Transformation from traditional banking to digitalisation

The Continuous Professional Development Committee of the Association of Professional Bankers recently conducted the second webinar of the series of webinars which is part of the Annual Calendar of the APB. The webinar on ‘Transformation from traditional banking to digitalisation’ was presented by eminent personalities from the Central Bank of Sri Lanka, namely, Department of Payments and Settlements Director D. Kumaratunga, and P. Senaratna from the Department of Payments and Settlements. 

The webinar discussed crypto currency, its inception, advantages and disadvantages. Crypto currency is another form of currency or an alternative to notes and a currency used as a medium of performing transactions. Crypto currency can take in the form of digital currency, virtual currency and electronic medium of performing transactions. Virtual currency is unregulated and decentralised. Cyrpto currency was first introduced in 2008 by ‘Satosi Nakamoto’, it is not known whether this was a person or an organisation. Currently there are over 10,000 types of crypto currencies introduced by various parties. However, Bitcoin being the first type of Crypto currencies to be introduced leads the market with over 46% of the market share in crypto currency. The objective of introducing a crypto currency back in 2008 was to make payments efficient with no transaction cost, to make instant payment and to be independent of any regulation. Initial narrative of crypto currency had a limited issue of $ 21 million. However, today, the narrative of crypto currencies has changed from a medium of payment to an instrument of ‘Investment’.

Crypto currencies have its barriers as well. The biggest threat is the frauds that can occur through scams. In addition to the technological risk, the risk of non-regulation, lack of knowledge of the users, price volatility and uncertainty are the major draw-backs in the progress of adopting to crypto currency by economies world over. Fraudulent crypto currency schemes are soaring and the US consumers have lost over $ 80 million since October 2020 to July 2021. Since regulatory monitoring is not available there is no recourses for legal protection. Despite all these risk elements there are over 10000 types of crypto currencies people are investing in currently. 

Digitalisation has become ever more important in the current context. The main requirement in digitalisation is trust. A gradual build-up of trust is visible towards digital systems in the market. Though the systems need complex programming and Artificial Intelligence, the user interfaces require being simple and accessible to regular consumers. Digitalisation has transformed the traditional brick and mortar banking into a ‘anytime anywhere’ banking model. 

However, from the regulatory perspective, technology can create new and unforeseen risks to customers, and it is essential that the service providing bank is adhering to strict compliance with the regulatory framework to ensure the safety of its customers. Regulators world-over utilise technology such as Advanced Analytics, Robotic Process Automation, Cognitive Computing and the Cloud facilities to ensure that the service providers are adhering to regulatory frameworks. The future of digitalisation is ‘Open Banking’ which is the key to digital development that would be witnessed by the Sri Lankan banking customer. Open Banking is a concept where the customer is directly linked with third party tech providers. It provides a consolidated view of the financial position of a customer across numerous financial institutions through a single platform. Digitalisation adds value by allowing non-bank sector to access customer data. 

In Sri Lanka Central Bank of Sri Lanka (CBSL) would have a digital bank note or an electronic equivalent of cash similar to those researched and issued by most leading central banks world over as regulated digital form of currency. CBSL too would introduce Central Bank Digital Currency (CBDC) which would be a regulated currency. CBSL intends to introduce two types of CBDC, retail CBDC for retail transactions and wholesale CBDC to financial institutions. There will be no manual process of documentation and it is expected to help drive financial inclusion, innovation, enabling faster, cheaper, cross border transactions for the economy.