Hatchx , Sri Lanka ’ s first fintech start up accelerator , is supporting seven companies attempting to improve financial inclusion .

They are doing this with solutions for affordable payment platforms, cheap credit on favourable terms, better price discovery, insurance for all, and making the unbankable, informal segments of the population bankable.

Financial inclusion is key to sustainable growth because it reduces poverty and inequality, helps people invest in the future, manage shocks, and smoothen household consumption. While Sri Lanka is ahead of its South Asian peers in most inclusion indicators, significant gaps remain, according to a 2020 World Bank Group report.

Bank branch density was 17 per 100,000 people, compared to the regional average of 10. However, 26% of adults made no deposits or withdrawals in a year. Only 29% of the adult population had savings, and 17% had loans. A 2018 National Financial Inclusion Survey quoted by the report found that 48% of respondents borrowed from informal lenders at high interest.

HatchX organised a demo day for these seven companies that qualified to join its programme. Launching in March 2020, 18 fintech startups hoping to join the accelerator programme underwent an intensive selection process. Founders had to demonstrate a sound grasp of business fundamentals, and their companies had to show exceptional potential for growth and impact.

Typically, a startup accelerator attempts to compress the life cycle of an innovative company from several years to just a few months through a programme of intense, rapid, and immersive education, mentorship, testing and refining strategy, and finally, preparing founders to raise early-stage funding.

Endorsed by the Central Bank and Fintech Association of Sri Lanka, HatchX brought together major stakeholders in Sri Lanka’s financial industry to take on advisory and mentorship roles. It will also facilitate funding for these seven startups that made it through the selection process.

HatchX is a collaboration between Hatch, an enterprising co-working space, startup accelerator and incubator, an alliance of early-stage investors in startups Lanka Angel Network and the U.S.-based Ford Foundation.

AFFORDABLE PAYMENTS TECH: Despite 23.5 million debit cards and 1.85 million credit cards in circulation, Sri Lanka is still a 95% cash-centric market. Issues start to arise when you look at the fees. The cost of deploying payment gateways, payment apps, or credit card terminals, is too high. All of these costs are detrimental to the growth and success of small businesses. What we are looking to do is to support the economy by providing a complete digital payment ecosystem at reasonable costs.

Businesses utilising DirectPay will find it is one of the most cost-effective, real-time payment modes with the ability to monitor daily transactions and reconciliation through the dashboard or merchant app. Payments to suppliers can easily be facilitated with a click of a button through DirectPay’s fund transfers even if the suppliers hold an account in a different bank. We work with most banks in the country through CEFT and JustPay under the guidelines of the Central Bank. Using our VPOS (Virtual POS), the merchant can generate a payment link and send it to their customers via an email, SMS, WhatsApp or any other similar method.

Customers can make payments with ease, transfer funds by scanning the recipient’s QR code, make seamless payments at checkout, leave tips, split bills and pay merchants in 4 simple steps – Login, scan, enter the amount, confirm. Going cashless has never been easier as is testament to the over $1 billion in total transactions made in a mere 14 months.

IMPROVING CREDIT PROFILING: Small businesses and low-income individuals are disadvantaged by conventional credit evaluation methods followed by lending institutions. Chinks in customer risk assessment processes by banks and financial institutions in emerging markets have led to over $1 trillion in bad debt. In Sri Lanka alone, the non-performing loan ratio was 4.7% in the banking sector, while the non-banking sector reported a ratio of 9.6% and climbing.

The proper identification of borrowers is critical from both sides of the transaction – correct identification allows for lenders to mitigate the risk of non-performing credit while allowing for better rates for, and less collateral to be put up by, borrowers. However, the method of assessing a borrower in Sri Lanka follows very outdated processes. Typical data banks look at does not offer enough information on the real creditworthiness of a borrower, not to mention the introduction of errors of the human component of the assessment.

This negatively impacts the economy due to the individuals and organisations poorly assessed being refused credit. To mitigate this we developed a machine-learning model that gets implemented within the bank’s/ financial institution’s system – to ensure that data is secure – that processes big data from both traditional and non-traditional sources.

This non-traditional data would be sources of information that appear to have no direct correlation to assessing a borrower, but in reality, requires a large amount of data to be processed to make sense.

This data will be what the banks already have in hand, such as data collected during KYC, data on customer interactions, publicly available information (social media) and data shared with the provider via third parties like CRIB. While the processing of big data in this scenario is by no means a new thing, we offer a model that is adaptable and able to learn trends to provide the most accurate risk assessment possible for our clients’ needs.

HASSLE-FREE, LOW-COST LOANS: If you were to apply for a small to medium loan from a bank, there are a multitude of pain-points that a borrower will have to go through, namely the sheer amount of documentation and the very high-interest rates. And with the state of the economy, as it is, salary advances for employees has also become a task that employers are finding it difficult to allocate budgets for. Helios P2P is Sri Lanka’s first peer to peer lending platform that is looking to remedy these issues by connecting private investors with borrowers over an online marketplace at extremely competitive rates

The three products in our portfolio are Helios Public (HP), Helios for Leading Organisations (HELO) and Helios for Registered Organisations (HERO). HP was the first product introduced where any member of the public, with the submission of their CRIB report, can gain access to short-to-medium credit from our marketplace of investors at interest rates unmatched by banks and other financial institutions.

