Evolution of e-transactions and e-money in Sri Lanka

The exchange of goods and services has been around for as long as civilisations themselves, if not longer.

Humans, being extremely adaptive to their environments, have always found ways to utilise resources and build surplus. This surplus was then used to trade in order to obtain resources and goods that weren’t abundantly available.

Evolution of money

To facilitate trade, a medium of exchange was needed and that requirement gave birth to money. Initially it took the form of rare objects and precious metal, but later transformed into notes and coins.

The evolution of money from notes and coins and its many uses have a come a long way since its creation. It is not only the physical aspects of the notes and coins that have changed. Money today is not only used as a medium of exchange but a unit of account and a store of value. The use of notes and coins has helped transform the lives of people and the way in which they interacted with each other.

However, the inbuilt nature of evolution pushed the use of money to its limit and people started wanting a more secure and easily transportable form of money. The use of banks has, to a large part, fulfilled this requirement.

It is in this backdrop in the mid ’90s that we saw the wide use of computers taking root. From the beginning many visionary thinkers recognised the potential of computer and the significance it would place on human beings. The integration of computers into banks was inevitable and with this integration, we see a new form of money taking shape – electronic money.

Electronic-based systems

It wouldn’t be an overstatement to say that the world we live in today is completely entrenched in electronic based systems. From the alarm clock that wakes us, to the vehicles that transport us to and from work or school, to the tools we use at work or school, all have an electronic element. Our means of communication have also been transformed and distance is no longer a barrier to communication.

In this ever-evolving electronic world, in the recent past we have seen a paradigm shift in the age-old exchange of goods. The demands placed by organisations, governments and individuals for faster safer methods of completing transactions have combined the banks along with electronic devices that are used daily to spawn a whole new way of interaction.

An electronic transaction (e-transactions) is the sale or purchase of goods or services, whether between businesses, individuals, governments, and other public or private organisations, conducted over computer-mediated networks. The goods and services are ordered over those networks, but the payment and the ultimate delivery of the good or service may be conducted on or offline. In this context banks to a large part today play the role of a facilitator for the interaction.

The growth of e-transactions is so widespread today, it dwarfs notes and coins. For example, in the UK, of all the money that is in circulation, only 3% is in the form of notes and coins and the balance 97% is e-money.

This is also becoming the trend for the future in Sri Lanka. Banks in Sri Lanka play a huge role in transforming the future of this country by investing in newer technologies to bring the masses into the financial system, thereby enabling them to reap the benefits and enrich their lives.

Banking industry in Sri Lanka

Let’s look at what has been achieved thus far and where the future would take this country in a fully-electronic banking environment. In this endeavour, we should always benchmark ourselves against our peers in the region.

The banking industry has been in Sri Lanka since 1939 with the introduction of the first Bank of Ceylon. Since then banking had taken a somewhat subdued approach in adopting the advances in computing. But in 1987 we saw a vast change taking place in the local banking sector.

In 1988 Sampath Bank became the first bank to make use of the then-revolutionary networked ATM (Automated Teller Machine) to serve its customers and subsequently in 1989 the bank introduced the uni-bank system, enabling customers to have access to their money freely through any branch.

These two milestones set the pace in the local banking system as well as e-transaction history. The first credit card (Mastercard) was shortly launched thereafter in 1989, opening the world’s stores to our local customers. These three products alone showed the way for the future as people in this country began to understand the benefits and convenience of these e-transactions.

Interconnectivity

While there were developments within each bank, there were still problems with interconnectivity within the banking system. Plus, a faster method to receive and send foreign funds for goods and service, exported and imported, was a growing critical to free up trade and bring prosperity. It is in this backdrop in 1993 that the Central Bank introduced SLIPS (Sri Lanka Interbank Payment System), establishing interconnectivity within the banking system.

