The cost of maintaining money as cash in the system is a heavy burden on the economy as it costs the country a whopping 1.5% of the GDP. This alone is reason enough to change to a cashless system and use the savings for other more productive needs, General Manager and CEO LankaClear (Pvt) Ltd., Channa de Silva said.
A cashless society is the most efficient for transactions and the safest method in use so far. It is in everybody’s interest to adopt this system which is not only cheaper for the exchequer but safer for the citizens as well, he said in an interview with Observer Business.
Sri Lanka has a huge banking population which is around 80 percent with a 20.4 million debit cards and 1.6 million credit cards. Technology could bring benefits to people and it also brings convenience and hence it is necessary to embrace technology in going forward, he said.
Excerpts:
Q. Why was it necessary to set up LankaClear and what is it expected to achieve?
A. LankaClear is a Public-Private Partnership (PPP) set up under the Central Bank in 2002. It was set up to facilitate inter bank cheque clearing which was done by the Central Bank (CB).
Since the CB is the regulator, they could not carry out the operational aspects.
LankaClear was set up on the PPP model under the ownership of the CB, the two state banks (the People’s Bank and the Bank of Ceylon) holding 53 of the shares of the government sector and commercial banks holding the remaining 47 percent of the shares. This is a unique composition. We offer services to shareholders as well. As a limited liability company we operate smoothly. The governance model is as follows:
The company is governed and regulated by the Central Bank of Sri Lanka (CBSL as the financial sector regulator). The Board comprises eight Non-executive Directors. The Chairman is appointed by the CBSL Governor.
Two Directors representing CBSL, two Directors representing the two State owned commercial banks and three Directors nominated by the Sri Lanka Banks’ Association (SLBA) , consisting of two representing private local commercial banks and the other representing foreign commercial banks. The Secretary General of the SLBA is an invitee to the Board of Directors.
LankaClear is primarily involved in cheque clearing operations. The manual operations carried out in the past took five to six days. With the Cheque Imaging and Truncation System (CITS) set up in 2006, the time frame came to one working day.
The clearing process happens fast and this was a major improvement. There was only one manual step as the image comes to the bank and a CD goes to LankaClear. It was Real Time Gross Settlement.
In 2017, the clearing process was fully automated and subsequently the CB began looking at spreading financial services through the ATM network. The CB wanted to interconnect ATMs. It requested LankaClear to set up a central operational point. Today, there are 4,900 interconnected ATMs under the LankaPay brand name. This local switch to connect all ATMs was introduced in 2013.
Moving on to electronic payments, under the bulk payment system, the T+0 mechanism to release funds on the same day under the Sri Lanka InterBank Payment System (SLIPS) was introduced.
The Common Electronic Fund Transfer Switch (CEFTS) was fully operational by 2015. The Sri Lanka Customs was one of the outflows under the Single Window in 2009. The Lanka Sign Digital Certification Authority is the provider of the facility of automated document submission.
We are in the process of implementing this facility for the Inland Revenue Department, BOI, e-local government, Colombo Municipal Council, LECO and the Department of Motor Vehicles.
Q. What are the services offered by LankaClear to promote the use of plastic money?
A. The Central Bank’s aim is to reduce cash use so as to cut down on the cost of holding cash. As cash management is costly, the economic cost of holding cash and money printing is 1.5 percent of the GDP.
Moving towards electronic payments will enable the money saved on printing costs to be better used in more productive sectors such as education or healthcare facilities.
It will also solve other problems such as obtaining loans. The efforts to move the economy into the electronic mode by encouraging the use of credit cards for payments will have far reaching benefits.
However, there is an issue in this regard as there is a two to three percent commission involved in these transactions. To this end LankaPay has partnered with Japan Credit Bureau (JCB) to bring down the commission on cards.
As a first step, no commission will be charged on debit cards which are mainly used in local transactions. The maximum limit of the commission is one percent. This debit card is a two-in-one card as it could be used in buses and POS terminals.
