YOHAN WIJESIRIWARDENA
PAYABLE
FOUNDING: 2014
EMPLOYEES: 50
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PAYABLE SWIPES AT PROFITS WITH SMALL BUSINESSES
Banks and finance companies are ubiquitous in Sri Lanka. Every small town has a few and in the cities, they dominate main streets. A consequence has been that many people have at least a savings account and an electronic card linked to it. Savings account linked cards can be used for purchases, like a credit card, but somehow consumers only use these to withdraw cash form ATMs and not for payments.
According to the Central Bank, 97% of Sri Lanka’s transactions are in cash, a high percentage for a country in Sri Lanka’s state of development and one where financial institutions are so ubiquitous. There are many advantages to going cashless for consumers, for banks (all financial sector firms) and regulators. It’s safer than carrying wads of notes, it’s convenient, and transactions are easier to track.
However, by any measure Sri Lanka’s financial institutions and regulators have failed to encourage digital payments. Overwhelming preference to use cash against credit or debit cards has prevented fintech (short for ‘financial technology’ referring here to internet-based banking and investment), from making an impact in the economy.
Around the world, fintech firms are disrupting banking in three areas. First by invading the payments space, second by creating competition with banks, and third by offering investment services. Naturally, banks everywhere are fighting for their turf against fintechs.
“The push for smaller disruptive fintechs to be regulated is overwhelming and it makes sense to be aligned with a bank,” says Yohan Wijesiriwardane, Co-founder and Chief Executive of Payable, Sri Lanka’s most successful payments start-up. Payable does not lend money nor offer investment services, but partners Sri Lankan banks to grow the number of merchants able to accept card payments by offering technology far leaner, cheaper and easy to use.
Payable is a free mobile app based card reader which can be paired with a smartphone or tablet via Bluetooth. It enables merchants to accept credit and debit card payments from customers. The card reader, only slightly wider than a credit card is paired with any Android or iOS smart phone or tablet converting the device in to a simple to use mobile Point-of-Sales (POS) device.
For small businesses fearing the minimum transactions and other costs associated with credit-card machines provided by banks, Payable’s system is ideal.
Already some micro businesses like fish sellers at markets are using the card reader paired to a smart phone, to accept payments from customers. Once a transaction is approved and a customer signature obtained by scribbling on the touch screen, a receipt can be emailed or sent by SMS.
“We want to disrupt the market but be aligned with the banks,” emphasizes Wijesiriwardane about the company he co-founded with the late Sujith Subasinghe. Payable recently secured its second funding round at a billion-rupee valuation. A company press release stated Clarkeview Investments Limited, has invested in the firm.
Subasinghe and Wijesiriwardane started the business in 2014 and it took until 2016 when they had partnered with Ceylon Business Appliances (CBA) to sign up their first couple of banks Seylan and Commercial Bank.
In banking jargon, what Payable provides to small businesses is a point-of-sale device. Payable is a service provider and not a bank. Rather than having to convince small businesses to commit to sophisticated POS systems that require a minimum guaranteed spend and plenty of paperwork, banks are happy to let small businesses sign up to their services though Payable. Payable supplies the card reader, a little larger than a box of matches, for free.
None of the customers Payable signs on are its own, but they are all on behalf of one or another bank.
Two banks can be involved in any card transaction. The seller is charged a fee for every card purchase: typically between 2.5% and 3.5% of its value. The bank issuing the card, such as Commercial Bank or HNB collects a portion of this fee. The acquiring bank, the one supplying the card reader, also earns a portion of the fee. For every sale using Payable’s infrastructure it earns a fee from the bank on whose behalf it has signed up a customer. US based startup Square Inc was an early success as a digital payments company. However, Square is also an acquirer and signs up customers on its own account.
Fintech startups that started challenging banks for turf are now partnering them instead. “What’s clear is that banks are really good at navigating the regulations, tech companies are good with the solution.” That and the costly and time prohibitive process for an acquiring license Wijesiriwardane points out was why they decided to partner banks.
Hungry startups world over that thought a revolution was at hand by challenging banks are finding that they lack the capability to prevent their platforms being used for laundering money and financing crime syndicates. Whereas banks have invested heavily on technology and expertise to manage these risks.
Payable has already signed up 5,000 small businesses for Seylan Bank and Commercial Bank. Following its new funding round led investments, it’s expecting to sign up 1,600 merchants monthly forecasting to reach 20,000 by end 2018 as more banks allow Payable to sign on customers for them.
BUILD THE PRODUCT INSTEAD OF LICENSING IT
Payable’s ability to rapidly add new users was aided by its decision to build its own software rather than license a product. Wijesiriwardena says licensed payment solutions made for use in rich countries are difficult to be adapted to a developing country. He also points out that adding features and localization such as making it possible to use the app in multiple languages could take several months, if a licensed product is launched in Sri Lanka as a small market is often not a priority for the licensor. “We needed to build it and own it, to control it,” he says.
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PARTNER THE RIGHT PEOPLE
Payable’s founders commenced work in 2014 and CBA – a 45-year-old office supplies business –which is a major supplier of POS terminals to banks invested and incubated the venture. That technology can vault over contradictions, like Sri Lanka’s ubiquitous bank branches but poor card payment infrastructure, is a belief driving fintech innovation. In this case, it required a simple, robust and cost effective card payment system. Payable has surrounded itself with investors able to contribute to understanding challenges with Sri Lanka’s payment architecture, regulations and the systems’ idiosyncrasies.
A crucial choice was to not pass any costs to the banks or merchants accepting payments. The technology is also extremely light and works on a slow mobile network (2.5 G). It took Payable a year to convince the first bank to sign up but when it did, it was just plug and play as the technology was compatible with the existing bank software.
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NEVER DROP A LEAD
Many businesses willing to accept card payments, like corner stores and small restaurants had not been offered the facility by banks. Sri Lanka has 22,000 credit card machines or one for every 1000 in the population. Middle-income countries have at least five times this number and in rich countries it can rise to 20 times. Wijesiriwardena who worked overseas before returning to Sri Lanka to co-found the business is keen it retains a competitive culture, often lacking among businesses here.
Its approach to adding card machines – of which it has added 5000 in under two years – is evidence. Wijesiriwardene says with the first sales team they hired, they instilled a culture of never drop a lead. They implemented a CRM (Customer Relationship Management) system, which has tremendously aided the quick scaling. The sales team has been trained to follow every lead and they are now optimistic about the target of adding 1,600 card machines a month.
Signing a new merchant for card machine isn’t straightforward. Since they are signing merchants on behalf of a bank, the sales team coordinates documentation and necessary approvals on behalf of the bank.
For now, Payable says it has no plans to charge a fee from the merchants it connects to acquiring banks. However, merchants pay as much as 3.5% on every transaction to the bank, some of which is Payble’s share. So far, it has managed to drive down the cost of card payments by lowering the infrastructure and marketing costs to shake out the market. It has its eyes on more lucrative areas.