Unveiling the Cost: Enhancing Transparency and Fee Disclosure for DFS Growth in Ethiopia

Have you ever stopped to consider how much you are being charged for ATM withdrawals? Or have you wondered if any fees are associated with sending money to someone within your own or another bank? These are valid questions that should not leave you in the dark. As a consumer, you have the right to be provided with this information whenever you make a transaction, or even, if you simply want to know in advance. Now, imagine how much more complicated it becomes for someone with limited experience in using financial products.

It’s puzzling why such essential information is not readily available on ATM screens, displayed at ATM locations, inside the mobile apps, bank branches, or even on the banks’ websites. It is remarkable that acquiring this information necessitates conducting extensive research.

The lack of price disclosure creates confusion and frustration among consumers, especially when it comes to digital financial services. Customers deserve clarity and transparency in understanding the costs associated with their financial transactions. It’s time for the financial sector to prioritize price disclosure and empower customers with the information they need to make informed decisions.

As Ethiopia experiences significant growth in digital financial services, it is essential to address the issue of fee transparency to protect consumers and promote a fair and transparent financial industry. Many individuals are unaware of the fees associated with basic banking services, such as ATM withdrawals and interbank transfers. This lack of information can lead to distrust among customers, hindering the adoption of digital payment systems.

Here is some example of digital transaction fees imposed by financial institutions.

The Need for Price Transparency

Price transparency and fee disclosure are critical elements of financial consumer protection, especially in Ethiopia’s rapidly evolving financial services landscape. With the emergence of innovative technologies and delivery channels, it is crucial to implement measures that safeguard consumers and ensure their financial well-being. Price transparency and fee disclosure empower consumers to make informed decisions, compare products, and foster healthy competition among financial institutions.

Without proper fee disclosure, customers, particularly those with limited banking experience, may face unexpected charges and lose trust in digital financial services. Unlike traditional banking services that allow for direct communication and information acquisition, digital channels often lack human interaction. Consequently, fees are automatically deducted during digital transactions, leaving customers with little opportunity to approve or question these charges. Such negative experiences impact the ambition in creating an inclusive financial sector and cash-lite economy. To foster customer adoption of digital financial services, it is essential to maintain the principles of pricing transparency.

Recognizing the significance of these principles, the National Bank of Ethiopia issued a financial consumer protection directive in 2020. The directive aims to regulate all financial service providers and promote financial inclusion, trust, and confidence in the financial system while maintaining stability. According to the directive, service providers are required to provide key fact statements to clients, offering comprehensive information on financial services, including pricing and fees.

Furthermore, the directive emphasizes that financial service providers should not impose any undisclosed fees on customers. This regulation ensures that consumers are not faced with unexpected charges and promotes transparency and fairness within the financial sector.

Recommendations for Addressing Information Gaps and Promoting Transparency

1. Ensuring Transparency: Financial service providers should take responsibility for providing clear and comprehensive information about the benefits, risks, and terms associated with their products and services. This information should be readily available throughout the customer relationship and communicated through appropriate channels.
2. Building Trust through Clear Communication: Fee transparency should extend beyond disclosure; it should encompass clear communication to ensure that clients understand the charges they incur. Fees and commissions must be disclosed in a simple, understandable, and comparable manner to ensure transparency. Clear communication helps build trust, enhances customer satisfaction, and establishes a mutually beneficial and longer-term relationship between service providers and customers.
3. Supporting Advocacy Initiatives: Consumer advocacy groups and NGOs can play a critical role in holding service providers accountable for their fee structures and promoting transparency. By working together with regulators and industry stakeholders, they can help ensure that the needs of consumers are at the forefront of digital financial services development in Ethiopia.
4. Empowering the consumer: Investing in consumer education initiatives that focus on financial literacy and fee disclosure. By empowering consumers with the necessary knowledge, they can better understand the value of the services provided and make more informed decisions about their financial management.
5. Closing the Information Gap: To bridge the existing information gap and promote transparency, initiatives that collect, compare, and analyze pricing data for various financial products in Ethiopia should be implemented. These initiatives would contribute to the creation of industry-wide standards and guidelines for pricing transparency. Additionally, leveraging technology, such as online platforms, can facilitate easy access to fee information for customers.
6. Safeguarding Consumer Interests: Regulators such as the National Bank of Ethiopia play a crucial role in promoting transparency and protecting consumer interests. It is essential for regulators to put in place appropriate consumer protection frameworks and continuously monitor and enforce them. These frameworks should include regulations that mandate transparent fee disclosure, standardized pricing practices, and measures to prevent unfair practices by financial service providers. By actively overseeing the implementation of these frameworks, regulators can ensure a fair and transparent financial ecosystem that prioritizes consumer rights and fosters trust in digital financial services

By ensuring pricing transparency, communicating fees effectively, enforcing the financial consumer protection regulation, and implementing initiatives to address information gaps, financial sector stakeholders can foster a fair, responsible, and transparent financial industry that benefits both service providers and consumers. It will also accelerate the development of the financial ecosystem and the achievement of national objectives for financial inclusion and growing the digital economy.

By Tewodros Tassew

Tewodros is a Consultant specializing in Digital Financial Services, Fintech, Payments, and the Digital Economy. He can be reached via email at teddytassew@gmail.com

This article was first published on Kflip