“CHALLENGES AND PROSPECTS OF ELECTRONIC-BANKING SYSTEM THE CASE OF DASHEN BANK” A

SENIOR ESSAY TO SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIRMENT FOR B.A DEGREE IN
ACCOUNTING AND FINANCE

PREPARED BY; GEBRE BAYOU

ADVISOR: ENDALCKACHEW MULUGATA

ADDIS ABABA UNIVERSITY COLLEGE OF BUSINESS AND ECONOMICS DEPARTMENT OF ACCOUNTING

AND FINANCE JUNE, 201

Chapter one
Introduction
1.1 Background to the Study

The increasingly competitive environment in financial sector market has resulted in pressure to
develop and utilize alternative channels. The most recently delivery channel introduced is online or
electronic banking systems also known as e-banking. E-banking also known as electric fund transfer
(ETF), uses electric and computer technology in place of checks and other transaction
(Daniel&storey, 1997). When the term online banking initially gained popularity in the later
1980’s.The phrase referred to the use of a terminal. Keyboard and television or computer monitor to
access one’s bank account using a landline telephone Now the online banking or net banking
definition, including any electronic payment service that allows customers of a financial institution to
conduct financial transaction through the financial institution’s internet enabled website or
applications. Online or electronic-banking systems give everybody the opportunity for easy access to
their banking activity. These banking activities may include but not limited to, retrieving an account
balance, money transfers between users account from a user account to someone else’s account ,
retrieving an account history. Some banks allow services such as stock market transaction and the
submission of standardized of account payment files for transfer to third party (claessenstretal
2002).It had been projected that more than 32 million households globally were banking online by
2003(Simpson,2002).Banks and other financial institutions have moved to e-banking in their effort to
decrease cost while maintaining reliable customer service(Kolodinsky and Hogarth,2001).It is an
evidence that banks and other financial institution in developed and developing countries embracing
e-banking. The rapidly growing of information and communication technology is knocking the front
door of every bank in the world including our country’s banks. In Ethiopia, however, cash is still the
most dominant medium of exchanges and electronic-banking systems are at an evolving stag. In the
face of rapid expansion of e-banking system throughout developed and developing world, Ethiopia’s
financial sector couldn’t remaining an exception to use of the e-banking system. In this context, the
study will attempt to trace the present status of e-banking in Dashen bank challenges and prospects
to providing those services
1.2 Background of Dashen Bank

The first privately owned bank in business history of Ethiopia was Addis Ababa S.C established
in1964.But until the end of 1974 there were state owned, foreign owned and Ethiopian owned banks
in Ethiopia. The banks were established for different purposes, central bank, commercial bank,
development bank and investment bank such diversification functions. Following the 1974
revolution on January 1, 1975 all private banks and 13 insurance were nationalize by the state and
along with state owned bank. Overthrow the Dreg regime by the EPRDF, the Transitional government
of Ethiopia followed the new economic policy, market oriented system and ushered private sectors
(abyssinialaw.com) Dashen bank was established as per intent of the new policy and the Ethiopia
investment code. It was established on September 20, 1995 according to the commercial code of
Ethiopia and the licensing and supervision of code business proc No.84/1994 with paid up capital
14.5million and authorized capital of Birr 50 million. The first founding members were 11
businessmen and professionals that agreed to combined their financial resource and expertise to
form this new private bank. Dashen bank coined it named from the highest peak in the country,
mount Dashen and aspires to be unparallel in banking. Headquartered in Addis Ababa, the bank is
the biggest private bank in Ethiopia in. Since then the bank has been growing and has currently
(2017) reach to own it operates through the network of 196 branches,9 dedicated forex bureaus ,
220 ATMs,and958 plus point of sale(POS) terminals’ spread across the length and breadth of the
nations. It has established correspondent banking relation with 464 banks covering 71 countries and
175 others across the world. Whichever business takes customer around the world. Dashen is the
most reputable brand in domestic banking market ,the bank works in a partnership in the leading
brand in the e-banking system industry(American Express,VISA, Master card and union pay card) and
prominent money transfer operators(Western Union, Money gram, Express
Money,Dahabshin,TransFast,EzRemit,FloCash,DawitMoneytra,&Ria).(dashenbanksc.co m).

