CHAPTER ONE

1. INTRODUCTION

1.1. Background of the Study

The banking sector in Ethiopia is undergoing rapid technological advancements, including

the adoption of electronic payment (e-payment) and mobile payment (m-payment)systems. E-
payments are completed electronically for the purchase of goods and services. M-payments,
on the other hand, are completed over mobile phones for the purchase of goods and services.
E-payment systems offer numerous benefits, such as convenience, efficiency and security.
Furthermore, they effectively facilitate payments among customers, companies and banks and
improve the settlement process. With e-payments, customers can easily pay their bills without
physically visiting bank premises and access their account information at any time from the
comfort of their homes or offices. There are manye-payment options available to customers,
including but not limited to electronic fund transfers, automated teller machines, debit cards,
credit or smart cards, electronic wallets, mobile banking, money transfers, person-to-person
payments, electronic cash systems, electronic cheque systems and internet payments (Wahab,
2012). Person-to-person payments allow individuals to transfer money from their bank
accounts to another individual’s bank account via the internet. However, the adoption of
these systems is influenced by various factors, including individual perceptions,
organisational factors and external influences like globalizations, interest rates.

1.2. Statement of the Problem

To encourage e-banking in developing countries, a deep understanding of the barriers and

drivers impacting e-banking adoption is critical (Zhao, 2008). By gaining an in-depth
understanding of the conditions that influence a developing country’s ability to fully adopt
and realise the benefits of e-banking, researchers and practitioners can develop strategiesto
promote the growth of e-banking in developing countries. Ethiopia’sbanking industry is
underdeveloped; therefore, there is an urgent need to embark on capacity-building
arrangements and modernise the country’s banking system by employing state-of-the-art of
technology that can beused anywhere in the world (Gardachew, 2010).

The adoption of e-payment systems in the CBE(Commercial Bank of Ethiopia)presents

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challenges due to factors such as perceived usefulness, ease of use, security concerns, trust,
public awareness and demographic variables such as education level, geographic location,
and age. Understanding these factors is crucial for promoting the adoption of e-payment
systems in CBE. Therefore, this study aims to determine the factors affecting the adoption of
e-banking systems in CBE based on the research concerns discussed above.

1.3. Research Question

To determine and assess the factors affecting the adoption of e-banking in Ethiopia’s banking
industry, this study aims to answer the following main and sub-research questions:

1. What are the factors influencing the adoption of e-payment systems in the Commercial
Bank of Ethiopia?
2. Whatare the relationships among these factors, and how strong are they?

1.4. Research Hypotheses

1. Perceived usefulness positively influences the adoption of e-payment systems in CBE.

2. Perceived ease of use positively influences the adoption of e-payment systems in CBE.
3. Security concerns negatively influence the adoption of e-payment systems in the CBE.
4. Trust positively influences the adoption of e-payment systems in the CBE.
5. Gender positively influences the adoption of e-payment systems in the CBE.
6. Educational level positively influences the adoption of e-payment systems in the CBE.
7. Age negatively influence the adoption of e-payment systems in the CBE.
8. Financial and human resources are positively influence adoption of e-payment systems in
the CBE.
8. There are highly positive correlations among aforementioned variables.

1.5. Objectives of the Study

1.5.1. General Objective:

General objective of this study isto identify the factors affecting the adoption of e-payment
systems in the Commercial Bank of Ethiopia (CBE).

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1.5.2. Specific Objectives

1. To assess factors determining adoption of e-payment systems in CBE.

2. To examine types and extent of relationships among factors.

1.6. Significance/Justification of the Study

The outcomes and results of this study will have potential value and provide valuable insights
to financial institutions, particularlyCBE and other banks in Ethiopia looking to enhance their
e-payment system adoption rates. It will also contribute to the existing body of knowledge on
e-payment system adoption in the banking sector, particularly in the Ethiopian context.
It also will assist National Bank of Ethiopia to identify challenging factors that hinder the
adoption of Electronic banking in order to increase the use of service as well as to encourage
the general acceptance of new IT services and to monitor the development and growth of E-
banking.
In addition, this study expected to help other researchers who will be interested to conduct
further study regarding the issue under investigated by providing use full information. Finally
based on the factors found to be influencing bankers' decision on E-banking system, the study
may provide recommendations for banks about changes needed to accelerate the practice of
the system to deliver service to customers through technological innovation.

