Fintech sees modest growth in Sri Lanka

In Sri Lanka, fintech holds many promises, and while local banks are investing heavily in digitalization, many challenges still need to be addressed before a real, dynamic fintech ecosystem emerges.

When it comes to digital finance, it is safe to say that Sri Lanka is way behind the curve. Banks across the country are struggling to bring Sri Lankans to the digital era and consumers are still reluctant of digitally driven banking services, preferring conventional banking.

Indrajit Wickramasinghe, chief executive of Union Bank of Colombo, told Euromoney that Sri Lanka has been “slower to embrace digital and fintech,” because “culturally, a lot of people still prefer to visit the bank.”

Sri Lankans are very attached to their banks, and though the country has an overwhelmingly rural population with just 19% living in urban areas as of January 2018, Shehan Senanayake, a financial analyst at Colombo-based Frontier Research, estimates the domestic financial inclusion rate to be standing at around 80%, well above the region’s average.

This is mainly thanks to domestic banks which have worked hard to bring banking services to poorer, remote areas, and have become an important part of the local community, with people commonly gravitate towards their local branch to pay utility bills, draw pensions and transfer money.

Though old habits die hard and despite Sri Lankans’ reluctance of digital solutions, domestic banks are still pushing for digitalization.

One of the pioneers is Nations Trust Bank, which became the first bank to launch a pure digital banking service, FriMi, in 2017. Commercial Bank of Ceylon has its own digital banking offering called Flash, and NDB introduced its fully digital and paperless branch NDB Neos in January this year.

Dimantha Seneviratne, group chief executive of NDB Bank, said the bank is investing heavily in digital with an aim to “emulate the best of the world’s best digital banks, like [Singapore’s] DBS.” NDB Bank plans to roll out new, fully automated NDB Neos outlets around the country that are able to onboard customers with a minimum of physical friction. In June 2018, Sampath Bank made headlines when it launched a blockchain-based system that allows account holders to gift up to LKR 10,000 (US$56) to anyone in their smartphone’s contact list.

Fintech in Sri Lanka

While the Sri Lankan banking sector is pushing for greater digitalization, a few brave entrepreneurs and non-bank financial providers have launched fintech solutions to serve the market.

Dialog Axiata, Sri Lanka’s largest telecommunications firm, launched in 2012 a mobile money service called eZ Cash. So far, eZ Cash has been rather successful, processing in 2017 LKR 25.5 billion (US$144 million) worth of transactions. At the end of 2017, it had three million users.

In September 2017, Dialog Axiata bought a majority stake in Colombo Trust Finance to expand its digital finance offering. Renamed Dialog Finance, the division is set to roll out later this year several new online lending services and seeks to partner with local and foreign digital financial providers.

According to Frontier Research’s Senanayake, mobile money and payment services are the country’s “most significant” fintech success and beside eZ Cash, there were 12 central bank-licensed mobile-money operators and two providers of cellphone-based e-money services as of the end of 2017.

Some of the most notable solutions in the space include DirectPay, an electronic payment solution, Park and Pay, an app that lets motorists find, book and pay for vacant parking spaces anywhere in Colombo, and JustPay, a mobile payment solution by LankaClear that allows customers to make retail payments up to LKR 10,000 (US$56) by transferring funds from their current or savings account to the merchant’s account directly.

Another segment that’s emerging in Sri Lanka is peer-to-peer lending with the launch of the country’s first platform, Helios, in early 2018. Helios connects borrowers with investors through an online marketplace, and as of July 2019, the platform had channeled some LKR 4 million (US$22K) in loans. Helios secured its second round of funding earlier this month.

Crowdisland is another Sri Lankan fintech solution. Launched in 2016, the platform matches local entrepreneurs with angel investors around the world.