1.3 Statement of the problem

Electronic-banking system is a driving force that is changing the banking industry to warding the
more competitive and efficient situation-banking present both prospective and challenge in terms of
convenient, effectiveness, and efficiency of e-banking to the customers. The main driving behind e-
banking is convenience. It is available around the clock, is extremely time-saving and is accessible
from anywhere around the country’s-banking is very efficient and has helped cut down a lot of costs.
And case of virtual banks it has cut almost all costs (alam, 2010).But the influence of e-banking is
goes far beyond this. All these prospects and benefits that e-banking offers to the Dashen bank,
there are a numbers of challenges which the bank operating in the provision of e-banking service.
One of the major hindrances is lack of appropriate technological infrastructure to support the
service. The bank also argue with the internet challenges including it connection, security and
quality of service (magersa, 2010).There is again lack of adequate lack of technology skills to give the
service, challenges to convince customers, especially those who are not familiar with using the
internet, and might find it hard to try to deal with a service that they consider confusing and
frustrating. Ethiopia financial sectors have not been studied any great extent from the prospective
and challenges of e-banking system in Ethiopia. Since, 2005 the e-banking introduce in Ethiopia,
December 3 1, 2014 the central bank licensed Dashen for the use of e-banking system, for the use
which allows its customer to deposit or withdraw money from a bank account using the internet.
Though the service has been in operation for the past years very limited research has been
conducted on the challenges and prospective of e-banking system in Ethiopia in general and in
Dashen bank in particular. Thus study attempted to fill this gap and contributes to the literatures on
the e-banking the case of Dashen bank. Therefore the main purpose of this study is investigating the
challenges and prospective e-banking system and it the implementation in Dashen bank.

1.4 Research Questions Based on the above clarification the researcher will try to
answer the following questions;

What looks like the current practice of e-banking in Dashen bank?

What are the potential benefits of e-banking service?

What are the major challenges of e-banking?

How to improve those challenge ?

1.5 Objective of the study

This research the researcher will have mainly focuses two objectives; those are general
objective and specific objective.

1.5.1 General objective

The overall objective of the study is to examine the challenges and prospect associated with the
e-banking system the case of Dashen bank.

1.5.2 Specific objectives

The researcher specific objective will try to be systematically addressing various aspects
of benefits and problem by the adoption of electronic banking system and the key factor
that are assumed to influence or cause those in case of Dashen Bank.

Based on the research questions the followings are those paper specific objectives

To determine the current e-banking system that is being used by Dashen bank.

To identify the potential benefit by the operation of e-banking in Dashen bank and
forward relevant recommendation.

To investigate the major challenges in the implementation of e-banking in Dashen bank

and seek solution.

To suggest the improvement of in the e-banking system in Dashen Bank.

1.6 Significance of the study

 The researcher will hop that this study clearly reflect most of the benefit and the limitation
observed in e-banking system and will be significant as it is expected to enhance the awareness
level of stakeholder, customers and others with regard to the challenges and prospect of
implementing and using e-banking system in Dashen bank. In this regard the study will have a
great importance in fill the knowledge gap of those users. The research will also identify the
technical and operational challenges of e-banking system the case of Dashen bank and suggest
how they will be tackling. Furthermore the outcome of the study will expect to assist other
researchers for farther studies in the area of e-banking challenges and prospects.

