Currency has been in existence for over 40,000 years and is still a dynamo in today’s day and age. Its form has seen to change from natural objects like pebbles and bones to coins, paper, and now digital versions. Albeit material has transformed over the years, the purpose of a currency remains unchanged. It serves as a means of payment, an exchange medium, and a store of wealth. In the 21st century, a currency is in its most elite form – digital. This has led to innovation in the field of digital transactions, leading to the development of what is now known as “Fintech”. Fintech is a combination of the phrase “Financial Technology”, has transformed the way we handle money through a new era of digital services for a more consumer-oriented experience.
The Fintech space in Sri Lanka
“Sri Lanka has always been comparable to international standards when it comes to the digital payment landscape,” remarks the CEO of LankaPay, Channa De Silva. Even though cash is still the island’s primary means of monetary exchange, the population is steadily shifting its focus to cashless for its new level of convenience. A trend that has accelerated following the COVID-19 lockdowns we experienced last year.
Through the introduction of initiatives such as JustPay and PEN, many barriers in the local fintech industry have been removed. In turn, allowing consumers to access a range of financial services without limiting themselves to a single bank. A phenomenon that has been observed by many as several fintech apps are now allowing anyone to sign up and utilize their services. It can be attributed to JustPay eliminating the borders that once existed by removing interbank transaction fees and making funds readily accessible to consumers in a single location. In addition to this, state banks are also providing their customers with mobile applications for their transactions, which is a positive sign stated Channa.
Despite this, he expresses that even though there has been a strong implementation of digital payment methods in the country, their adoption by consumers has held the country back. According to him, mobile phones have penetrated to over 50% of the Sri Lankan population, and the internet over 30%. This suggests that a significant number of people in the country do have accessibility to the essentials to carry out a digital transaction. However, many still have concerns about safety and transaction authenticity when it comes to the movement of cash online. Therefore, Channa believes that “the people of Sri Lanka are yet to observe the full potential of Fintech technology in Sri Lanka.”
How do we usher in the future of Fintech in Sri Lanka?
“Over 80% of Sri Lanka’s population is rural, and this market segment should be the target of Fintech companies moving forward,” as per Channa. Until this segment of the population moves towards digital, fintech cannot bring about the promise of a cashless Sri Lanka. A recent effort made towards this was the “Cash Wadhe” programme, which was carried out in the suburbs of the island. But another issue is the high costs that were traditionally associated with digital transactions.
A typical POS terminal for card payments can cost approximately Rs. 40,000 for a merchant to obtain. Even then there’s a 3% transaction fee. This fee isn’t much when you’re buying furniture or a laptop. But for your neighbourhood kade, the free erases the entire profit margin on any product they sell. But Channa points out that QR payments eliminate these issues. He goes on to adds, “Since the introduction of LankaQR, we now have a standard means for QR payments in Sri Lanka. You can now use any fintech app to make a QR payment. Meanwhile, as a business, you don’t need to spend anything to buy a POS terminal. Instead, you only need to print out a QR code to accept digital payments.”
However, most merchants in rural areas remain unaware of the potential savings of using LankaQR and other fintech solutions. “I believe that initiatives like this should be commended as they help raise awareness on the benefits of moving to digital for both customers and merchants in these rural areas,” says Channa. In his eyes, the first step forward is to convey to the consumer that their phone can be transformed into a wallet, and all they have to do is scan a merchant’s QR code to make a payment.
The big picture: Making fintech accessible to all globally
Fintech applications are no longer restricted to financial services. It is now integrated into other sectors like education, retail, and travel and transport. As such, Channa suggests that a strategy fintech companies may use to expedite the adoption of the technology to the masses is the incorporation of additional payment features in the backend of other apps. In doing so, bring about the real benefits of cashless payments.
This phenomenon has already been observed internationally. Speaking at the recent edition of Web Summit, President of Stripe, John Collison detailed that the global payment service provider is expanding beyond simply offering payments. It’s now looking at moving into other areas of finance like lending. Its first 2 new products will be in the realms of digital identity and VAT. Channa explains that this shift beyond payments, “Would not only increase the usage of their apps but also uses digital to provide the benefit of convenience to their customers – helping to create the ‘cashless’ ecosystem of the future.”
Towards this goal of making fintech more accessible, we’re seeing strong partnerships forming between banks and tech companies. Here in Sri Lanka, you’ll find that every fintech startup or service is operating in partnership with a bank. Internationally though this is the exception rather than the norm. In the US, Bank of America has opted for a strategy of developing its own products. Speaking at Web Summit, Chief Operations & Technology Officer of Bank of America, Cathy Bessant explained, “Our strategy would be top of wallet no matter the wallet.”
Still, if fintech is to realize the promise of making financial services accessible to all, banks can’t do it alone. Channa reiterates that the real driver of fintech won’t be payment providers, but tech entrepreneurs with innovative ideas offering great services by leveraging this technology. He points to PickMe as an example – while offering taxi rides, it promotes cashless payments, in turn promoting the adoption of fintech solutions. Channa is joined in this belief by the CEO of PayPal, Dan Schulman who also believes that when it comes to mass-scale adoption of fintech, “No one company can do this alone.”
Blockchain, digital currencies, and more: What’s next for fintech?
Increased investment in technology by banks and financial institutions has placed the global Fintech industry at a value of over US$ 5,500 billion as of 2019. The industry’s growth shows no sign of retardation with the maturing of new technologies such as Application Programming Interfaces (APIs) and Artificial Intelligence (AI).
Further, the advancement of Blockchain technology in recent years has led to increasing popularity in Fintech’s latest development – cryptocurrency. Dan Schulman, the Chief Executive Officer of PayPal anticipates digital currencies being the medium of everyday payments in the near future. People are pushed to use a ‘contactless’ form of exchange due to the safety protocols in place courtesy of the global pandemic. As such, the Fintech giant, Paypal began allowing its users to transact in cryptocurrency from early 2021.
Despite holding a firm place in the future of the global banking sector, Channa believes that there are still unresolved issues for digital currencies. According to him, there needs to be a regulatory body in place prior to the global acceptance of digital currencies. Through this, transaction authenticity and transparency can be preserved through this body, quite possibly a Central Bank. “However, when you look at the macro picture, there is not much difference between using digital currency or digital payment platform for transactions today,” he clarifies.