The Fintech Revolution Begins in Sri Lanka

Cards and mobile wallets have largely failed to challenge the dominance of cash in retail transactions. Now, a unique concept using the simple smartphone is set to usher in a profound transformation. The less cash era has dawned in Sri Lanka with the participation of a few progressive fintech companies, and life will never be the same again

The retail space in Sri Lanka will soon be transformed by a revolutionary new concept – JustPay. It is expected to drive the shift from a largely cash-based society to a less cash one. The unique system revolves around the ubiquitous smartphone, leveraging its versatility to usher in a host of benefits across the board – for consumers, merchants, banks, fintech companies and the economy as a whole.

The basic concept of JustPay is simple: The customer uses his smartphone to make payments of up to Rs10,000 by transferring funds directly from his account to that of the merchant in real-time with a single click. The impact will be profound. This will be a much more convenient option to cash-based payments. Practicality lies at the heart of this initiative launched by LankaClear and backed by the Central Bank. It is far less cumbersome and costly than the existing payment system. Both consumers and merchants will get a far better deal. All small businesses – from the corner grocery store to the laundromat and newspaper stand – will be able to accept cashless payments.

The unique features and diverse applications of JustPay make it a pioneering initiative not only in Sri Lanka, but globally as well. The apps connected to the system will offer a seamless user experience. There will be lifestyle changes driven by technological innovations based on simplicity and convenience. In other words, life is going to get a whole lot easier.In an interview with Echelon, LankaClear’s Chairman Anil Amarasuriya and General Manager/CEO Channa de Silva discuss how the JustPay concept is bound to transform the retail payment landscape in Sri Lanka.

(L-R) Chairman of LankaClear Anil Amarasuriya and General Manager/CEO of LankaClear Channa de Silva

What was the thinking behind the need to launch JustPay in Sri Lanka?
Channa: The main reason was to drive the shift from a cash to a less cash society. We believe the system’s practicality and multiple benefits will encourage banks, app developers (fintech companies), merchants and most importantly consumers to actively participate in this transformation. When it comes to going cashless, the situation in Sri Lanka is still disheartening. Consider the impact of credit and debit cards. Although a large number of cards have been issued, while being in circulation for many years, they have failed to make much headway. The mobile wallets operated by telcos and banks haven’t significantly increased cashless transaction volumes either. The fact is that around 95% of all retail transactions in Sri Lanka are still cash-based.

Around 1.4 million credit cards and more than 19 million debit cards have been issued in the country. Last year, we had over 45,000 POS terminals deployed across the country and less than 50 million debit transactions on them. If we do the math, the average number of such transactions per POS terminal would be below three a day. This is a sad statistic. It indicates that, although there are a lot of debit cards issued in the country, people are hardly using them for POS transactions.

This is partly because small merchants discourage the use of cards since they have to pay a commission to banks. They either offer discounts for cash payments or pass the cost of the commission to the consumer if they want to use a card. This is a deterrent for people to use cards at the onset. The merchant discount rate (MDR) ranging from 1.8-3% in transaction value is certainly a deterrent. While large merchants with high volumes of business may absorb the cost, smaller merchants – whose profit margins are low – are reluctant to do so. In Sri Lanka, debit cards are primarily used to withdraw cash from ATMs; so, cash remains the dominant payment medium.

How will JustPay change the situation?
Channa: If we are to reduce the use of cash, the convenience factor is paramount. This is where the smartphone comes in. Both India and China have leveraged high smartphone usage to drive the shift towards being cashless. Current smartphone penetration in Sri Lanka is quite high, and is growing fast. If we can convert 15-20% of the current cash-based transactions to be done via smartphones, we could certainly move forward. The JustPay system only requires a smartphone in the hands of the consumer. There will be no necessity for investments on infrastructure, such as POS terminals or even a smartphone on the merchant’s end. All the merchant needs to know is whether the customer’s payment has been credited to his bank account. He would receive a SMS to his mobile phone indicating this. This is a simple process, and we feel it will set the stage for the concept to take off.