1.7 Definition of terms

Meaning of electronic-banking system Electronic banking can be defined as the use of electronic
delivery channels for banking products and services, and is a subset of electronic finance. The
most important electronic delivery channels are the Internet, wireless communication networks,
automatic teller machines (ATMs), and telephone banking. Internet banking is a subset of e-
banking that is primarily carried out by means of the Internet. The term transactional e- banking
is also used to distinguish the use of banking services from the mere provision of information.
Electronic banking services are offered in two main ways; Either traditional brick and mortar
banks combine traditional and electronic delivery channels (brick and click banks) or banks offer
their products and services only- or predominantly- through electronic distribution channels
without having a branch network (other than a physical presence as an administrative head
office or non branch facilities such as kiosks or ATMs). These banks are called “virtually banks”,
“branchless” or “Internet- only” banks. Withdrawal and deposit of funds may be made through
ATMs or other remote delivery channels owned by these virtual banks or other institutions.
Setting up licensed virtual banks can, in principle, be done in three ways. v Blue cross blue shield
(BCBS) (2001): “…Electronic banking, or e-banking, includes the provision of retail and small
value banking products and services through electronic b

1.9 Organization of the study

The research report is organized into four chapters: Chapter one focuses on the background of
the study, problem statement, objectives and research question of the study. In chapter two, a
range of literatures review capture there to gather relevant information concerning electronic-
banking. In chapter three data analysis technique and the last Chapter is about
recommendations and conclusion.

desire to build organizational reputation desire to satisfy

Chapter two
Literature review
The literature available for the researcher on the electronic-banking system can be
categorized in to the following topics.

1. Technological development and banking industry

2. History of e- banking system

3. Meaning of e-banking system

4. Information system security and internal control

5. Customers and e- banking technology

6. Challenges and prospects of electronic-banking

2.1. Technological development and banking industry Now a day it is impossible to

differentiate ICT and banks.

Banks cannot operate solely without incorporating technological advancements unless

they want to fail. Raj Shekhara K. S. (2004) described the adoption of IT in banking has
undergone several changes with the passage of time. Today IT has become inseparable
segment of banking organization. The application of IT in the banking sector resulted in
the development of different banking concepts such as E-banking, mobile banking,
internet banking, ATM, universal banking and investment-banking. The real success of IT
in banking industry depends on customer satisfaction. Therefore banks should organize
and conduct customer awareness program in their service area. According to the reports
of reserve bank of India (RBI), the process of computerization had started from bank
office application, after that total branch automation and now a days it is a period of e-
banking system. A key trend in the last couple of years has been the focus on e- banking
systems. With the implementation of e- banking system across the banks the usage level
of IT for customer management has increased. Electronic-banking system has enabled
bank to launch new products and services targeting specific customer segments after
understanding their banking and investment requirements. ATM, internet banking and
mobile banking have improved customer convince by providing anywhere any time
banking services. The utility bill presenting and payment has helped customers to pay
their bills online at the click of a button. Electronic clearing system and electronic fund
transfers have facilitated faster funds movement and settlement for different banks
customers and different centers. The electronic data interchange and cash management
services facilitates have enabled better funds management for the customer. Banks
offered customers the ability to access their accounts and perform at least simple money
transactions using internet banking. Advancement in ICT has made it possible for the
banks to use internet as a delivery channel for banking services. The study conducted by
VijMadhu(2003) conclude that challenge for future will be synergetic use of internet,
proper understanding, measuring of risk management as also nurturing and retaining
the intellectual capital.

The author also suggested the following strategies that need to be focused on: v
Developing and innovate new products so as to widen customer base. v Strategic
alliances v Setting up of an effective software system for ALPM the way most banks in
developed countries are using. According to Anitha H. Saranya J. and S. Vasantha (2013),
the financial transaction and payment can be processed in easy and quick way. The use
of ATM, credit card, telephone banking, mobile banking internet banking. It also
highlights the effective use of technology in sector began its usage with advanced ledger
posting machines (ALPM) in the 1980’s and later used core banking solutions (CBS) for
providing. Wenninger(2000) evaluated the emerging role of e-commerce in banking. E-
Commerce had created new form of competition and compelled banks to make choices
about the services they offer, the size of their branch network and extent of their
support to interbank payments network. Harris and Spence(2002) extend the ethics of
business to business (B2B) electronic commerce with focus on banking sector.

The challenges B-banking services would be successful for banks only if fraudulent
activities could be controlled, transparency could maintained, ethical rules and
regulation to be followed so that e-banking could be accepted among customers. Arora
(2003) made an attempt to prove that technology had a definitive role in facilitating
transactions in banking sector; and the impact of technology had resulted in to the
introduction of new products and services by various banks.

