Less than a decade ago, Sri Lankans had to visit licensed commercial banks to deposit money, whether into their own accounts or someone else’s. Obtaining a bank loan was a lengthy and time-consuming process, involving extensive paperwork. Topping up mobile connections required a visit to a nearby shop to purchase a scratch card or request a shop owner to ‘reload’ the mobile connection.
Fast forward to 2024, the financial landscape has changed tremendously and continues to evolve. Licensed commercial banks no longer hold a fintech monopoly. The country has witnessed a surge in fintech start-up businesses, accelerated by the Covid-19 pandemic and the resulting reliance on digital payments, despite the economy being predominantly cash-based.
Due to geographical barriers, limited financial literacy, income disparities and regulatory constraints, Sri Lanka still has a significant underbanked population. One intriguing aspect of fintech start-ups is their attempt to reach this demographic by making their mobile payment apps, digital wallets and peer-to-peer payment platforms easy to access. Obtaining such services from licensed commercial banks can be challenging for many individuals.
Fintech start-ups harness multiple technologies to enhance inclusivity
The start-ups harness multiple technologies to provide a diverse array of payments and lending solutions, thereby enhancing inclusivity both locally and internationally. According to Sri Lanka’s Export Development Board, service sector exports surged by over 60% year on year in 2023.
Local solutions
The local private sector has made significant strides in payment solutions. Secure and user-friendly payment gateways have been introduced by companies such as DirectPay and PayHere (which has processed over LKR100m in business transactions since it was set up in 2016).
Meanwhile, mobile payment apps such as FriMi and Genie have won widespread popularity by enabling customers to make payments, transfer funds and pay bills directly from their smartphones. Companies such as Payable provide digital wallets and microfinance solutions specifically designed for low-income individuals and small entrepreneurs. Furthermore, licensed commercial banks have also now entered the digital arena with their own competitive applications, allowing for tasks such as opening a savings account to take place online.
Digital disruption
Traditional banks frequently throw up hurdles for small businesses and individuals seeking credit to grow their operations by enforcing strict eligibility criteria, demanding collateral and subjecting applicants to lengthy approval processes. In contrast, fintech start-ups use alternative data sources and advanced algorithms to evaluate creditworthiness and distribute loans rapidly and efficiently. This trend is encouraging an increasing number of individuals and businesses to turn to fintech companies to launch their own start-ups. This not only delivers essential capital to entrepreneurs and businesses but also fuels economic activity and overall growth.
The recent integration of India’s Unified Payment Interface (UPI) in Sri Lanka marks a significant milestone in the country’s digital transformation. With UPI transactions now available via LankaQR, Indian tourists visiting Sri Lanka can make seamless and secure digital payments. This initiative is set to rapidly expand, with plans to onboard 65,000 merchants by March 2024.
However, Channa de Silva, CEO of LankaClear, emphasises the importance of targeting rural populations, which constitute over 80% of Sri Lanka’s demographic. High transaction costs remain a challenge for initiatives such as the Cash Wade programme, which aims to bring digital transactions to suburban areas. According to de Silva, innovations such as LankaQR are eliminating barriers by offering cost-effective QR payment solutions, empowering both consumers and merchants.
Traditional banks need to embrace innovation and collaboration with fintech start-ups
Digital championship
To foster the widespread adoption of fintech, Sri Lanka must prioritise efforts to educate consumers and merchants about the advantages of digital payments. By incorporating payment features into diverse sectors such as education, retail and transportation, fintech companies can make cashless transactions more accessible and attractive to a wider audience.
Initiatives such as the Central Bank of Sri Lanka’s regulatory sandbox offer a supportive environment for fintech start-ups to experiment and refine innovative solutions.
Establishing strong partnerships between banks and tech companies will prove key in expanding fintech services. Traditional banks need to adopt a more flexible approach, embracing innovation and collaboration with fintech start-ups. Government support is also indispensable in creating an enabling environment for such partnerships to thrive.
Through these collaborative efforts, Sri Lanka can accelerate its transition towards a more digitally inclusive financial landscape.