You mentioned that the commission or MDR is a deterrent in card transactions. Will your system charge merchants and customers?
Channa: Yes, any technology-based system, to be economically viable, needs to have some fee structure. However, it will be significantly less in this case. We have introduced a very reasonable slab-based customer convenience fee. For transaction values up to Rs1,000, the maximum customer fee is just Rs1. For a transaction value of Rs5,000, the fee would be Rs12, and a transaction value of Rs10,000 would cost just Rs20. However, we have seen that most fintech companies are absorbing even this small customer convenience fee and providing the service free to customers. As I mentioned earlier, the MDR on current card payments ranges between 1.8% and 3% of the transaction value. We have encouraged banks to bring the MDR down to 0.5% at a value of Rs1,000, and even less for higher values. The feedback we have received is that merchants would not mind parting with such an insignificant commission in return for increased sales.

What about transactions above Rs10,000?
Channa: Currently, the JustPay system facilitates real-time retail payments up to Rs10,000. Our research indicates that the majority of retail transactions are under this amount. If we look at cash withdrawals from ATMs, as much as 70% are below Rs5,000 and 80% are below Rs10,000. Hence, we can safely assume that most retail transactions are below this value. If we later see a need to revise it upwards, we will discuss with our stakeholders and the relevant monetary authorities to make this change.

The process of a traditional fund transfer is a major deterrent to increasing cashless transactions. How will JustPay resolve it?
Anil: Yes, the process of fund transfer was an obstacle previously. The merchant and the customer had to maintain accounts at the same bank to make a fund transfer. This isn’t practical. But, with our common real-time switch and several innovative apps linked to the system, funds can be transferred between accounts in different banks instantaneously.

The procedure is quite simple – the customer needs to register by providing his bank details via a smartphone to another bank, which is the acquirer of the app. Thereafter, he can simply pay through the app with a single click by selecting the JustPay payment option. The customer’s account would be debited and the merchant account at the acquiring bank would be credited in real-time. The acquiring bank pulls a payment from the customer’s bank account based on the customer making a single click via the app.

So you see this as a game changer?
Anil: Absolutely! The convenience and user-friendliness of the system, as well as other features of the app, will result in many more customers and merchants joining in. This is because our approach revolves around the smartphone rather than having to maintain additional infrastructure such as POS terminals necessary for card transactions. Not only is the number of POS machines limited, but it’s also concentrated in the Western Province. In addition, they involve a cost to use, need a communication channel, additional costs for maintenance and come with conditions such as minimum usage, etc.

With JustPay, a variety of smaller businesses across the island who are willing to undertake cashless transactions would be able to do so. These include everything from the corner grocery store and newspaper stand to the laundromat, pharmacy and hardware shop. The potential applications are numerous. This provides fertile ground for fintech companies to think out-of-the-box and develop innovative apps to open up new opportunities.

Channa: We plan to enhance the user experience by further simplifying the payment process. This will be done through a centralised system that uses mobile number/NIC and “nicknames” (or PEN – Payment Exchange Name). It requires banks to issue unique nicknames to each of their authorised bank accounts. Once the system is operational, the customer can register with  an app via a smartphone with his mobile number/NIC and the nickname of the bank account he wishes to use. Once registered, a consumer would only require the merchant’s mobile number and the nickname to make a real-time payment. It will do away with the need to disclose personal information such as account numbers.

In the near future, we hope to launch another initiative that will totally transform the payment landscape in Sri Lanka. It involves standardizing and issuing a National QR code for merchants. All a merchant would need is a National QR code sticker pasted in his shop to accept a payment and an economical mobile device to receive an SMS stating that the payment has been credited to his bank account.

All these innovations will take customer convenience to a new level. A busy person, for example, would be able to order dinner from a small food outlet after work and get it delivered via a delivery service by the time he gets home. It will save him a lot of time and hassle by not having to physically visit the outlet. A customer wouldn’t hesitate to pay a small fee for such a convenience. This option is not even available currently for your everyday small-time food outlet.

