The Effect of Expanded Payment Options for Utilities on User Fee Payment Behavior in Ethiopia

Study Context

Late payment and under-payment of utility bills represent potential obstacles to effective utilities provision in Ethiopia and many other Sub-Saharan African countries. High transaction costs stemming from travel costs, time costs, and inconvenience may lead customers to frequently delay or miss bill payments. Incomplete and delayed bill collection (on top of already subsidized pricing) contributes to insufficient revenue streams for utilities providers, which may hinder their ability to operate effectively and to invest in service quality improvements.

This project will assess the impact of a recent policy change that has the potential to ameliorate some of the transaction costs that may contribute to late payment and under payment of bills. Specifically, we examine how the introduction of modern bill payment processes impacts payment behavior among residential and commercial customers of the Addis Ababa Water and Sewerage Authority (AAWSA).

Study Design

In August 2019, AAWSA formed a partnership with the Commercial Bank of Ethiopia (CBE) for the purposes of bill payment and collection. Prior to this policy change, customers were required to travel to one of a relatively small number of physical locations. This imposed relatively high costs on customers in terms of money, time, and inconvenience. The new partnership enabled customers to pay their water utility bills at any of the CBE’s branches throughout Addis Ababa or using any of the Bank’s available technological-driven payment methods.

We compare outcomes for customers differentially impacted by the policy change based on their distance to the nearest payment location before versus after the policy change. The idea is that travel-related transaction costs would decline most substantially for customers who experience the greatest reduction in distance to the nearest physical payment location, and similarly, that any of the non-physical payment options may appear more attractive to the most remote customers. Our main outcomes of interest include bill payment (or nonpayment) as well as payment timing and transaction type.

Results and Policy Lessons

Results forthcoming.