LankaPay was founded two decades ago to clear interbank cheques. In the last decade, the company championed payments infrastructure development, inclusivity and innovation. Here, Chief Executive Channa De Silva speaks to Echelon about LankaPay’s contribution, its milestones and what he thinks about the future of payments.
Platform companies are some of the world’s most valuable businesses because they have a unique approach to creating value, not just for themselves but also for everyone else who is part of an ecosystem. To create technology-based shared value platforms, such organizations must set the rules of engagement to build an ecosystem that brings many types of users and businesses together. Platform companies take many forms, some like Google are well known, while others are reclusive or unknown.
Out of the spotlight, LankaPay has emerged as one of Sri Lanka’s most critical platform companies linking the payments ecosystem, including its commercial and specialized banks, sub-prime lenders and fintechs to tens of thousands of businesses and millions of consumers. In the area of payments and settlements, it has continued to deploy state of the art technology infrastructure.
t wasn’t always this way. Founded two decades ago, in 2002, to take over interbank cheque clearing, which was then a division of the Central Bank, the entity’s main operation for years was focused on modernizing and managing interbank cheque clearance.
LankaPay started interpreting its mandate more broadly several years ago and has since gone on to build infrastructure to connect all ATMs, introduced an interbank electronic fund transfer system, payment systems that can operate on a smartphone, electronic signatures, and infrastructure to issue local cards, to list a few of its recent undertakings.
LankaPay Chief Executive Channa de Silva, who has given leadership to its payments innovations since taking office in 2015, discussed why it was important to bring the payments infrastructure together, LankaPay’s contribution to the economy and its vision for the future.
LankaPay is an organization that is impactful, but invisible. In what areas do you think LankaPay’s impact has been greatest on Sri Lanka’s financial architecture during the last 20 years?
Our main contribution has been providing convenience to citizens and businesses, from cash withdrawals to fund transfers and many other conveniences. The second is the contin – uing efficiency improvement in the payment infrastructure.
We’ve enabled people to transact in ways not possible earlier by electronic means instantly with just a click of a button and also by reducing the number of days from seven to a single working day for cheque clearing, which benefited individuals, businesses and the economy.
Another aspect is reducing the cost burden on the financial sector. If a bank had to handle all these processes individually, it would have been prohibitively costly. Through our investment in common infrastructure, financial sector organizations have the ability to connect to each other. As a result, we’ve become the entity that brings together the payments across the financial sector and the beneficiaries have been the citizens, organizations and businesses everywhere in the country.
Of course, our most significant contribution is inclusiveness. Before our involvement, the financial sector concentrated only in the Western Province, because it lacked the capacity to efficiently reach beyond. But more than 80% of people in Sri Lanka live in rural areas. Our technology has provided the backbone infrastructure, enabling banks to provide financial services to every part of the country. Banks are no longer limited to their customers but can serve customers of other banks as well by sharing resources with each other.
Consider your more recent initiatives and put them into context for us. How have these contributed to the economy?
The market was fragmented and solutions existed in isolation. For instance, apps like Uber and PickMe provide services and accept payment through a smartphone. But a threewheeler entrepreneur receiving digital payments still needs cash when he wants to purchase groceries at the local store. He will have to withdraw cash from an ATM, as there was no other way to spend the money digitally for his daily needs, resulting in the cycle being broken. That may be one reason why we encounter Uber and PickMe drivers who cancel trips when payment is requested to be made via a card. So, we needed to fill that gap and complete the entire digital payments cycle.
Previously the only way to accept card payments was via a POS (point of sale) terminal. But the lady selling vegetables at the Sunday fair can’t afford a POS terminal which costs over Rs50,000.
We introduced LankaQR to facilitate and complete this cycle of digital payments, where the lady at the Sunday fair can now display a QR code enabling anyone with a smartphone linked to their bank account to scan the QR code and make a payment digitally.
While LankaQR makes payments convenient, the purpose of ‘JustPay’, another product launched a few years ago, was to make remote payments possible.