We believe this will spur innovation by fintech companies and app developers. They will see emerging opportunities and create apps that will cater to real market needs. Simplicity and convenience will be the key to success. There will be much potential for apps that coordinate between retail shops and independent delivery services; it will enable even small shops to deliver food and other goods to homes without the need for their own delivery channels. The feature for customers to rate a merchant using such apps, to a great extent, would ensure the quality of products and delivery services offered.

Has the initiative irked banks whose card businesses could be affected?
Channa: Current card usage in the retail space is very low. It has hardly dented the dominance of cash-based transactions.

We feel this would help the banks, as the primary target would be to replace cash transactions. We’re also looking at retail transactions up to Rs10,000 at the moment. Yes, there could be some effect on the current card businesses of banks, but over the long-term, it will compensate through increased volumes of business generated by an expanded market. They will benefit banks, as a part of the transaction fee goes to both the merchant’s bank and the customer’s bank.

Have many banks and apps have linked up with JustPay so far?
Channa: A few innovative apps have already gone live on the system, with a few more in the pipeline. These include UPay, IPay, DirectPay, OrelPay and Dialog Genie. The e-commerce platform has also come in as a merchant, as payments can now be made via JustPay-powered apps to e-commerce sites by simply scanning a QR code.

Customers of Bank of Ceylon, Sampath Bank, Cargills Bank, Nations Trust Bank, LOLC Finance and Commercial Leasing & Finance can currently use the apps that are live, while HNB and Commercial Bank customers will be able to do so soon. So far, we have seen 100% growth on transactions month-over-month since January this year. More banks, apps and e-commerce platforms will get onboard when the advantages become evident. We expect most local banks to be using the system by the end of this year.

The innovative fintech apps will attract merchants, facilitate transactions in real-time and rate merchants based on the user experience. Market forces and consumer experience will determine the success of these apps based on their features and the convenience they offer. Access through biometric systems such as retinal and fingerprint scanning instead of a password, for example, would make the process seamless and secure to attract more users.

What about the security aspect?
Anil: JustPay is a concept approved by the Central Bank of Sri Lanka, and all applications registered with the system are connected with a Central Bank-approved acquiring bank/institute, so the liability of the transaction would be borne by a Central Bank-approved entity. This assures the security, reliability and trust of payments made via JustPay. It is further enhanced with several other security features including PKI-based mobile security architecture. The Central Bank has issued a baseline security standard for mobile payment applications. Participating banks have to comply with these standards for all mobile payment apps.

If JustPay succeeds in transforming the cashless landscape, how will it benefit the economy?
Anil: There will be multiple benefits. The budding fintech industry will get a boost. Numerous small merchants currently outside the banking system will begin to open bank accounts for transactions, and the money will get deposited to these accounts. This will make them creditworthy, which means they would now be able to qualify to get loans. More electronic payments also mean that the banking sector will be able to attract more cash currently in circulation outside the system. This will boost growth in the banking sector as well as the economy as a whole. Global statistics indicate that cash usage, on average, costs an economy 1.5% of its GDP. In comparison to approximately 2% of GDP spent on education in Sri Lanka, this is a significant cost to the economy. So, shifting to non-cash payments is bound to have a positive impact on our GDP.

Corporate Profile – LankaClear
Established in 2002, LankaClear is Sri Lanka’s national payment infrastructure provider. It is owned by the Central Bank and all licensed commercial banks operating in the country. Under the brand name LankaPay, it facilitates a range of domestic interbank payments on behalf of all member banks and non-banking financial institutions. It thus provides the critical backbone network for the country’s banking and financial sector. JustPay is a pioneering initiative by LankaClear. It is expected to play a significant role in driving the shift from a largely cash-based economy to a cashless one by facilitating mobile-based retail payments.


