Avoiding cash agony

Today the global payment system has gradually shifted to an electronic payment system where telecommunication systems, banking systems and business sectors globally have united to harness the benefits of this payment system

During the last couple of months I noticed that there were a number of advertisements sponsored by Central Bank of Sri Lanka (CBSL) both in print and electronic media to inculcate the general public about the enormous benefits one can gain through cashless transactions and the agony one has to endure when using cash for transactions. In other words, it encourages simply not to use cash/money/currency but to use plastic cards either credit or debit or smart and ATM (Automated Teller Machine) cards when making financial transactions. 

Today the global payment system has gradually shifted to an electronic payment system where telecommunication systems, banking systems and business sectors globally have united to harness the benefits of this payment system. Providing the enormous benefits of cashless transactions, mainly the debit cards and credit cards among others are playing a crucial role and despite the red signals issued by some segments of society in respect of the security and loss of privacy, customers continue to use these cards rapidly. Consequently at present globally financial institutions and business organisations, both private and public, work together to exploit this opportunity using the rapidly-developing innovative technology.

Evolution of the e-payment system

As reported the first ATM which facilitates customers to use a plastic card known as debit or credit or ATM card to effect a financial transaction was introduced in the Enfield Town Branch of Barclay’s Bank in the UK in 1967. Gradually but within a very short period, the services rendered by ATM have been trendy and secured a presence in every populated corner in the world. Objectively in the earlier phase, banks installed the ATMs inside of and outside close to the branch. However this trend has been changed now to locate the ATMs in high traffic areas like shopping centres, grocery stores, bus stands, railway stations, airports, service stations, hospitals, main junctions and other public convenient places.

When these plastic cards to effect a financial transaction are used, in order to secure the transaction, each customer has been given a confidential Personal Identification Number or PIN. Many cards have a chip to transact the data from the card to the machine. These work in the same way as a bar code that is scanned by a code reader.

No doubt this is a radical shift but to Sri Lanka, it is still in the beginning. In Sri Lanka, if my recollection is correct, the first ATM was introduced by Sampath Bank in 1986 and today every bank in the country operates its own ATMs.

With the expectation of harnessing the benefits of this move and to improve the operational efficiencies, banks and a few Non-Banking Financial Institutions (NBFIs) in Sri Lanka have now invested heavily in advanced digital platforms. Banks and the NBFIs which do not possess healthy balance sheets are also now compelled to invest in such platforms for them to survive in the market, though it involves high cost. 

The new apps introduced by banks and a few NBFIs in Sri Lanka in the recent past allow customers to perform self-service transactions such as to make withdrawals, deposits, bill payments and transfer funds within the bank known as intra bank transactions or with another bank known as inter bank transactions, electronically. Besides, the customers are advantaged to purchase goods and services online by paying the vendors using an electronic payment system which is popularly known as e-commerce payment system or online payment system.

Reducing the transaction and personnel cost and also the paper work, this electronic payment system has revolutionised the payment process which is user-friendly and consumes less time than manual processed payment system.

In the meantime the outbreak of the corona pandemic has also considerably contributed towards the acceleration of this move. The COVID-19 directives to maintain a physical distance has compelled a significant number of people in Sri Lanka to use these electronic cards to affect their cash transactions. 

Different types of e-payment systems

In a nutshell e- payment methods which are being used in Sri Lanka are as follows.

Credit card and debit cards:  Though no need to elucidate the most popular forms of payment for e-commerce transactions are credit cards and debit cards which are very simple to use. 

Smart card which also a type of plastic card in which the personal data of the customer embedded and stored in it. The customer can load the card with funds and effect the payments or settle a bill. Here the special feature is that needs to be re-loaded since the money loaded reduces with the usage.

E-wallet is also another method of e-payment in which the customer has a registered and created E- wallet profile. It is a prepaid account which allows the customer to store multiple credit cards, debit cards and bank account numbers in a secured environment.  The important feature here is the customer needs not to key the required information every time when making payments.

Internet banking:  This has now become a very popular e-payment method in the country. Here the advantage is the customer can pay for online purchases directly from the bank account.  Interbank and intra bank fund transfers as well as bill payments, credit card payments are also can be made through this payment method. For internet banking no plastic cards are used but the customer needs to register with a preferred bank in order to avail this facility. 

Mobile payment: This is a latest development where online payments can be made through a smart mobile phone. When the customer makes a payment request to the related service provider through a text message the customer’s mobile account is charged with the payment and it will be added to the monthly phone bill for settlement. Just by downloading the app from a preferred service provider’s website and linking the information related to credit card or mobile billing, any customer can easily setup this mobile payment system.