1.7. Scope of the Study

The study will focus on customers and employees of the Commercial Bank of Ethiopia
(CBE) in Addis Ababa. It will cover factors such as perceived usefulness, ease of use,
security, trust, awareness, and demographic variables.

The study will focus to investigate the major challenges of adoption of E-banking in the
Banking industry of Ethiopia. The study will be limited to select five commercial banks
namely commercial bank of Ethiopia, United bank, Abay bank, Dashen bank, and Awash
bank and their branches that are located only in Addis Ababa and excluded financial
institutions other than bank. The reasons for this are Ethiopia is too large for the researcher
to travel all over the country. From the total population five banks are selected based on
banks that are partly implemented E-banking and large customer base.

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There are many factors affecting adoption of E- banking. But I will try to see the following
Factors only and other factors are excluded. From technological factors perceived benefits
and perceived risks, from environmental factors legal frame work, national ICT
infrastructure, competitive pressure and government support, from organizational factors,
financial and human recourses, from demographic factors gender, age, and educational level,
and finally trust on the system are the factors under study.

1.8. Limitation of the Study

While conducting the study, the sample is taken only from one state owned bank and four
private commercial banks; and the researcher will uses non probability sampling technique
and it have its own drawbacks like Unknown proportion of the entire population is not
included in the sample group i.e. lack of representation of the entire population, Lower level of
generalization of research findings compared to probability sampling and Difficulties in
estimating sampling variability and identifying possible bias. Hence the generalizations may
not be applicable to them. However, in order to get a more reliable representation,
respondents’ information should be gathered from all banks that use e-banking. It is also
expected that respondents may not properly respond to the whole content of the
questionnaire due to misunderstandings, lack of knowledge, or commitment to the subject
matter. However, to minimize these problems, the researcher will use interceptive
interviewing technique and some of the questionnaire which will be distributed to the Bank's
customer will be selectively distributed for those individuals the researcher believe that they
have the potential, ability and capacity to respond the questioner properly.

1.9. Definition of Operational Terms

1. Electronic Banking is a form of banking service where funds are transferred through an
exchange of electronic signal between financial institutions, rather than exchange of cash,
checks, or other negotiable instruments (Kamrul, 2009).

2. Internet banking: refers to systems that enable bank customers to access accounts and
general information on bank products and services through a personal computer (PC) or other
intelligent device (Booz, Allen & Hamilton, 1999).

3. ATM: It is a machine where cash withdrawal can be made over the machine without going

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in to the banking hall. It also sells recharge cards and transfer funds; it can be accessed 24
hours/7 days with account balance enquiry (Fenuga, 2010).

4. Adoption is the acceptance and continued use of a product, service or idea. Consumers go
through a process of knowledge, persuasion, decision, implementation and confirmation
before they are ready to adopt a product or services Rogers and Shoemaker (1971).

5. Mobile banking means performing banking activities which primarily consist of opening
and maintaining mobile/regular accounts and accepting deposits; furthermore, it includes
performing fund transfer or cash-in and cash-out services using mobile devices (NBE
Directive, FIS-01-2012).

6. POS: A Point-of-Sale service is an electronic payment type that allows credit/debit

cardholders make payments at sales/purchase outlets. It allows customers to perform the
following services: Retail Payments, Cashless Payments, Cash Back Balance Inquiry, Airtime
Transaction, Printing mini statement etc. (Kumaga, 2010).

7. Credit Card: Credit Card can be called as an equivalent of a loan sanctioned by the bank
to its customers. Credit card facilitates and makes it possible to ―Use First and Pay Later‖ the
specified amount of credit as per the agreed terms of sanction (Fenuga, 2010).