This move is expected to bring the entire cost structure down and stop the foreign exchange drain. It is also more convenient. This initiative is called JustPay. One of the road blocks was the commission. However, this app reduces the commission to 0.5 percent. Regionally, the retail space is growing and the potential of popularising this system is huge.
Q. Could you briefly explain the company’s milestones in its operational journey.
A. 2006 - Nationwide T + 1 cheque clearing - the first in South Asia / second in the world.
2009 - Launch of ‘LankaSign’ - the only commercially operating Certification Authority (CA) in Sri Lanka.
2010 - Nationwide same day electronic bulk fund transfer (SLIPS) - First in South Asia.
2013 - Launch of ‘LankaPay’ Common ATM Network.
2014 - Launch of BankCSIRT (Computer Security Incident Response Team) (renamed in 2015 as FinCSIRT) - a first in South Asia.
2015 - Launch of Common Electronic Fund Transfer Switch (CEFTS)
Launch of Common POS Switch (CPS) and Common Mobile Switch (CMobS)
Launch of USD Online – a system for banks to manage local interbank USD payments without having to go through a NOSTRO account
2016 - Introduction of online transfer mode of CITS where banks can now transfer cheque images in real-time - a first in South Asia.
2017 - Became the first and only entity in the country to be PCI-DSS certified.
Launch of JustPay – a scheme to facilitate low value retail payments via account to account pull payment.
Established LankaPay Online Payment Platform to facilitate realtime Government payments.
2018 - National Card Scheme – Partnership with JCB International to introduce a new debit card scheme.
2019 - Lanka QR code – primarily targeted at lower end of the retail payments
Payment Exchange Name (PEN) – facilitate peer-to-peer payments
Q. Does the company encourage the use of the internet for transactions?
A. Card based transactions are 5 percent of the total transactions while the rest is cash based transactions. However, the transaction average is increasing and it is 12 percent at present.
There is a huge potential for internet transactions to grow as smartphone penetration is increasing. It is 40 percent at present. This will help us to move in the right direction. Digital certification to secure payment is fast becoming popular among the exporter community.
Q. What are the initiatives taken by the company to support its efforts?
A. We always encourage the banking system to promote credit cards and internet banking where better use of technology could be made. As most Sri Lankans are tech savvy and better adopters, infusion of technology in day-to-day activities is easier.
One of the areas we are concerned about is that of financial inclusion. It should be increased by covering the rural masses in terms of mobile space and get merchants on board.
As we see an increase in smartphone penetration in the next two to three years, mobile and smartphone based payments is the fastest way to get there.
In terms of primary objectives we will work towards transforming to cashless society. We will take measures to reduce the issuance of cheques which has the inherent issue of inefficiency through use as a credit instrument.
To this end, it is necessary to reduce cheque volumes. So far, there has been a 4.2 percent reduction compared to last year. The excessive use of cash in transactions is the other issue.
We need to move into electronic mode where you could track the transaction and trace the liability. We expect cash transactions and cheque volumes to come down in the future.
Q. What is the way forward for LankaClear?
A. We have introduced innovative ways of making payments which include nick name, a payment exchange name (PEN) and mobile number combination to identify the receiver.
It has a facility where any app can use this name. We have taken measures to issue a standard QR code named Lanka QR. These things should help us move into the electronic arena.
However, we focus on financial inclusion which brings overall benefit to the economy which is huge.
If we move in this direction, the financial ecosystem will facilitate our efforts to evolve into a cashless society in the near future.
The common cash deposit machines have provided back-end money transfer activities. We are working with a few parties to enable bill payment where we encourage people to move towards plastic money. However, there needs to be safety mechanisms such as SMS alerts.
To this end it is necessary to be registered for SMS alerts. We have come a long way.
We have an ambitious target to move 20 percent of the retail transactions to cashless transactions within a short period of time.