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The Future of Technology and Digital Payments

LankaClear, Sri Lanka’s national payment infrastructure under the guidance and supervision of the Central Bank, has been at the forefront of revolutionizing the country’s banking and financial services sectors. Channa De Silva, CEO of LankaClear, shares his thoughts on reviving the economy and the importance of finance and payment networks to move forward in a digital-first era.

The COVID-19 pandemic is reshaping and transforming economies everywhere, and recovery means a complete re-imagination of norms. In this context, what should Sri Lanka do to revive and grow its economy?

To grow the economy, there are multiple components. One is getting foreign exchange into Sri Lanka because our economy is very dependent on it. The second is growing local industries, businesses, and services.

The third is reducing non-essential imports, which will decrease foreign exchange outflow from the country. An area I want to address that has little focus is certain services offered by international organizations that take foreign exchange out of the country. Digital services like Facebook and Google take large chunks of our advertising revenue away from domestic media agencies, resulting in the country losing millions (maybe billions) of rupees in foreign exchange. Other services, like Uber, do not even have the technology or a presence in Sri Lanka but take out our foreign exchange. Similarly, if you look at the banking and financial sector, the international card schemes available lead us to pay transaction fees in dollars. Each year, we lose Rs6 to 10 billion in foreign exchange just in financial service industry only. However, if we were to activate local technology-based industries with solutions on par with international ones, we can save a massive amount of this foreign exchange from leaving the country. At LankaClear, we have also introduced a competing card to international card schemes, which a few banks have already issued. If people used this card for all local transactions, we will not lose a single cent of foreign exchange for transactions within the country. This will grow the local industry and our businesses with it.

To grow the economy, there are multiple components. One is getting foreign exchange into Sri Lanka because our economy is very dependent on it

Finance and payment networks are critical for reviving the economy and growth, so how can Sri Lanka reset its finance and payments landscape for a post-COVID new normal?

Some of these things are universal in terms of whether its pre-COVID or post-COVID. Since last October, many finance organizations have moved to the digital sphere before COVID-19 got on our radar. It was becoming a necessity, and the pandemic only fast-tracked any digitization already underway. One reason for this change was the cost of maintaining cash, coins, and notes from printing to distributing to providing security and maintenance. According to Central Bank payments bulletin Q2-2020, we have almost Rs769 billion cash in circulation. Keeping cash in circulation is costing the economy nearly 1.5% of GDP. If we convert even 30% of cash into digital transactions, we will save at least half a percent of GDP, that can be used for social welfare and other purposes.

One direct benefit to moving away from cash is economic growth — this includes the growth of business and individuals. People moving into digital or finance and payment networks also address a social issue

One direct benefit to moving away from cash is economic growth — this includes the growth of business and individuals. People moving into digital forms of payment transactions also addresses a social issue, which has a direct benefit on the economy. If you look at the SME sector (80% of businesses are SMEs), they primarily deal with cash and not digital transactions. So they never really put that money into a bank — it remains outside the banking system. However, if we moved these cash transactions into digital, all the money that is currently sitting outside will come into the banking system, which will be a huge benefit. Banks can lend more, and it creates additional opportunities and provides better access to credit. The banks cannot asses SME owners who only deal in cash. There is no way of knowing his income and, as a result, he has no credit with the bank. This means he won’t be able to apply for a loan and will instead go to loan sharks when he needs funding. Access to credit from a bank will improve their businesses and also the economy.

How is LankaClear providing leadership to reset Sri Lanka’s economy for a new normal to build its national payment network, enabling businesses and improving financial inclusion?

According to the Central Bank payments bulletin, Sri Lankan banks have issued over 23 million debit cards into the market. That’s more than the country’s population of about 21.3 million. There are 1.8 million credit cards in the market. But when you consider the usage of debit cards, a large percentage of transactions revolve around ATMs and withdrawing cash instead of online or transactions at POS terminals. So 90% of transactions are still cash-based. This is a major issue for SMEs as the commission charged by the banks from merchants for payments via international cards schemes could be up to 3%. With cash transactions, they can avoid any fee and keep 100% of the profit. 82% of Sri Lanka’s population is rural and 18% urban, and a large percentage of SMEs are not in the formal financial sector.

To achieve financial inclusivity and entice more people into digital transactions, we had to reduce the commission levied. Through JustPay, our payment mode, we reduced the merchant commission to half a percent or less for most transactions, which may go up to around 1%. The other issue is the penetration of technology in the country that can facilitate digital transactions. The penetration of mobile phones is 139% of the population—so that’s over one phone per person—and out of this, 50% are smartphones. We realised that people who are most likely to adopt digital payments would be the ones who use smartphones, hence, we decided to target this group and convert them into making digital payments. We also introduced peerto-peer payments via payment exchange name (PEN). Payment exchange name is when you transfer money to someone. When you use PEN to transfer money to someone, all you need to know is that person’s mobile number and the nickname assigned by the bank — you don’t even need to know his account number, bank or bank branch. The future of the payment industry will not be completely cashless, but the goal is for less cash. We introduced a new card into the market, Central bank approved national cards scheme, to reduce the foreign exchange outflow from the country with a merchant commission capped at 1%. Soon, this card will also be the transport card for buses and trains — something the Transport Board and National Transport Commission are working on. We helped Central bank to issue Lanka QR standard. This would primaily be issued on a sticker to merchants to facilitate payments. All you need is a smartphone and an app that can scan a QR code. It will contain the details of the merchant and how you can make the payment. We’ve already issued more than 120,000 Lanka QR codes to merchants around the country.

Briefly take us through how LankaClear is transforming the country’s payments landscape. Importantly, can you tell us about your plans for 2021 and beyond?

We are introducing smart messages next year. With this feature, any payment-related SMS you receive from your bank or utility companies will include a link that will take you to whatever FinTech app you use with the information required to make your payment.

All you will have to do is just click to pay. This will increase usage of smartphones for payment transactions. Another piece of the puzzle is solving documentation requirements that require physical signatures. We introduced digital signatures in 2009. With it, you can add your digital signature to any PDF document and send it electronically, successfully ending the need for physical signatures.

Another piece of the puzzle is solving documentation requirements that require physical signatures. We’ve introduced digital signatures. With it, you can add your digital signature to a PDF and send it electronically

What needs to be done at a policy level to enable LankaClear to introduce new technologies and expedite the economy’s digital transformation?

In order to level the playing field with international entities, the government must encourage higher or equal quality digital products and services that are created locally. If we can do this, we can save a lot of money. The government must also encourage people to move into digital transactions and even sharing electronic documents. I read recently that it costs Rs350 billion to import paper — imagine if we moved much of this to digital. We’d be saving vast amounts of money! Other areas that require focus are around data protection and consumer legislations — a draft form of the data protection act is already in place. If consumers lose trust in digital, they will move back to manual options. To avoid this, strong legislation and laws must come into effect.

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