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 CHAPTER TWO

2. LITRATURE REVIEW
2.1. Overview

The main goal of reviewing literature is to identify a theoretical framework and research on
factors affecting electronic payments in the Ethiopia Commercial Banks. Previous studies have
identified several factors that influence the adoption of e-payment systems. These factors
include perceived usefulness, perceived ease of use, security, trust, awareness, and
demographic variables. For instance, a study by Alemu and Berhanu (2018) found that
perceived usefulness and ease of use significantly influence the intention to use e-payment
systems among Ethiopian bank customers. Additionally, research by Tekle et al. (2020)
highlighted the importance of security and trust in the adoption of e-payment systems in the
Ethiopian banking sector. Furthermore, a study by Kassahun and Tadesse (2019) emphasized
the role of awareness and education in promoting the adoption of e-payment systems in
Ethiopia.

2.2. Theoretical Review

This section reviews theories which are identified with the research. The study focuses on two
theories namely innovation diffusion theory and unified theory of acceptance and use of
technology.

2.2.1. Innovation Diffusion Theory

The innovation diffusion theory was developed by Rogers (1962). The theory defines how
innovation is diffused via various channels over a given period of time among individuals of
a society. The theory focuses on the factors which affect the likelihood that a new innovation
will be adopted by members of a given social community. The theory also highlights that the

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adoption of a new idea does not happen immediately but involves a process and some
individuals are more likely to adopt an innovation of more than other.

2.2.2. Unified Theory of Acceptance and Use of technology

Unified Theory of Acceptance and Use of technology (UTAUT), theory forms the basis of
this study. This theory explains intentions users have for using an information system and
how their user behavior changes thereafter (Verkatesh et al., 2008). The theory consists of
four main key constructs which include; facilitating conditions, social influence,
performance expectancy, and effort expectancy. The theory highlights that experiences,
gender, age, ease of use are factors which can minimize the impact of the four main
constructs on usage intentions and behavior and challenges facing adoption of technology
(Verkatesh et al., 2008). Unified Theory of Acceptance theory was preferred over the theory
of reasoned action, technology acceptance model (TAM) which suggeststhat various
components affect a user decision on how and when to use technology when they are
presented with a new technology.

2.3. Adoption of Electronic Payment

Electronic Payments use has greatly improved over the years and some of the factors thathave
contributed to the improved use of E-Payments include; introduction of Internet, the
improvement of ICT, and the quick expansion of wireless telecommunication (Gerald, 2011).
E-payments have made the customers payment processes to be much easier and effective.
Businesses and Banks also settlement process has been made easier and more affective due to
the adoption of Electronic Payments. Most organizations and banks have adopted electronic
payments so as to be continuously competitive and also succeed in the global economy.

2.4. Factors Influencing Adoption of Electronic Payments

The following are factors which influence electronic payments in the banking industry, the
factors are; information security, infrastructure, technology, regulatory framework and top
management support.

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2.4.1. Information Security

According to Collins (2010), one of the main factors affecting electronic payments todayis
lack of adequate security. Research indicates that technical failures such as (hardware
malfunctioning and other transaction errors) are not a major issue in electronic payments,but
information security is a major factor affecting adoption of E-payments.

2.4.2. Infrastructure

Internet banking is faced by challenges such as poor infrastructure which in turn even affects
the rate at which data is updated for the customers on the banking systems. Customers are
therefore not able to view latest banking information which is a very major challenge. Poor
infrastructure is mainly caused by the limited skills for building the E- payments systems.
Another challenge is the lack of knowledge on the outdated electronic commerce, such as
credit cards and telephone sales also there is a limited number of online consumers (Yuan et
al., 2010).

2.4.3. Technology

Technology use in the banking systems has really improved over the years. However,
technology systems have been faced with various risks such as data and network security risks
which have made adoption of electronic payments difficult. Clients have become uncertain
due to technology risks regarding data security and information on applicable models of
electronic payments (Owens, 2009).

2.5. Summary of Literature Review

It concluded that the high customer security challenges involved, the lack of proper
infrastructure to ensure a good flow of electronic payments, concerns regarding the
reliability of technology and lack of stable regulatory frameworks are barriers to the success
of electronic payments. From the above review it is evident that the factors affecting
electronic payments are customer information security, infrastructure, technology,
regulatory framework and top management support. The factors have not been thoroughly
researched and thus the need for this study.