Benefits for banks and NBFIs than the customers

No need to elaborate that the above briefed e- payment services which are being used by customers to make financial transactions are more beneficial to the respective banks and NBFIs than the customers.

What made me to say so?

Just imagine; In the case of a manual processed payment system, when a customer enters into a bank branch to make a withdrawal, he/she needs to duly complete a standard payment instrument (withdrawal-form or a cheque) introduced by the respective bank. This payment instrument (PI) has to be tendered to the teller/cashier of the cash counter who in turn needs to verify the accuracy of the PI in order to ensure that it has been accurately completed and signed by the customer. Customers’ identity has to be verified; signature has to be checked to ensure whether it tallies with the given specimen signature, etc. After verification of the balance in the account, the PI has to be authenticated by the cashier or by an authorised officer. Equally whenever a customer tenders a PI to obtain cash, a temporary number which is known as Token Number has to be issued for the easy identification of the correct customer who tendered the relevant PI.

Once the approval is granted for the PI, the cashier has to call-out the token number signalling to appear the respective customer in front of the cashier to obtain the requested amount of cash. Thereafter the cashier has to prepare the cash and count it using the cash counting machine in front of the customer. After the accuracy of the amount is ensured the so counted cash have to be given to the customer obtaining his/her signature again as an acknowledgement. 

This entire process including printing of the PIs is a cost to the bank and time consuming. Effective man hours and time are wasted. On the other hand the customer too has to waste his/her effective time since this process is such long and time consuming. This simple illustration indicates the wearisome activities both bank and the customer to endure whenever a traditional payment is made. In the case of making a deposit, bill payment and fund transfers the process to be encountered is almost similar or worse. 

All these discomfitures could be effectively and efficiently managed as a result of properly inculcating and providing facilities to the customers to transact electronically. Not only the discomfiture but also the cashless payment wipes out the danger of fake-notes almost completely and also it shrinks the dread of cash robbery.

These are the objectives of the above said “avoid Cash agony’ advertisements. In order to successfully accomplish this objective, whether the banks, NBFIs and business organisations in Sri Lanka are doing the most appropriate things, to persuade and attract the customers, is an issue which needs to be addressed.  

Cumbersome process

When a card is to be issued the banks require the customer to provide information. Generally, most of the above said cards are issued to an existing bank customer who maintains an account. At the time of establishing the relationship or opening the account, a prospective customer provides almost all the details that are repeatedly required by the bank at the time of issuing a card. Since already the details are available in the bank, why can’t the bank to issue a card as an additional facility without annoying the customer requesting to provide the information which is already there in the bank?

In most cases the bank asks to provide the details of either the mother or father of the card applicant. In the case of a mother the name prior to the marriage is also considered necessary. Can any bank is in a position to reveal that by using the applicant’s mother’s name prior to the marriage has helped such banks to detect frauds and curtail frauds? Frauds reported versus number of cards being used are very minimal and negligible. 

It is amazing, at the request of the bank when a customer needs to obtain a chip embedded card instead of a chip-less card which is being used, it is compulsory to provide all these details which are already there in the bank.

Why cannot banks simplify this process if they want to harness the benefits of e-payment methods? It shows that though the systems and processes are digitalised, the workforce is mentally living in the traditional payment methods and not transformed themselves as moderated thinkers. Doesn’t this annoy the customer and discouraging him/her than encouraging for e-payment methods?

Whenever an issued card is lost a new card needs to be obtained. It is mind-boggling even in such instances too some banks ask the customer to fill up a new application form providing the information which are already there in the bank. Why can’t they without wasting their own valuable time and that of the customer, issue a new card straight away just jamming the previous card?

A payment is made using a credit card, the vendor requests the cardholder to place his/her signature in a slip generates by the Point of Sale (POS) machine of the vendor. This is made compulsory. Do the vendors verify the accuracy of the signature just by comparing the signature placed by the customer on the credit card?  Not at all.  Whether there is a signature or not in the credit card, requirement to place the signature is made mandatory. It is very clear no vendor verifies the accuracy of the signature and it has become a routine work. Hence why can’t the bank prevent this fruitless unnecessary practice? 

Has the bank addressed the issue of under-banked population in the rural peripheries of the country and attempted to provide them with this emerging facility? Yes; a few banks have reached them but comparatively still in a deprived situation. More opportunities are there and it would be a good market segment for banks to exploit. But the present cumbersome procedure needs to be evaded. 

