In a dramatic turn of events that rattled the digital banking sector, the Commercial Bank of Ethiopia (CBE), the largest financial institution, encountered a severe system malfunction early Saturday morning, March 16, 2024. The disruption, which unfolded over the weekend, led to a temporary freeze of digital financial services across the industry, sparking widespread customer concern.

An unusual transaction surge was processed overnight on Friday last week, overwhelming CBE's digital platforms and online assets. During that timeframe, depositors were able to conduct unauthorised withdrawals or transfers. Industry sources claimed close to 66,000 customers conducted at least 25,000 transactions, totalling nearly 2.4 billion Br. However, CBE executives have not confirmed these claims.

The malfunction that credited transfers but failed to debt accounts exposed the vulnerabilities of digital banking infrastructures and the intricate web of dependencies underpinning the modern banking ecosystem.

As the extent of the malfunction became apparent, private banks received alerts to halt all digital transactions. The precautionary measure, aimed at containing the fallout, effectively paralysed digital banking operations for several hours on Saturday. The halt impacted a wide array of services, including ATM withdrawals, internet banking, and mobile bank-to-bank transfers, leaving customers in a lurch and searching for alternatives.

CBE's official channels swiftly apologised for the inconvenience and reassured the public that no external cybersecurity breach had occurred. However, the incident served as a stark reminder of the interconnectedness of the financial institutions and the collective efforts required to maintain the integrity of the banking ecosystem.

CBE President Abie Sano admitted the glitch source was internal.

"The problem is all internal," he told Fortune on Saturday. "Now fully controlled."

His acknowledgement of the incident as "fully controlled" belied the underlying risk of fixing the "inappropriate transactions". According to Abie, discerning between legitimate and erroneous transactions would require time and a detailed investigation, emphasising CBE's challenges in the aftermath of the system's failure.

Operations resumed later in the day. However, the malfunction did not go unnoticed by many, particularly university students in Jimma, Bahir Dar and Dire Dewa, who took advantage of the glitch to transfer funds between banks. Campus administrations, such as Jimma University, swiftly urged its students to return any improperly acquired funds, advising them to avert potential legal consequences.

The industry was cautious, responding promptly to contain the spread, after being alerted.

A national switch operator, EthSwitch, was incorporated 13 years ago by commercial banks and the National Bank of Ethiopia (NBE) as shareholders to facilitate interoperability among the banks.

One of the shareholders is Oromia Bank. According to its President, Teferi Mekonnen, the particular vulnerability of ATMs, unlike human-operated branches, is less equipped to detect irregularities.  "We're all in one ecosystem," he told Fortune.

Tatek Negassa, digital banking deputy chief at Nib Bank, disclosed actions were taken in coordination with EthSwitch. The latter, whose digital experts identified the glitch and circulated a list of accounts potentially involved in the withdrawals, led to immediate preventive actions, including account blocks, by various banks.

EthSwitch's role, according to CEO Yelebes Addis, was to facilitate, showing the operator's limited but crucial function in the banking ecosystem.

"They informed us to block the accounts," Tatek told Fortune.

The incident has prompted banks to reflect on their procedures and the importance of robust mechanisms to swiftly address such disruptions' impacts.

Ermias Tefera, president of Berhan Bank, disclosed that CBE had communicated with their ICT Department, sending a list of accounts to peer at, a common practice during investigations of these occurrences. The collaborative spirit was evident as banks worked together to address the immediate challenges posed by the malfunction, even as customers faced inconveniences.

"Usually, accounts are blocked during an investigation," he said.

Depositors accustomed to the convenience of digital payments were particularly affected. With services like Telebirr holding a significant market share alongside the CBE-powered Nedaj app for specific transactions, such as refuelling cars, the temporary unavailability of online banking services reminded the public of the digital age's vulnerabilities. The incident at a gas station operated by NOC-Ethiopia, where customers could not use their CBE accounts or the Nedaj app, illustrated the impacts of digital banking outages.

Ephrem Tesfaye, a board member of the Ethiopian Petroleum Dealer's Association, immediately recognised the unavailability of the typical online banking system when he saw three customers struggling at his NOC gas station.

"They're unable to use CBE accounts or the Nedaj app," he said.

CBE had previously hired PricewaterhouseCoopers (PwC), a global consulting firm, for a 1.3 million dollar project to enhance its digital banking, data management, and information systems infrastructure. The initiative, known as the digital factory, was the Bank's aggressive steps toward strengthening its technological assets.

According to experts, the incident could be attributed to a "centralised ledger system glitch", possibly triggered by a software update or a configuration issue. However, they call for continuous investment in cybersecurity measures and digital banking expertise to prevent similar incidents in the future.

A digital banking expert, speaking to Fortune on condition of anonymity, believes that the problem might have derived from compromised validation and authentication configurations following a software update, or possibly from an internal threat linked to excessive access to configuration settings.

"I'm convinced it is a configuration issue," he told Fortune.

PUBLISHED ON Mar 16,2024 [ VOL 24 , NO 1246]

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