Attitude
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 Demographic factor
Organizational
factor

Adoption of E-Payment

Figure 1. Conceptual framework

CHAPTER THREE

3. RESEARCH METHODOLOGY

This chapter highlights the methods that will be used in collecting and analyzing the data
which will enable the study reach its pre-set research objectives. The chapter is outlined
intoresearch design, population and sampling techniques, data collection procedure and data
analysis technique.

3.1. Research Design

The purpose of this thesis will be to conduct mixed research design (both descriptive and
explanatory). The goal of descriptive research is to describe some aspect of customer's
attitude about e- banking in Ethiopian banking industry, i.e., the status of e- banking. It can
help understand a topic and lead to causal analysis.The desire to know "why," to explain, is
the purpose of explanatory research. It is a continuation of descriptive research and builds on
exploratory and descriptive research and goes on to identify the reasons for something that
occurs.

3.2. Data collection method and source

In order to collect sufficient data that can answer the research questions, researcher will use
questionnaires to get quantitative data, while interviews will be aimed to collect qualitative

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data from E-payment/IT managers. In addition to questionnaire and interview, data collected
from different published and unpublished materials will also be used.

3.3. Study Variable

Independent variable: Awareness and knowledge of E-paymentsystem, trust and security

concern ease of use, perceived benefit, gender, education, human and financial resources.

Dependent variable: Adoption of Electronic payment system.

3.4. Method of Data Analysis and Presentation

Data analysis consists of examining, categorizing, tabulating, or otherwise recombining the

evidence, to address the initial proposition of a study (Yin, 1989). The researcher will analyze
the data collected through survey to statistical population concerning the factors affecting the
adoption of E- banking. The data collected via questionnaires will be analyzed with
descriptive statistics using statistical package for social scientists (SPSS version 20).

3.5. Sample Size and Technique

Sampling is the process of choosing, from a much large population, a group about which
wish to make generalized statements so that the selected part represent the total group
(Leedy, 1989). Commercial banks have been operated and the additional banks which make an
initial public offering to begin their operation were taken as population, and purposely draw a
sample from the total to get rich evidence. The total number of Commercial Banks which is
operated in the year 2017 is 16 private banks and 2 state-owned banks.

3.6. Ethical consideration

The study will adhere to ethical principles, including informed consent, confidentiality, and
voluntary participation. Participants will be informed about the purpose of the study.

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 4. REFERENCES

Kunaga, D. (2010). The challenges of implemerting electroric paymernt systems - The case
of Ghana's E-zwich paymert system Irternational Joumal of Business and
Informatior, 6(2), 226-245.

Abenet Y (2010), Key factors that deterine adopion of intemet banking in Ethiopia Retrieved
from JIBC Jan 2017, Volune, 22, no.S7 httpl/ etdaau
eduet/dspacebitstrean/123456789/3150/1

Ayal, A. (2018). Factors affecting the adoption of e-banking in Ethiopian banking industry
(Master's thesis, Addis Ababa University). Retrieved from
http://etd.aau.edu.et/handle/123456789/17172 Beyene, Ebisa, "Adoption and Challenges of
Mobile Banking Systems in Ethiopia: The Case of Cooperative
Bank of Oromiya' (2020). African Conference on Information Systems and Technology.
Ehttps://digitalcommons.kennesaw.edu/acist/2020/allpapers/5

Ayara, G. (2014): Factos Affecting Adoption of Electroric Banking System in Ethiopian

Banking Idusty, Joural of MIS ard E-commerce Vol. 1, No. 1,17,2014

Alemu, M., & Berhanu, B. (2018). Factors Affecting the Adoption of Electronic Payment
Systems in Ethiopia: The Case of Dashen Bank. Journal of Economics and Sustainable
Development, 9(17), 104-112.

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Kassahun, S., & Tadesse, M. (2019). Factors Affecting Adoption of E-payment Systems in
Ethiopia: A Case of Commercial Bank of Ethiopia (CBE). Journal of African Business, 20(3),
372-389.

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