Banks Competing for Visa Card Primacy

Issayas Mekuria
Dashen Bank S.C and Barclaycard Kenya are deep into a dispute over who legitimately has the right to be Ethiopia's Visa card service provider.
For more than 30 years, Barclaycard services only existed at Ethiopian Airlines and the stores run by the Ethiopian Tourist Trade Enterprise. But that changed six years ago, when Barclaycard Kenya began being represented in Ethiopia by CcSI.
Since then, CcSI has been offering VISA, MasterCard, American Express and JCB card services. Today, CcSI has over 70 commercial outlets that deal in credit card services, 34 of which are active in using the point of sales (POS) terminals that CcSI installed.
Dashen Bank was one of these outlets, offering Visa based cash advance for four of those years. But in March 2006, Dashen became a VISA Association Principal in its own right. And in July, when Dashen started operating its own POS at different outlets and providing its own VISA card services, a dispute was sparked between the two parties.
According to the VISA Association regulations, if a local bank is providing VISA services, then a cross-border VISA service from another VISA principal is not permitted. Therefore, in accordance to this, Dashen requested Barclaycard to cease providing VISA card services in Ethiopia as it was now the legitimate principal in the country.
"There is no reason for a dispute to arise, all we are saying is that the norm should be followed," said, Lulseged Teferi, president of Dashen Bank. "We have no problems with another local Bank becoming a VISA principal."
Nikodimos Makonnen, Managing Director of CcSI, confirmed Dashen's claim that a Principal Bank cannot perform cross-border services.
"Nevertheless, the case of Barclaycard is looked upon in a different light," he said.
Barclaycard in Nairobi has been giving service for more than 35 years in over 42 African countries. Since most African banks did not provide credit card services, Barclaycard has been providing cross-border services quite freely.
Nikidimos told Fortune that of course Barclaycard believes in upholding the VISA regulations.
But he argued that because Barclays has been the sole VISA principal in Africa for a very long time, the British Bank had been allowed to be a principal for other credit card businesses, such as MasterCard and American Express, although VISA regulations had it that its principals could not. According to the managing director, Barclays has 25,000 card users in Africa, with 50pc holding a VISA, 35pc being Mastercard and American Express holding 10pc.
Barclays Bank was founded in the United Kingdom in 1896. Although the Bank's headquarters are in London, Barclays has 815 branches around the world and has 111 billion Pounds Sterling in capital. Barclaycard has 95,000 international retailer relationships and 5.3 million international cards in issue.
When Dashen became a VISA principal and started performing its duties, Barclays moved on to United Bank S.C, which will now be responsible for the cash advance work that Dashen used to perform.
United signed the contract with Barclaycard on July 26, 2006. It has since started rendering cash advance services from its branches at the Addis Abeba Hilton Hotel and on Africa Avenue in Bole.
"Because I want my Bank to become strong in foreign currency, I pounced on the opportunity to sign with Barclays as soon as I found out that Dashen finalized its contract," Birhanu Getaneh, president of United Bank told Fortune. "I have no idea about the controversy that has arisen between Dashen and Barclays."
Despite this statement, Birhanu WoldeSelassie, vice-president at Dashen, wrote a letter three weeks ago to United Bank stating that now that Dashen was a VISA principal, it was not right for United to sign with Barclaycard and render the same services. United Bank President has chosen not to comment on matters concerning the letter.
"There is nothing antagonistic between United Bank and us," said Lulseged. "All we are saying is that the regulations should be upheld, not that another local bank should not get into this aspect of the business."
According to the National Bank of Ethiopia, transactions worth beween 1.5 to two million dollars take place through VISA, MasterCard and American Express in just one month. United Bank serves more than 100 customers a month and receives five percent commission.
"A lot of money is made through this commission; hence it is not surprising that a controversy should arise around it," a local banker said.
Dashen has invested more than three million dollars to render card services. The president told Fortune that as a VISA principal, Dashen will not be receiving the five percent commission, but that the wider customer base that it intends to have will in the long-run benefit the Bank more than the commission will.
"The main reason for being a VISA principal is to ensure that the card service is of a better quality as well as more convenient for card users, which will in turn help us widen our customer base" said Lulseged.
Before it started providing credit card services in July, Dashen Bank provided cash advance services from its Sheraton Branch. After becoming VISA's principal, it has subscribed 1, 672 card users and has POS in 54 commercial outlets.
Dashen had written a letter to the VISA Association requesting that Barclaycard be stripped of its privilege to provide VISA card services in Ethiopia. Fortune was unable to get a hold of the response given by the Association if any was actually given.
Addis Fortune
Nikodimos told Fortune that as long as Dashen provides efficient VISA card services, Barclaycard intends to respect the Association's regulations and slowly move out of the market.