(L-R) Founder and Chairman of Dulith Herath, Group Chief Executive of Dialog Axiata PLC Supun Weerasinghe, Managing Director of Orel Pay Kushan Kodituwakku, Chairman of LankaClear Anil Amarasuriya

Dialog Genie

+ How does JustPay fit in with Dialog’s payment ecosystem?
Dialog’s payment ecosystem comprises Sri Lanka’s largest mobile payment platform, eZ Cash and Genie, Sri Lanka’s first and only PCIDSS security-certified digital payments platform that aims to facilitate best-in-class financial services to all segments of society, thereby enabling the creation of a digital economy.

The partnership with JustPay enables Genie subscribers to link their bank accounts and activate a range of payment services via the digital wallet including instant Over-the-Counter (OTC) payments, web, in-app, remote payments, and Person-to-Person (P2P) transfers by scanning the QR codes that contain digitally encoded merchant and individual information.

Dialog has also enabled the JustPay payment mode for all eZ Cash subscribers, to provide further convenience and ease of access for top-ups, anytime and anywhere via their bank accounts.

+ Does JustPay complement Dialog’s existing mobile payment model or does it take it in a whole new direction?
It complements and enhances. JustPay provides eZ Cash customers the opportunity to access their bank accounts for top-up, enhancing convenience for subscribers. This would support the growing trend of subscribers and merchants using eZ Cash as an alternate payment mode for micro transactions, eliminating the primary challenge of loading their eZ Cash accounts.

The integration of JustPay with Genie provides alternate payment options for Genie wallet users beyond credit cards. As Genie is certified with the PCIDSS security standard, it offers the most secure digital payment solution via mobile for customers and merchants, thereby increasing speed, convenience and the availability of financial transactions.

+ How will you leverage the synergies of JustPay to activate and grow eZ Cash and Genie users, and vice versa?
eZ Cash has over 3 million customers and continues to be at the forefront of all mobile payments in Sri Lanka. eZ Cash customers can easily register bank accounts with JustPay, helping to drive the P2P payments/transfers landscape and the adoption of QR technology.

Our digital wallet, Genie, is fast gaining traction with its ability to facilitate remote payments and through its connectivity with JustPay will deliver convenience to customers and enable merchants across the country to accept digital payments without the need for any other payment infrastructure, such as credit card Point of Sale (POS) terminals. In turn, JustPay will leverage a large base of Genie and eZ Cash customers to grow its reach and transaction volumes. The products and payment platform will work in synergy to complement each other.

+ You also own a finance company. Do you see synergy with JustPay?
JustPay is an integral part of our fintech ecosystem, and all our payment and financial services will leverage the platform as we drive towards a more financially inclusive, cashless society.



+ How does JustPay fit into Kapruka’s business model?
Right now, we lose 20-25% of revenue on a daily basis because we can’t accept debit cards and customers can’t pay with bank accounts. I see great potential in JustPay to fill this void. In any e-commerce business, payment methods play a crucial part. Even though cash on delivery is the most popular option in developing countries such as Sri Lanka, direct bank payment should at least be the next best option. Credit card and other mature options come later, and at a higher price to online businesses like Kapruka.

+ How great a challenge is payments for widespread e-commerce?
Over 30% of e-commerce checkout journeys do not get past the payment page. This is an industry norm in the region. It’s due to payment barriers. This is why we also promote cash on delivery to secure these orders.

+ Can JustPay contribute towards e-commerce growth?
Yes, of course! In fact, I was going after LankaClear personally, encouraging them to build this solution for the sake of the e-commerce industry.

+ Is Kapruka geared to work with multiple payments apps?
Kapruka has always been a technology company more than an e-commerce retailer. We are also keen to integrate this to Grasshoppers – a sister company of Kapruka – which connects with over 450 small e-commerce websites in Sri Lanka. I believe the Kapruka-JustPay partnership will have a large and rapid impact on Sri Lanka’s e-commerce ecosystem.

+ How do you see the future for cashless payments evolving?
Cash will recede from the e-commerce space very fast. COD or ‘cash on delivery’ is something we want to change to ‘card on delivery’, where the delivery reps (grasshoppers) will carry a mobile that also accepts cards or QR of JustPay partners at the customer’s doorstep.


