Stuck in the Stone Age: Digital Payments in Sri Lanka
View(s):Sri Lanka is lagging behind when it comes to digital payments in a very big way. This has a severe impact on how Sri Lanka does business both internally and with the rest of the world. There also seems to be no push at policy level to address this issue and respond in a proactive way to the inevitable proliferation of digital payments.
Sri Lankan policy makers have a tendency to look to Singapore, and have made promises to make Sri Lanka more like the city-state. This has always signified the disconnect between policy makers and trends in the rest of the world. Recently, during Singapore’s national day, the Prime Minister of Singapore stated that Singapore is in the ‘Dark Ages’ in digital payments when compared to China. This should make us wonder, where are we?
“In major Chinese cities … cash is already obsolete and even debit and credit cards are becoming rare,” the PM told his audience as an Alipay (a digital payment provider in China) logo flashed up on a giant LCD screen behind him. While “smart” people in Chinese cities are free to pay for anything, from taxi rides to snacks on the street, with just a QR code, those in Singapore are stuck in the comparative stone age, with as many as six in 10 transactions still conducted with cash or check, the PM pointed out.
“When visitors from China find that they have to use cash here, they ask: ‘How can Singapore be so backward?’” The Singapore PM said.
- Why digital payments?
Sri Lanka has approximately 17 million debit cards that are in use (only a percentage of which can be used for online transactions) and approximately 1.4 million credit cards. This means we are a cash-based society still relying on cash and cheques which means we are essentially living and doing business in the 20th century. This also reflects a lack of innovation and keeping up with the times, which has direct implications for investment, wider innovation and ultimately, growth.
1) Cost savings
Moving from cash and checks to digital can significantly reduce costs for businesses in terms of finance costs.
2) Speed and security
Digital payments can be instantaneous; reducing the time the payee must wait to receive a payment. Reducing the use of cash also improves security for recipients and implementing partners.
3) Banking the unbanked
Digital payments person-to-person payments can be the first entry point to financial services for unbanked people.
4) Development
Greater adoption of digital payments can lead to an increase in GDP of between 0.3-0.8 per cent (Moody’s Study 2013). Moody’s Study revealed that digital payments result in increased consumption.
5) Transparency
Increased use of digital payments makes it harder to conceal and recycle black money in the economy, and this will also strengthen the government’s ability to collect taxes from citizens and business.
Next steps
1) Reduce dependence on banks: Governments should not depend on banks to find solutions to digital payments. Innovation is very unlikely to originate from banks (it’s not in their DNA); it will most likely come from start-ups. In China the leaders in digital payments are start-ups or e-commerce companies.
2) Tax concessions for digital payment providers: This will help offset some of the costs related to initial investment. This was done in countries such as Australia with a great deal of success
3) Enabling environment: The revolution in digital payments will happen through startups, so there has to be a start-up friendly environment created. This includes enabling investors to invest money in Sri Lanka easily, making the cost of failure cheaper and the ability to hire qualified people in the field from anywhere from the world.
(The writer is the CEO/Co-founder of takas.lk. The ideas shared in this article are his alone and do not necessarily reflect the ideas of the organisation. He can be reached on Lahiru@takas.lk for comment)