In the Western Province, supermarket transaction values and volumes are relatively high whereas in small retail stores they are negligible and made in cash. By introducing ‘JustPay’, our purpose was to bring low-value cash transactions into digital payments because for transactions below Rs 250 cards were hardly used. Over the last six months, nearly 50% of the transactions made via JustPay have been below Rs250. Our success is due to the low merchant commission structure and the convenience.
Something we realized is that not everything has worked well in the payments space, for example, cards. They have been around for several decades and yet were primarily used to withdraw cash at ATMs and have never, at scale, served the purpose of a debit card.
From the view of SMEs, the cost of the transaction mattered, because card payments attract a 3 to 3.5% merchant commission that a supermarket may be willing to absorb, but a small retailer with a 5% overall margin cannot afford to part with. For widespread use, we had to reduce card commission to 1% or less.
By introducing these products, we’ve enabled financial inclusivity and provided convenience to consumers not only in the Western Province but across the country.
Payment Exchange Name or PEN is another new product to enable fund transfers conveniently and securely. In the past, we needed to know the recipient’s bank name, account number and branch code etc. to make an online fund transfer. However, with PEN all we now need is her mobile number and a nickname for her bank account.
To move people away from cash, the alternative has to be simpler than using cash. Considering the expectations of the younger generation, we needed a simple one-click solution for payments.
How do you explain LankaPay’s current mission?
Our mission is financial inclusivity, making payment solutions accessible across the country to the common man. The second is to make global payments possible to and from Sri Lanka at a lower cost. This second piece is one we are currently working on to facilitate cross border transactions. By and large, cross border payments still go through money transfer operators and exchange houses. In this area, we need to partner with international networks to remit or send money out at a lower cost and efficiency than possible now.
Let me mention a few more examples of our work to clarify our mission.
There are multiple channels for sending money into Sri Lanka, our product ‘LankaRemit’ combines those channels into a single app allowing a user to see the money transfer operators nearby and the cheapest path available etc. Once a user transfers money via a channel, LankaRemit allows him to track the payment via a tracking number provided by the channel providing them convenience.
We are in the process of connecting to an international payment hub called the Asian Payment Network (APN), which connects 11 countries and 13 payment networks into a single hub across many territories in Asia and Australia. Once we connect to that hub, we will be able to reduce cross border transaction costs significantly. We are also in the process of connecting with the largest payment provider in India, the National Payments Corporation of India (NPCI). Once connected to NPCI, our cards issued in Sri Lanka can be used at a far lower cost in India and vice versa.
We are in the process of propagating the use of digital signatures via our solution LankaSign. Sri Lanka’s law provides recognition to digital signatures in a court of law. We are in the process of obtaining an international certification called ‘WebTrust’, to make LankaSign digital signatures to be accepted internationally.
Our vision, therefore, is to concentrate in and outside Sri Lanka to bring greater value around payments to consumers.
Sri Lanka faces an economic crisis. As a digital payments player, you must be seeing a lot of data on what’s happening? What is that data saying about how this crisis is impacting ordinary people?
Human nature is such that people stick to what they’re comfortable with and in the past, it was cash payments. They had no compelling reason to switch to digital payments besides the inconvenience of withdrawing cash at an ATM and the risks of carrying money. But those were not deal-breakers.
Despite a profusion of digital channels, none found traction at scale as there was very little reason for people to move. But when Covid broke out, they had no choice but to choose digital payments and it worked because the robust infrastructure was readily available.
Now we are seeing some interesting patterns emerging during the current economic crisis. Transaction volumes using other bank ATMs have grown significantly, which is possible as we have linked all ATMs into a single network.
A possible reason for the increase could be that people who previously made larger cash withdrawals are now making multiple smaller withdrawals. A crisis, logically, should lead to a lower number of transactions because people don’t have money, but we are seeing the opposite.
Other reasons could be more people are using the common infrastructure for convenience or their behaviours have changed from difficulties faced during the Covid-19 pandemic. Online payments have also increased, but we can’t exactly assume we are achieving financial inclusivity because it is difficult to track the origins of such digital transactions.
You can see the data on transactions. Can you see any pattern in transactions?