HELO was the next product which does not require the iCRIB report that HP does but is based on the documentation supplied by the employee. And finally, HERO where we engage directly with the HR departments of the relevant organisation to understand when the salary cycles run. The risks to lenders on the platform is mitigated by Helios’ proprietary credit rating system, auto-debiting on salary date, and agreements with debt collection agencies in the case of defaults.

MAKING THE UNBANKABLE, BANKABLE: The bottom of the pyramid, the poorest two-thirds of the human economic pyramid has never had access to financial services in terms of borrowing. We have a lot of banks, finance companies and microfinance companies, but when it comes to lending out to people who are earning money in cash or on an infrequent basis, these financial institutions still require payslips to qualify for credit. Your average ride-hail driver gets paid regularly which might amount to more than what a white-collar person might earn, but because the transactions aren’t all aggregated and they can’t prove where they earned the money from, they end up being locked out of formal financial services. This results in daily-wage earners having to resort to questionable microfinance companies or loan sharks.

OGO Pay looks at targeting two-sided platforms, ones that have a supplier and a buyer, or ride-hailing services, hotel bookings etc. We first facilitate the incoming payment from the buyer to be as seamless as possible, but we also give the platform the option to pay out to the supplier, the riders, drivers, hotels etc. daily with minimal fees. The added benefit of this is since we know what funds are flowing into the platform, we can offer an alternative to a payslip complete with income history. This opens up the possibility for the bottom of the pyramid individuals to gain access to financial services they would not have had otherwise.

Another feature that we are working on is the option for suppliers to choose how to accept their payments. Since we control the inflow of funds right at the source, we can give them the option to either save to a high-interest savings account, invest, or if they already have a reducing balance loan in place, they can choose to pay it back daily. We are looking to be a company that helps its users create wealth.

FAVOURABLE CREDIT TERMS: iLoan is what you would call a trade connec – tor company. What we are trying to do is bridge the trade-credit gap in the market which is a $2 billion issue. We get those who are underrepresented in the system due to the lack of KYC and collateral, and with our blockchain-based product, we connect them and create transparency to the lenders to access these creditworthy borrowers.

Through this, we have been suc – cessful in registering 13,000 users in a year and having a loan book of over $800,000. In the FMCG (Fast Moving Consumer Goods) sector, most of the small retailers have a very limited working capital to buy products from these multinational companies. What we do is we partner up with these multinationals and target a segment of the creditworthy retailers they have who have no access to credit.

We then go with their sales representatives, onboard them, and the credit we extend them comes in the form of the goods. We incentivise retailers to buy a higher margin and based on that, we pay the supplier what is due, on the due date on behalf of the retailer. The retailer then pays us back a week later with an applicable interest rate which is comparable to a temporary overdraft facility. This allows these small retailers, the mum & pop shops to extend their working capital, to gain some breathing room and grow their business.

INSURANCE FOR ALL: Daily-wage earners and gig-workers are a segment of the working population that is poorly covered by health insurance schemes. Simple accidents on small jobs can lead to massive costs that these workers simply cannot afford. Nor are they able to afford the high premiums that come with your typical health insurance policies that are available. Smart Insure looks to bring peace of mind to this class of workers by offering microinsurance solutions for different industries at affordable rates, increased transparency and streamlined ease of use.

A partnership with FastFix, a startup which is, in essence, the PickMe for handymen, is in the works to offer either a subscription-based or job-based life insurance cover. This policy will allow coverage for on-site accidents that are commonplace in the handyman trade. Another segment we are looking at is in farming. We aim to introduce an insurance policy that covers everything down to the seed. It will offer farmers some form of security during periods of drought, for example. We have already partnered with Hutch and Allianz to enable a per-day insurance cover for the entire Hutch base. We introduced a Hospital Cash Plan as well as life insurance coverage which prepaid customers can pay per day, and postpaid customers can pay per month.

KNOW YOUR FDS AND WHERE TO INVEST: The Sri Lankan fixed-deposit and loan market is valued around Rs. 17 trillion and during the past, despite having so many banks and financial institutions, we have seen institutions collapsing and people having trouble getting the returns or capital from the fixed deposits they have placed.

This all happens due to poor financial literacy where people look at either the high-interest rates offered or more personal reasons. They usually do not refer to publicly available credit ratings (ICRA and Fitch) because to a layperson who would want to know this information, they would have to talk to over 60 banks and financial institutions combined. Even if they resort to a simple internet search, it would still be difficult since some institutions have poor SEO.

Fipbox is a platform for the fixed depositors, where they can visit the website and find the rates being offered in the market across the board with the relevant security ratings. 14 institutions with us update this information via the backend, and another set of institutions whose rates and security ratings we source from the internet, is being updated daily and noted with a time & date stamp so you know these are the latest rates. Users are also educated on the intricacies of fixed deposits, withholding tax, commercial banks, specialised banks and financed companies. In addition to this information platform, we have introduced the Fipbox user base where we have one standardised information collection form. This allows us to facilitate the information flow for a fixed deposit made through our platform to the relevant fund manager with your consent. This information will then auto-populate that institute’s form format. One of the pain-points is KYC activity which requires the physical signature of the applicant, this is facilitated by a representative from that respective institution.

In addition to this, Fipbox provides a dashboard highlighting your current deposits, the present rates, and these are the upcoming renewals and better rates in the market and their security ratings allowing depositors to make informed investments.