Just a few years ago, China was no more than a country that manufactured trinkets at ridiculously low prices.

China today is much more than the world’s factory. For many industries, China now is the vision of the future.

Financial technology (Fintech) is one such area where Chinese companies now have an unassailable lead. India, Malaysia and Singapore too have joined the race for Fintech leadership. For ordinary people who use financial technology for everyday payments, ease and efficiency are potent draws. For any economy, the productivity gains can be tremendous. There isn’t a single path to Fintech success according to Varun Mittal, Global Emerging Markets FinTech Leader, at accounting firm EY. He tackled the question of how to get started in Fintech…

Can fintech make financial services more efficient?

Maybe not lending. So you can’t make lending the primary revenue source, which means you must have alternative sources. You can focus on payments, distribution of wealth, payment efficiency, payment offers and marketing offers.

Also, the Indian payment banking model doesn’t stop you from having branches, no one is forcing you, if you want to, you can have branches.

What are the predominant models as far as fintech is concerned?

One model is digital universal banking where you need only one license, and you can do pretty much everything, including commercial and investment services. Universal banking is quite popular in many European countries. But the approach Singapore has taken towards digital banking is different, they actually split it into two: retail and wholesale.

India introduced “payment bank” licences. What about this model?

Payment banks, which are limited banks, can only take deposits up to Rs100,000. There are limitations on what they can do with the money, for example, there are certain restrictions on lending. You can serve everybody, but these are limited mandate banks.

Could you tell us a bit about the payment system in India, Singapore and Malaysia?

MAS (the Monetary Authority of Singapore) has announced that they are going to issue five digital banking licenses. Malaysia will be following the lead. Indonesia is going to do it quite differently, and they want those aspiring to enter financial services to invest in small banks that can do with a bit of scaling up.

Is there anyone who’s entered as a digital banking player and continued to have their physical branches too?

Yes, India Post Payment Bank, they are not going to close down their office. Why should they? The same is true for the telco companies that decide to enroll for this – the physical touch points are there, and they are going to make use of them. This is where the Indian model differs from the models in other countries.

Are the challenges that digital banking poses different from the challenges of the traditional banking model?

Pricing the risk is not the only challenge with traditional banking, there are a lot of other challenges because you are designed for a different purview of business. For example, the process of SME loans takes up so much of time, there’s a lot of documentation involved, which is part of the process, and a lot of people involved. The amount of time you spend trying to sell a 10 million loan and a 25 million loan is practically the same. So if you are a relationship manager, you are more inclined to focus on selling the 25 million loan. No one wants to sell the lesser amount, and the reason for that lies with wanting to scale.

So, by adopting the digital banking model, do you think a new bank can be more efficient?

No legacy. For example, if you launch a new mobile app, there’s no technological legacy. And the second point is no cannibalization. Let’s look at it this way, if I’m the relationship manager serving you, and you go digital, and you take the loan online, you win, and I lose. But if I’ve already digitalised – which could also mean that there’s no cannibalisation – it’s going to be a win-win situation.

What’s the approach Singapore has taken to promote digital banking in the country?

In Singapore, digital banks don’t get access to the ATM network, the argument there is that they are digital, and they should focus on digitizing. They want the digital banks to digitise their customers’ financial lives up to the point where they don’t need cash. If a customer has ATM facilities with another bank, it defeats the purpose, and you’ll never be the primary bank.

Despite Fintech being a convergent idea, there really isn’t a one-size-fits-all formula, is there?

No, for example, the situation in Singapore is different from the situation in Sri Lanka; Singapore has a population of 5.5 million, and 9% of them are foreign workers. How many foreign workers do you have? Except for perhaps Chinese construction workers?

But you do have inbound remittance from overseas workers? Well, Singapore doesn’t. So, their problems are different from yours – the culture is different, society is diverse, so you cannot apply the same method.


For regulators, this is a very dynamic environment they have to deal with. Sometimes they may not have the tools to deal with this. Don’t you think it is a different problem for them to solve?

I don’t think so, it’s not as much difficult as it was, say, 15 years ago. It was tough back then: technology was expensive and unreachable, but now everybody has a mobile phone, almost everybody has access to the internet.

Look at it this way, do the regulators have more options? They do, there has been a democratization of access which results in more options for regulators. Everything that wasn’t possible is possible now, regulators only have to figure out how to regulate. The problem used to be what to do, and now the question is how to do. We are in a better position to make changes. It might require you to work harder, but the point is you can do it.

What do you think can lay the foundation of achieving the goal of digital KYC (know your customer)? Isn’t this a major reason why there is slow adoption of digital banking and fintech? Should not financial regulators focus on this first?

