly disagree” and
“strongly agree” on the scale.
3.7. Data Collection Instruments
In order to collect sufficient data so as to answer the research questions, researcher designed
two surveys; the first is a questionnaire to get quantified results. The second survey is
interviews aimed to collect data from CBE-BIRR managers. In addition to questionnaire and
interview secondary data source has been also used.
3.7.1Questionnaires
According to Yin (2003), structured questioners are important method for collecting primary
data and that it further allows the researcher to be well focused on the specific research topic.
The questionnaire was used because the researcher considered it to be more convenient as
Challenges and Opportunities of CBE-BIRR in commercial Bank of Ethiopia respondents
could answer at their convenience (See Appendix 1). The questionnaire is developed by the
researcher based on the research questions and the literature. The researcher used open and
closed-ended type of questionnaires, which gives the respondents an opportunity for adequate
expression of their view on the questions. The questionnaire began with an introductory
statement, which specified the purpose of the research as purely academic. Respondents were
encouraged being objective in their responses since they were assured of confidentiality.
To determine the probable usefulness of the questionnaire and whether further revision is
needed prior to conducting the survey, the questionnaire was pilot tested. The researcher
circulated the questionnaire to four postgraduate students and six professional staffs of
sampled private commercial directly engaged in CBE-BIRR. The subjects are asked if they
had any problems understanding the questionnaire or have specific comments regarding the
questionnaire. The format for responding was through both open-ended and close-ended
questions. The subjects are encouraged to be very free with their responses, make suggestions
for improvement and outline any difficulties they found. After each questionnaire is
accomplished, every question was asked what he/she meant in checking various answers.
Comments are solicited on the intelligibility of the questions and what the changes should be
done in order to make the questions simpler.
These respondents also gave their comments on understanding the instructions about the
scaling and the time taken to answer the questions. The test found no grave problems and
minor modifications are made to the survey questions based on the response obtained.
In addition, the pilot study is conducted to ensure the validity, sequence and relevance of the
questionnaire to this study
As despite in the above, six purposely sampled private commercial banks are included in the
survey. The target respondents are professional experts who are in charge of the CBE-BIRR
in commercial banks. Questions present in the form of affirmative statements, relating to the
concepts on CBE-BIRR and to identify their intention on the challenge and opportunities for
adoption and development of CBE-BIRR, in such a way to enable measurement of the
respondent’s opinions. The respondents Are asked to indicate their level of agreement on a
five point likert scale with the following ratings. Strongly agree (SA; or 5), agree (A; or 4),
neutral (N; or 3), disagree (DA; or 2), and strongly disagree (SD; or 1). The numbers are
indicated in the questionnaires to provide a feel of ordinal scale measurement and to generate
data suitable for quantitative analysis. The questionnaire is a close ended questionnaire to
elicit guided responses and for easy analysis and to obtain additional information, the
respondents were requested to provide open-ended responses if they have opinions which
they feel the researcher would find useful.
3.7.2. Interviews:
In addition to questionnaires, semi-structured interviews are conducted with CBE-BIRR
managers of each sampled commercial banks to have sufficient information regarding the
research problem and with the relevant bodies of the National Bank of Ethiopia (Banking
Supervision directorate). The major purpose of this interview was to corroborate certain facts
that the investigator already thinks have been established (Yin, 1989; pp. 89). Therefore,
Thus, semi-structured interviews Are conducted so as to substantiated and improve the results
of questionnaires. Challenges and Opportunities of CBE-BIRR in commercial Bank of
Ethiopia.
3.7.3 Secondary data Sources:
The secondary sources of data constituted data gathered from records and reports of the
industry, World Wide Web (www) of the respective commercial banks, The most important
use of this secondary data source will be to corroborate and augment evidence from other
sources (Yin, 1989; pp. 86). Thus, the document examination helps to substantiate the
patterns that evolved from the data collected via questionnaires and interview, so that the
validity of the findings could be enhanced through secondary sources.
3.8Method of Data Analysis
In order to meet the stated research objectives, the collected data is analysed based on the
nature of the objective. Accordingly, the data collected via questionnaires is analysed with
descriptive statistics using statistical package for social scientists (SPSS) V. 20.0.
Furthermore, Wolcott (1994) cited in Creswell (2003; pp.184), suggested that qualitative
research is fundamentally interpretative i.e. the researcher makes an interpretation of the data.
Thus, the data that is collected from the interview and reviews of documents were interpreted
qualitatively. To sum, the analysis of quantitative data and interpretation of qualitative data
combines to seek convergence among the results (Creswell, 2003)