Orel Pay

+ What’s your competitive advantage as a payments app?
We serve a few hundred thousand customers per day through the 50,000 outlets that carry our products. We believe that we can offer a lot of value added services to our customers and merchants through Orel Pay.

+ Has Orel Pay succeeded in being seen as ‘cool’ among the younger generation?
Orel Pay is just the foundation to change a traditional, age-old transaction method to the modern era. The cool stuff is yet to come. There is a great possibility that we may be able to make hunger and poverty a thing of the past. We can help Orel payers save money and build a cash reserve for a rainy day. Today we can use technology to derive a desired outcome.

+ How many merchants and service providers have signed up with the platform so far?
Our on-boarding process has just begun.

+ What do you think are going to be the main challenges for your business growth?
Orel has come a long way since its inception. Most people know us as Orange Electric for our endeavours in the electrical and lighting field. We are also one of the largest employers in the field of IT in Sri Lanka. We have over 2500 people employed in our IT wing. We are a huge enabler for industry 4.0. Our contributions have gone into making driverless cars a reality. Orel Pay is merely another initiative we undertook to contribute to industry 4.0. Our mission is to empower humanity.

+ Is it geared to evolve with changing market dynamics and consumer preferences?
Orel Pay will continuously evolve with new features with the development of technology for the betterment of mankind. We consider Orel Pay to be a social enterprise.


(L-R) General Manager/CEO of LankaClear Channa de Silva, Founder/Director of DirectPay Kanishka Weeramunda, Chief Executive Officer of UPay Asela Wickremesooriya, Founder CEO/Director of ipay Conrad Dias


+ What’s your competitive advantage as a payments app?
I would say there’s more than one. If I am to highlight the key advantage, it’s the fact that we have managed to find the perfect mix between best-in-class customer experience, security and scalability. It’s the perfect combination for an enterprise-level payments platform.

+ Has UPay succeeded in being seen as ‘cool’ among the younger generation?
I strongly believe so. We’ve also received amazing feedback from older generations on how simple and intuitive the UPay app is. There’s always room to improve and grow, so we will continue to optimise and innovate the app to cater to all customer segments.

+ How many merchants and service providers have signed up with the platform so far?
Over 100 merchants in just the last 12 weeks. We are constantly looking at empowering local entrepreneurs by providing them a cutting edge payment acceptance solution that’s cost effective and easy to use. One key difference with UPay is that we encourage all merchants regardless of their size and market share to partner with us.

+ What do you think are going to be the main challenges for business growth?
The slow digital penetration rate in Sri Lanka and lack of digital infrastructure across the island are the biggest challenges when considering mass adoption of any payments platform. Sri Lanka is predominantly a cash-based society. Therefore, it requires collaboration between banks, fintech companies and financial regulators to encourage citizens to trust and accept digital payments.

+ Is it geared to evolve with changing market dynamics and consumer preferences?
Absolutely! Unlike most off-the-shelf products that are localised and deployed to the market, our platform was developed by a group of hand-picked domain experts in a manner that it’s easily scalable. We work actively with opinion leaders, influencers and market research groups to constantly improve our platform and adapt to market changes.

+ What was the investment involved in developing the infrastructure?
With regard to capital, we’ve made a significant monetary investment in terms of technology innovation, infrastructure and security to adhere to local and international standards. In order to future-proof our platform, we’ve also designed it in a scalable manner to adapt to new features that are introduced to the market while maintaining the same level of security. As for infrastructure, we have invested in ‘best-in-the-market’, cloud-based environments and acquired the necessary certifications. UPay also invested on acquiring the correct talent pool with the right skills and motivation to build a positive startup culture in our organisation.



+ What are iPay’s plans for the near future?
We aim to reach the entire country through our branch network with LOLC Finance and Commercial Leasing, etc. So far, we have about 100 registered merchants, but plan to reach 1,000 within the next 4-5 months.