The job of the financial regulators is not to digitise. The national ID isn’t issued by them. The challenge is ‘how do I prove you are, who you say you are?’ Is there a way to digitally verify your identity? Is there a way to digitally carry that information? Digital ID is one of the foundation’s blocks of fintech. If you can digitise the ID, that would lay the foundation of Fintech.

If you want people to sign up for digital banking, then you must be able to achieve the goal of doing KYC on your phone?

I can take a look at your picture and extract it. Then I query the ID department. I have a picture and some details along with it, and now I have to make sure that everything I’ve received isn’t fake. What I’d do is ask them to verify that information for me.

But if the ID department is not digitized, then it will take forever to verify the information?

You need to have access to that system. The ID is issued by another ministry, and they have to have their data computerized. That’s the only way of achieving this. There’s no other way around it.

Will that require laws to be amended?

Not necessarily, I don’t think there’s any Sri Lankan law stating that a department cannot say yes or no to a query.

So this exchange could happen without passing a law?


So the digital ID is a bottleneck?

No, that’s not, the bottleneck is the digitization of the ID. The problem is whether or not I can digitally validate, and that’s what we are trying to solve. The bottom line is that you already have an ID, but can I digitize it?

So, you cannot do it without digitizing the ID?

You can, you already have an ID, I’ll take a photo and send it to the relevant department, and they will answer accordingly. I didn’t create a new ID, I didn’t ask you to do your thumbprint again, you have the data. You have the driving license, you have the passport, you have a phone account, you have a bank account;
so we already have four different ways of
validating your data.

Can private companies do this?

Not really, the government has to be involved. Maybe they can do, you already have an electricity connection and all sorts of things. But can this data be used to validate an identity? Are the owners allowed to sell it as a service? As per my current understanding, the Sri Lankan law neither prohibits nor allows.

What about the other countries? Have they allowed it?

In India, for example, they have allowed with a special license. It’s just a matter of getting the license.

So in Sri Lanka, do we hold the Central Bank responsible for fast-tracking digital KYC?

No, they haven’t issued any of your IDs. They have no authority over that, so what can they do?

So you are saying this is not their problem?

It is up to an extent, but they cannot find a solution for this by themselves. It is a national problem, and the Central Bank is in a critical position. Nothing can be solved without their involvement, but other players need to play their part.

Where your data is going to be stored and who has access to it is an important consideration, right?

What is your data sovereignty consideration? How are you going to structure it? Is it going to be a local plus foreign copy, or is it only a local copy? And what kind of data falls into the categories of foreign and local? Because that’s the deciding factor as to how a new generation of applications can happen.

What are the other issues?

Privacy, consent, the ability to identify and recall when consent was given. A lot of the time, people have no recollection. Do you remember which marketing companies you’ve given your consent to send you promotional material? Too much digitization is a threat to privacy. The challenge is to maintain a balance and to make sure that data isn’t being misused. You want to be sure that the company with a lot of money doesn’t kill the one with little money. If I have much data, I can always use that for my own advantage. How do you ensure the large companies don’t dominate the small companies? This is a debate they are having in Europe and the USA. Big tech is too strong. How then do you make sure small companies don’t die?


Are there any other challenges?

Competition, how do you ensure that the big tech companies don’t become too big to fail. The world’s big financial companies are becoming too big to fail. All the big tech firms have launched into financial services, some of them even have a lending license. Now how exactly do you regulate these companies?

Not many companies in Sri Lanka are digitised, and the regulatory laws are over fifty years old. If Sri Lanka were to start over, is the issuing of payment banking licenses model the best way?

We need to look at the foundation first. In my view, the first step is digital KYC.

So, it’s not a matter of digitising your identity, but rather taking a short cut for payments?

There are many options when it comes to digital KYC. You cannot allow just one picture, you need levels of validation. Perhaps you can create a framework in which third parties are permitted to do this. For example, you could come with a model that’s in collaboration with agent networks. Maybe you can’t achieve the full extent of digitization, but you certainly can make it more efficient. For example, digital bank issuance, you can open the account, you can allow them to do all sorts of transactions except withdrawal of money until you go to the physical touchpoint and complete your KYC.

Traditional banks have all the reasons to block these developments?

Yes, they do, but they also can use this to grow market share. Any financial institution wanting to enter this needs to look at it from a context of the market. The strategy is different from bank to bank. If they are worried about cannibalisation, they can make the entry into a different market. There are many financial services banks offer when it comes to digitization, they don’t necessarily have to think about lending. The institute that wants to digitise can focus on unmet needs. You need to identify the problem that needs to be solved and look at the impact it might bring in.