A LANKAN CARD WITH GLOBAL ACCEPTANCE
Tied with JCB International for EMV Chip Card Technology
It’s a debit card, a credit card and, a tap-and-go payment card! It’s global and all local as well! Biznomics sat down to speak to Channa de Silva, General Manager and CEO of LankaPay, to find out about their all-practical solution to stop the country from bleeding dollars without making consumers give up what they already enjoy! More than 95% of the credit and debit card transactions of Sri Lankans are on local purchases. However, the country pays more than 50 million dollars per annum to foreign card operators, for these local rupee transactions, draining its hard-earned dollar reserves unnecessarily. LankaPay aims to minimise this loss. It also strives to guide Sri Lanka towards cashless payments, and reduce the cost of printing money. As a rule of thumb, it costs a country approximately 1.5% of its GDP for printing, distributing and providing security for paper money, which is a waste when Sri Lanka spends only less than 2% of GDP on education. It tries to solve a social issue by being accessible to micro vendors, thereby encouraging them to use the banking system for transactions and build a credit rating for themselves, which is essential for obtaining bank loans. By doing this, it expects to keep money circulating within the formal banking system than “sitting out in somebody’s cash box”. “Although most of our people have bank accounts, they are not considered creditworthy by banks. This is because they don’t use the banking system for financial transactions and build a credit history” Channa explains.
LankaPay card seeks to address critical issues in the country
- Printed cash costs the country more than education: Printing, distributing and securing money costs 1.5% of GDP. Sri Lanka’s allocation for education was only 1.9% of GDP in 2019
- Underutilisation of bank accounts: The country has a high penetration of bank accounts, but a fraction of the money goes through the banking system.
- Micro merchants falling prey to loan sharks due to lack of credit history to obtain bank loans: They deal in cash and avoid channelling their funds via banks
Is it different from known global cards?
The short answer is that it offers the same world-class service at a much lower cost. How does it manage that, then?
LankaPay partnered with JBC International of Japan to deploy EMV Chip Card Technology. Visa, Master, American Express, Discover, JCB and UnionPay are all global debit and credit card processors, and they are a part of the EMVCo alliance, a global technical body, that facilitates the worldwide interoperability and acceptance of secure payment transactions. JCB is a founding member of the EMVCo alliance. The adoption of EMV chip card technology proves that LankaPay is secure, reliable and meets global standards.
Card processors are not typically issuers of cards. Traditionally, banks are the card issuers, and they channel the transactions via a processor. Think how the households in the past sent their spice mixes to the local grinding mills to be ground. Spice mixes varied from house to house, but the grinding mill was the same for all in the area. The 6 main global processors mentioned are the mills in the case of credit and debit cards. The houses are the banks. The mill charges a fee for its work, similarly, the credit card processors charge a commission for its service (authenticating users and approving or declining transactions, protecting shoppers and merchants from fraud and verifying that money flows to and from the appropriate accounts). Sometimes the mill puts together its own spice mix, grinds and sells it. American Express, Discover and JCB International, similarly, process payments as well as issue cards. LankaPay, similar to Visa and Mastercard, engages only in payment processing and its card is issued through banks such as MCB, RDB, HDFC and People’s bank for the moment while NSB and other banks will soon follow. It processes all local transactions and will manage the foreign transactions of its customers through its partnership with JCB International. Unlike the other global processors, JCB International will not charge a fee for any domestic transaction and LankaPay passes this benefit back to the merchants via the banks.
The types of cards
LankaPay offers two types of cards with partnering banks. One is a two in-one card, giving a choice of debit or credit, coupled with a tap-and go payment facility. The other is a simple debit or a credit card. The tap-and-go card will soon be available as an electronic wallet on Smart Phones. The customers can digitally top up the card with Unlike the other global processors, JCB International will not charge a fee for any domestic transaction and LankaPay passes this benefit back to the merchants via the banks currency. They then make the payments as offline transactions by tapping the phones (that have the wallet app) on the machine at the vendor. This method does not require a data connection to have a transaction authorised. Take, for example, the bus line from Makumbura to Galle on the Southern-highway that accepts this card. The bus conductor uses the infrared scanner in his existing ticket machine to read the card and automatically deduct the bus fare without connecting to the internet. Therefore, a passenger can use the card even on a moving bus where no online connectivity is available.
Banks will charge only Rs 15/- from a customer for withdrawing money via an ATM of another bank using a LankaPay card compared to Rs 30/- charged by other cards. The Merchant Discount Rate (MRD) or merchant commission is only 1% of the sale value for this card, compared with the 3-3.5% fee of the competing cards. Large-scale merchants channelling substantial sales volumes, sometimes qualify for a volume discount on the high commission charged by competing cards, but not the SMEs. The customers also benefit directly from LankaPay’s low processing fee, because some merchants, especially SMEs, pass the commission burden to them.
Channa produces facts, figures and solutions to national issues to explain the rationale for introducing the LankaPay card.
“We are a well-banked country. Earlier this year, we had 18.5 million issued debit cards in the market as per the Central Bank Payment Bulletin Q1 2022. It is a reduction from the 23 million issued cards several years ago especially due to covid-19 related issues. We estimate that we would be having more than 30 million accounts in the county’s banking system, considering some specialised banks have a low debit card issuance compared to their actual customer base. While this does not mean that every one of the 22 million population of the country has a bank account, it does show a very high penetration”
Encouraging the use of debit cards for payment transactions will lead to a lowered demand for printed cash. However, a few obstacles need to be grappled with to make this happen.
“Despite the high account penetration…”, Channa explains, “ the debit card usage in Sri Lanka remains very low. People use them mostly to withdraw money from ATMs.”
Probable reasons for the low usage are the high commission charged for debit card transactions and merchants’ passing this burden to the customers. The limited availability of POS terminals, especially at SME vendors, is also a reason.
For the over 2 million credit cards and the 18 million debit cards in the market, the county has approximately 96,000 POS terminals. This does not mean that there are POS terminals in 96,000 outlets, considering most supermarkets or large shops will have 3-5 POS machines in the same location. Therefore, the unavailability of POS terminals restricts debit and credit card acceptance at most places.
LankaPay plans to overcome this hurdle by providing cheaper POS terminals with only tap-and go payment capability as well as implementing LankaQR payments at most of the small merchants. Biznomics ran a survey among a small sample of the business community and customers of credit cards before meeting Channa, to compile the questions for this article. The most significant concern the SMEs raised was, “All financial institutions treat SMEs no differently to large companies. In fact, they charge more from us. How will this be different with LankaPay?”. Channa replied, “lowering the merchant commission is one way we address this issue while we also provide POS terminals at a lower cost and LankaQR stickers at no cost. This we hope will encourage them to accept credit and debit card payments”. Although the merchants bear the cost of POS terminals, these machines are not tied to a processor, therefore will usher in new revenue streams for their shops. The customers asked: “Is the card accepted by overseas merchants, are their transactions secure, are they safe from fraudulent transactions?”. Channa assures Lankapay has addressed these concerns in several ways. The internationally accepted EMV standard Lankapay follows by partnering with JCB International, and the world-renowned Payment Card Industry – Data Security Standard Certification they have been enjoying since 2017, are key, among them. These standards and certifications also promise that the benefits customers currently enjoy with competitive cards will not be compromised by Lankapay at any point. In addition, customers will now benefit from using a single card at ATMs for debit and credit card transactions. They may also use it at Tap-and-Go payment points such as in public transport.
By Jinashri S Wijesundara