The transfer of funds today has improved so that funds sent out by one bank could be cleared on the same day. A further variant to SLIPS was introduced by the Central Bank through LankaSettle to facilitate high value payments called Real Time Gross Settlement (RTGS). The Central Bank through LankaSettle introduced two other fund transfer mechanisms called Scripless Securities Settlement System (SSSS) and Scripless Securities Depository System (SSDS).  LankaSecure facilitates the issue of Government securities and Central Bank securities in electronic or scripless form and settlement of trades of such scripless securities on a Delivery versus Payment (DvP) basis.

All these developments have dramatically reduced the time it would take to complete a transaction with minimal risk and cost. Just as blood should flow efficiently through the body for a human to survive, the efficient flow of money to and from the banking system is vital for an economy to survive.

The local integration of the banking industry strengthened and the flow of funds to and from the country was streamlined with the introduction of SWIFT (Society for Worldwide Inter-bank Financial Telecommunication) in 1994. Many banks today have tie-ups with foreign remittance companies to facilitate quick inflow of foreign funds.

Cyberspace

While mainstream Sri Lankans were adopting these facilities, in the mid ’90s we saw the growth of computers and with it the spread of the internet started taking place. While the world embraced the new virtual world and started moving from the physical to the virtual, Sri Lankan banks started moving into cyber space.  In year 2000 once again Sampath Bank took the lead to launch a virtual branch where customers instead of visiting a physical branch could engage with the bank via the internet from the comfort of their home to carry out all banking activities. We also saw the launch of the first Internet Payment Gateway through Sampath Bank, thus paving the way for to facilitate online payments and the birth of e-commerce in Sri Lanka.  Another huge progressive path of e-transactions comes from the innovations provided by the telecommunications industry. Sri Lanka has launched many of the latest telecommunication technologies. The local telcos have been instrumental in taking the e-transaction medium, the internet, to the masses. The healthy competition has continuously reduced the cost of the mobile devices and the tariffs, making transactions on the net more cost effective, fast and safe.

Banks in several instances join hands with the telcos to provide solutions to their customers. The introduction of telebanking (banking done via fixed or mobile telephone) and SMS banking (banking done via fixed or mobile telephone using SMS) are prime examples of these tie-ups. In the future we would expect these ties to bring forth a whole new way the general public use money.

New products like Sampath Bank’s Mobile Cash or Dialog’s EZ cash are two such products. The transfer of e-money is done via SMS or similar technology and it would widely be accepted. In the near future all low value payments like paying for groceries from the shop at the corner or paying a labourer for a day’s work would be done by these person to person e-money transfers.

E-commerce consists of the buying and selling of products or services over electronic systems such as the internet and other computer networks. The amount of trade conducted electronically has grown dramatically since the introduction of the internet.

A wide variety of commerce is conducted in this way, including things such as electronic funds transfer, supply chain management, e-marketing, online marketing, online transaction processing, electronic data interchange, automated inventory management systems, and automated data collection systems. Modern electronic commerce typically uses the web in at least some point in the transaction’s lifecycle.

Many successful purely virtual companies deal with digital products, music, movies, education, communication, software, photography, and financial transactions. Examples of this type of company include Amazon.com, Google, E-Bay and Paypal.

Products less suitable for e-commerce include products that have a low value-to-weight ratio, products that have a smell, taste, or touch component, products that need trial fittings – most notably clothing – and products where colour integrity appears important. Nonetheless, clothing sold through the internet is a big business in the US.

Another development would be the use of NFC (Near Field Communication) in doing transactions, like in more developed regions in the world where people use their NFC cards which are linked to bank accounts to make payments on the move. No more signing slips or waiting in line, you just ‘tap and go’.

E-transactions are bound to grow by leaps and bounds in the near future as the avenues for its use open up, and as it becomes more accessible to the masses, there may be a day the only place you would be able to see physical notes and coins would be in a museum or a coin collector’s vault.

(The writer is Vice President of CSSL.)