+ How does iPay hope to stand out in the competitive digital payments space? Is it geared to evolve with changing market dynamics and consumer preferences?
We will focus on creating convenience, a better user experience, reliability and simplification for the customer, while creating value with the services we offer to merchants. Today, it’s important to win customer confidence, and we don’t want to compromise on that. We have invested a lot in information security and innovating in simplified user experience. Our vision is to create value for both the merchant and the customer, while contributing to the digital roadmap of Sri Lanka together with LankaClear. Competition is good and will spur innovation. Our end goal is to enable merchants to attract more sales through the platform. We strongly believe that we need to continuously invest in research and development to be competitive in the market.

+ What’s your strategy for iPay to be the preferred choice of the customer and merchant?
We have two main strategies. From the merchant’s perspective, we are providing a platform to engage with customers. From the customer’s perspective, we want to provide as much convenience as possible by integrating with partners, and make it the app of choice in terms of transacting. That’s the value proposition, provided at no extra cost to the consumer.

+ How much have you invested in developing the backend?
About Rs100-200 million, and we continue to invest in research and development, innovation, and security. We as a company are concerned about data security. One of our key investments is on the advanced inbuilt fraud detection security platform. We continuously invest more on this to ensure the safety of iPay users. We have also invested in making it more accessible to all customers and vendors, and want to work with multiple banks.

+ What trends can you capitalise on in the future? Any investment opportunities in the pipeline?
Our objective is not only to operate in the payments space. Payments is just one aspect of our platform; our ambition is to connect the merchant and customer digitally and redefine their engagement. We will make steps to have an open platform where other application developers, e-commerce merchants and banks can integrate easily, while we enable and provide a digital engagement platform for micro-entrepreneurs. Once the customer base is secure, we have many plans in the pipeline. iPay is a registered product in Singapore, but most of the software engineering is done in Sri Lanka and is customised for the local market. With the global presence of the group, we are looking to take the iPay platform to the region starting with Cambodia and Myanmar.



+ What’s your competitive advantage as a payments app?
Our competitive advantage is that our application is available to customers for frequent and immediate access, anywhere and at any given time. Moreover, payment transactions are not limited to customers of a particular bank, but can be done via any bank available within the JustPay facility. We are proud of the fact that we not only provide the best solution but also charge the lowest commission rate from merchants in Sri Lanka.

Our application is not a mere payment app but a solution for all day-to-day payment processes. In a nutshell, we are a 360-degree payment solutions provider. With our expertise in the fintech industry, we have created an app that will be supported globally, and not just limited to the Sri Lankan market. It was carefully designed keeping in mind our vision to build the digital payment ecosystem in Sri Lanka and around the world.

+ How many merchants and service providers have signed up with the platform so far?
In less than a year, DirectPay has built a merchant base of more than 2,500. We aim to increase it to 15,000 by the end of 2018. In addition, we have the support of more than 70% of billers in Sri Lanka who have joined hands with us to accept payment through DirectPay.

+ What do you think are going to be the main challenges for your business growth?
There’s an abundance of regulation. However, the Central Bank at all levels has taken an increasing interest and supported our business immensely. New technologies like ours present an enormous opportunity for financial sector disruption. But it can be challenging to get industry participants (banks, merchants and consumers) to give up old and dated solutions. Technology is at the centre of the evolving payments landscape, with new and improved solutions and capabilities influencing consumer behaviour and expectations, as well as driving industry change. However, changing the behaviour from traditional to digital payment methods is a slow process.

+ Is it geared to evolve with changing market dynamics and consumer preferences?
DirectPay was founded with the aim of disrupting Sri Lanka’s fintech industry. Our ‘consumer-centric’ approach is our strength. Through this, we hope to transform their experience and engagement with financial services.

+ Do you see other fintech applications for the platform in the future besides facilitating retail payments?
Yes. We have opened up many opportunities to help grow the fintech ecosystem. We are working on opportunities to facilitate cross-border transactions digitally, inward and outward, through fintech innovations mainly based on blockchain technologies.