Additional charges imposed

Are the banks aware that some prominent traders including a few wholesale distributors even in major cities add 2.5% to 3.5% to the bill value when the payment is made by a credit card? What is the logic behind this is not well-defined and the very same trader is also not able to clarify when a customer asks the reason for it. Does this encourage the customers to avoid the agony of cash transactions? 

Limitations imposed by banks and NBFIs for withdrawals by cards also hinder the acceleration of this move. In some cases this limit has come down to Rs. 50,000 or Rs. 60,000 per day. It is to be appreciated that some banks have rather higher limitations such as Rs. 200,000 or so. If the banks are really interested in harnessing the benefits of cost effectiveness and the efficiency, these limitations are totally not warranted. As a result of these limitations, multiple transactions are often needed and transaction fees to be incurred by the customer definitely mount up. May be that these limitations have been imposed to such a lower level to shrink the forgeries or the dread they have in respect of the forgeries. Need to analyse and see whether such limitations indeed have prevented forgeries or rather prevented the electronic transactions. It is clear undeniably, the answer is the latter.

It is no doubt in the near future ATMs transactions will become more popular and increase the number of withdrawals likely to be full service terminals instead of traditional cashiers or tellers. CBSL can intervene and impose a maximum limit of say Rs. 200,000 or Rs. 250,000 applicable to all banks and NBFIs which seems to be more coherent.

When an e- payment method is used by a customer, he/she is compelled to pay a fee. The charges range from Rs. 5 to Rs. 200 or more depending on the nature of the transaction and on the bank. Customers should be allowed to use the e-payment methods and cash withdrawals at no charge. Why? Electronic payment methods take some of the customer service burdens totally helping the banks to mainly save their payroll costs and other related costs drastically. The time involvement of employees could be devoted for more productive works. Are we in Sri Lanka getting this service free of charge? No; mammoth charges are levied almost all the banks and NBFIs for each and every e payment transaction. Fund transfers within the bank are allowed free of charge by some banks and for all other payment methods a fee needs be made.

One can logically squabble how a service can be provided with no charges. There is a lucid in this argument. However, when financial statements are published by banks and NBFIs annually it is very apparent they disclose their profits in millions or rather billions. No bank reports a loss. Total wealth runs into trillions. Who has helped the bank to reach this healthiness? No doubt it is the customer. Then why can’t the banks to reverse back a very little amount of these profits to its customer who has indeed helped the bank to be financially sound and strong. 

Banks and NBFIs heavily spend for advertisements and promotions. In this respect the amount spent by a few State banks is colossal.  Maybe they consider this as an investment. If so such investments should give them back a delightful return. It is very doubt whether these banks appraise the return that they gain on these huge expenses or rather return less investments.

One or two months ago the Secretary to the President has issued some directives requesting the State institutions including State banks to curtail the expenses incurred by those State institutions for advertisements and promotions. This directly applies to State banks. 

The Governor of CBSL also has directed the Licensed Commercial Banks to avoid unnecessary expenses saying, “Licensed Commercial Banks shall also refrain till 30 June 2021 from buying back its own shares, increasing management allowances and payments to Board of Directors, exercise prudence and refrain to the extent possible from incurring non-essential expenditure such as advertising, promotions, gift schemes, entertainment, sponsorships, travelling and training.”

These two directives alone mirrored that the cost incurred by banks are non-essential expenses.

As outlined above, the charges levied on customers for e-payment transactions can be totally suspended since through e-payment transactions the customers help the banks to massively save the payroll costs and other costs linked with the printing of forms/slips and costs associated with paper work, distributing physical currency etc. It is no doubt directly the e-payment process help the bank to increase the productivity of employees and employees can be diverted for more productive activities.

The above stated issues seem to be very trouble-free minor issues but when they aggregate together stand against accomplishing the above said objectives.

Therefore all the banks and NBFIs cooperatively with the participation of business sector and respective service providers should endeavour to address the above issues and take immediate steps to rectify them. That alone will be a most valid encouragement for the people to involve in e-payment methods and to avoid the agony of cash transactions.

(The writer is a former banker who has served People’s Bank for nearly 34 years and NSB for nearly six years. He retired from People’s Bank as an Asst. General Manager and worked for NSB as an Advisor Banking. Currently serves as a Visiting Lecturer of the Institute of Credit Management, Sri Lanka.)