Technology was a facilitator for advancement in the business of banking and not an end
itself. Durkin and Howcroft (2003) evaluated that the banker- customer relationship was
improved through mobile phone and internet banking further, the combination of
transitional and new delivery channels if followed, can help to improve their productivity
and profitability. Hogarth and Hilgor (2004) highlighted that e-banking technology
represents a variety of services, ranging from common ATM and direct deposit to
automatic bill payment (ABP), electronic transfer of Funds (EFT) and PC banking. These
services help in saving time decrease the errors, improving in accurate accounting and
preventing manipulation of data. Suresh (2008) highlighted that recently developed e-
banking technology had created unpredicted opportunities for the banks to organize
their financial products, profits, services, delivery and marketing for better future of the
economy. 2.2 History of E- Banking The evolution process of latest service delivery
mechanism through internet i.e. e-banking started from the early 1980s. In late 1980s,
the term online got popularized and it was referred to a banking medium of using a
terminal, keyboard and monitor to access the banking system through a phone line.
Another term used for this was ‘Home Banking’ and in it, customers were using a
numeric keypad to send tones down a phone line with instructions to the bank. In 1981,
e- banking has started in New York with offering home banking service using videotext
system by Citi Bank, Chase Manhattan Bank, Chemical bank and manufacturers Hanover
 bank. Although due to failure of videotext system, Home Banking was not able to gain
popularity except in France and UK. In 1983, Bank of Scotland provided UK’s first home
online banking service to the banking customers of Nottingham Building Society. This
online banking service was based on Prestel system of UK and used a computer like BBC
Micro or keyboard connected to the telephone and television system. This system was
called Home link and it enabled customers to view their bank statements online, online
fund transfer and online bill payment. To pay bills or transfer funds, customers need to
send a written instruction having details of intended transaction to Nottingham Building
Society who set the details upon the Home link system. The usual recipients of this
service were electric company, Gas Company, telephone companies and other banks.
The account holder has to provide details of the payment through Prestel into
Nottingham Building Society system. Then, a cheque of payment amount has to be send
by Nottingham Building Society to the payee and an instruction giving details of the
payment was send to the account holder. Later, banker’s automated clearing services
(BACS) were used to directly transfer the payment. In Oct. 1994, Stanford Federal Credit
Union was the first financial institution that provided internet banking facility to its all
members. Today; a number of banks are functioning as internet only banks. These
internet only banks do not have a physical bank branches like their predecessors. They
differentiate themselves by providing better rate of interest and internet banking facility.

CHAPTER THREE

3. Research methodology

This section briefly explains the techniques and procedures applied to gather and analyze data.
It incorporates data source, data collection and sampling techniques and data analysis.

3.1 Data Sources

The study used data from both primary and secondary sources. Primary sources of data
included questionnaire administered to selected customers and staff of the Head Office, around
Menen area branch, and head quarter from electronic-banking personnel. The questionnaire will
be developed in consultation with the supervisor. The items were subsequently edited and
vigilantly selected bearing in mind the research questions. 8 at total of 25 respondents out of a
sample of 25 employees completed and returned their questionnaires. The secondary sources of
data constituted data gathered from world wide web (www), literature on e-banking, bulletins,
in-house newsletters, books and journals, and unpublished theses.

3.2 Data Collection Tools

While conducting the study the researcher will use, questioner based survey, observation and
document review as a collection tools.

1.8.3 Sampling Techniques

 When conducting this study the researcher use purposive sampling to select Dashen bank
among 16 private commercial banks which acquire and implemented e-banking system by taking
the cost, time and availability of organized data into consideration. Target population to this
research will be employees, and manager of Dashen bank around Menen area branch. The
sample size of this research will be 8 employees and manager out of 14 staff members and the
researcher will select the sample randomly by lottery.

1.8.4 Data Analysis Techniques

The researcher use qualitative type of data analysis techniques to analyze the data will collect
through, document review, observation and questioner.