Mobile payment volumes are increasing, but we can’t exactly track the location. One idea is that more and more people could be using trilingual payment apps.
Our ATM data shows that 65% use Sinhala and Tamil menus. Clearly, people are comfortable in their own language. Hence, it’s crucial that we enable smartphone apps and internet banking interfaces to be available in their own language.
What do you think about the payments infrastructure that we currently have? What needs to change for digital payments to become more the norm than it is today?
I think the next phase is to bring the entire payments ecosystem together. The fintechs, banks, finance and microfinance companies all have a role to play. For example, banks may be less interested in low value transactions or catering to rural customers. Finance and microfinance companies, on the other hand, will be more interested in lending to subprime customers. Fintechs too will be keen on payments services that have scale.
We also need others who provide non-financial services to consumers, through which financial transactions will flow. For instance, Uber and PickMe are not financial apps but there is a requirement for payment and we need to bring all these entrepreneurs into one ecosystem for payments to seamlessly work and grow.
According to the latest statistics, Sri Lanka has nearly nine million active social media users, a majority of whom use a smartphone to access social media platforms and the internet. The profusion of smartphones provides Sri Lanka with a good base for digital payments to prosper.
Consider this. Bank cards have been commonplace for several decades, but the entire transport sector still operates on cash. Some time ago, there was an attempt to introduce a prepaid card, but it failed because the solutions didn’t work across all transport modes.
At present bus conductors issue a ticket, a receipt really, when you pay cash. That ticket machine is actually a POS terminal. We are introducing a card with ‘tap and go’ capability, where like in other countries you can top it up, tap to pay and obtain a receipt. This solution, currently under trial, will be soon available to everybody and in most rural parts of the country because a majority use public transport – buses and railways. Something we’ve witnessed in other markets is that people first adopt the tap and go payments for public transport and then move into other digital payments.
We are reliant on global payments companies to connect to the outside world and also within Sri Lanka for local transactions. Is it part of a vision that we can create payments infrastructure that is entirely local for Sri Lanka?
Absolutely, it’s already available via our National Card Scheme. It was founded for two fundamental reasons. One is national autonomy. For example, imagine what happened recently in Russia when all the international card operators pulled out. Fortunately, they had a local payment network. Had they not operated a local payment network, card transactions would have completely ceased within the country.
In 2015, we partnered with an international player to facilitate this National Card Scheme, which was to enable the same card to be used internationally as well.
The second reason is related to foreign exchange outflow. Currently, we face a massive foreign exchange crisis. As most of our cards are connected through international players, all interbank transactions are processed through their infrastructure. If your card is issued by one local bank and the merchant is from another local bank, it’s immaterial whether it’s a Rs100 or Rs100,000 transaction, a fee in dollars has to be paid to these players.
Due to the economic crisis banks have seen a sudden increase in this outflow ranging from Rs300 million to Rs1 billion as payments to these global payment companies annually. Our bigger vision is to save foreign exchange outflow for the country by routing more payments within the local infrastructure.
If the transaction is between two local entities within Sri Lanka, these payments should be processed locally. For example, Australia is introducing something smart called least cost routing. If you transact at a POS terminal in Australia, a merchant can incur a lower commission, by pressing a button to route the transaction locally.
We focused on LankaPay’s position today and how you got here. If you were to reflect on what big leaps lie ahead of you, what would those leaps be?
One big leap would be facilitating international transactions and the second would be to witness the widespread use of digital signatures.
If all government departments start accepting digital signatures, then submitting hard copies of documents won’t be necessary resulting in a massive cost saving for paper, ink, filing and all related costs, and efficiency across the board would also increase.
We would like to see increased traction via the LankaPay Government Payment Platform, which facilitates online payments from a bank account of a customer to the respective government organizations’ accounts directly.
To automate further, we need certain regulations and support from the government to propagate digital payments and digital signatures. Banks must start accepting digital signatures; enabling digital transactions is pointless if you have to submit hard copies of documents to obtain facilities. Automating existing processes would reduce costs such as transport, courier, storage and filing.
Our vision is to bring everybody together into a bigger ecosystem so that at the end of the day, people everywhere in this country would benefit.
