In a groundbreaking move towards enhancing Sri Lanka’s digital payment landscape, LankaPay recently announced a strategic collaboration with PhonePe, facilitated by NPCI International Payments Ltd. (NIPL). This partnership aims to revolutionise cross-border transactions, promote digital literacy, and support the country’s economic growth.
In an interview with The Sunday Morning Business, LankaPay Chairman Dr. Kenneth De Zilwa explained the significance of this collaboration, its impact on Sri Lankan merchants, and the future of digital payments in the region.
Following are excerpts:
What is the strategic importance of the collaboration between LankaPay and PhonePe for the Sri Lankan financial landscape and how does it align with your vision for the future of digital payments in the country?
LankaPay has embarked on a new and exciting journey of going global, and therefore, PhonePe’s acceptance of LankaQR in collaboration with NPCI India is strategically important for Sri Lanka and India. As we work closely with India to open up cross-border tourism, trade, and investments, such collaborations complement our journey.
The launch of PhonePe helps the vast Small and Medium-sized Enterprise (SME) merchant base across the country gain market share and increase their profitability by diversifying their revenue sources. This new revenue stream will certainly be instrumental in spurring the growth of digital transactions in Sri Lanka.
Given that we have enabled Indian Rupee (INR) payments in Sri Lanka vis-à-vis LankaQR, I strongly believe that this move will eliminate the hassle of exchange rates and facilitate greater business volumes, creating a smoother experience at touchpoints, and become a cost-effective payment option for cross-border transactions between Sri Lanka and India.
This tri-party partnership also aligns with Sri Lanka’s digital vision as it will promote digital literacy and bring about innovative financial solutions, such as instant credit, thus bringing the unbanked onboard digital payments and strengthening the payment infrastructure, thereby supporting the Central Bank of Sri Lanka’s (CBSL) efforts to convert cash in circulation to digital payments.
How do you foresee the introduction of Unified Payments Interface (UPI) payments through PhonePe impacting the daily operations of Sri Lankan merchants and what steps are being taken to ensure their smooth transition to this new payment system?
I see three significant benefits accruing to SMEs, merchants, fintech companies, and the banking sector; namely, better cash management, improved access to cheaper finance, and new seamless customer relationship management and investment banking products being made available to a new market segment.
With PhonePe access to LankaQR merchants, we can expect rapid development in embedded finance and faster checkout times, leading to reduced waiting times for customers, thereby enhancing the customer experience journey. Speedy transactions can also lead to increasing profitability, customer satisfaction, and loyalty.
What is important to note is that LankaQR has the potential to lower transaction fees compared to traditional card payments, which will help merchants save on operational costs, as there is no reason to have Point of Sale (POS) machines. Additionally, the digital transaction trail could help merchants move away from their legacy business habits and traditional bookkeeping to ensure better tracking of finances.
This shift from cash will open up opportunities for fintech and banks to develop algorithms to identify new services such as providing cheaper credit and cash management solutions as well as introducing new wealth management and investment banking products. I see this as a significant step towards embedded finance in Sri Lanka.
LankaPay has worked closely with NIPL to develop a commonly-accepted legal framework for marketing to ensure that we provide marketing support across the banking sector in the distribution of marketing material and marketing campaigns to inform and attract customers to use UPI payments, thereby increasing demand and familiarity.
Informational campaigns targeting Indian tourists, explaining how to use UPI with LankaQR in Sri Lanka have also been planned and are being rolled out by the merchant acquiring banks and companies such as Dialog Axiata PLC.
Overall, the successful introduction of UPI payments through PhonePe in Sri Lanka hinges on LankaPay’s comprehensive support from merchant acquirers, fintech companies, and customers, ensuring they are well-informed, technically prepared, and confident in using the new ecosystem.
Given that UPI payments are geofenced to the LankaQR merchant points, what measures are in place to ensure seamless and secure transactions for Indian tourists, and how is the currency conversion handled?
To ensure seamless and secure UPI transactions for Indian tourists in Sri Lanka, especially with the geofencing of UPI payments to LankaQR merchant points, we have ensured that all UPI payments undertaken vis-à-vis PhonePe are integrated with the LankaQR standard – a unified QR code system in Sri Lanka that supports multiple payment methods. This ensures compatibility and ease of use for Indian tourists.
As LankaPay is regulated by the CBSL, we have also provided geofencing by ensuring that payments are made only at authorised merchant points, enhancing security and minimising the risk of fraudulent transactions.
The currency conversion process complies with both Indian and Sri Lankan financial regulations, ensuring that transactions are legally and financially secure. When an Indian tourist makes a UPI payment, the transaction amount in Sri Lankan Rupees (LKR) is dynamically converted to INR based on real-time exchange rates. The exchange rates and any applicable fees are transparently displayed to the user at the time of the transaction, ensuring clarity and trust.
Going forward, we are exploring the possibility for merchants to open up INR accounts with their respective banks for the transactions to be settled directly as foreign earnings. I believe this will eliminate any exchange rate risk to banks and customers and help in the rapid growth of INR transaction volumes.
The collaboration with PhonePe marks a significant milestone in cross-border fintech connectivity. What potential challenges do you anticipate in scaling this model further and how do you plan to address them?
Scaling this new business model of cross-border fintech connectivity between PhonePe and Sri Lanka presents several potential challenges. Addressing these challenges effectively will be the key to ensuring the model’s success in the next phase of investment banking and trade. In order for this to take place, there will need to be a harmonised regulatory and compliance framework.
At the moment, Sri Lankan businesses cannot undertake any outward transaction via the LankaQR channel of payments and settlements; this two-way trade flow prevents the movement of low-cost, seamless cross-border trade and investment flows.
Local banks and financial institutions in both countries will need to facilitate easier onboarding and integration through their APIs for wholesale trade and investments in the next phase. There will also be significant capital investment needed if we are serious about scalable and secure infrastructure to handle the increased transaction volumes, ensuring high availability of Business-to-Business (B2B) flows with a robust security framework.
How does the partnership with NIPL enhance the capabilities of LankaPay and what role does it play in facilitating this cross-border payment integration with PhonePe?
The partnership between LankaPay and NIPL significantly enhances LankaPay’s global capabilities and plays a crucial role in the national digitalisation vision. Our successful integration is a testimony to our resolve towards the development of a cross-border payments network as seen in the collaboration with companies such as PhonePe.
LankaPay and NIPL play a key role in the technical integration between UPI and LankaQR, ensuring efficient communication and transaction processing between the two national payment systems. It helps establish unified standards for QR payments, transaction processing, and settlement procedures.
The partnership also brings together the advanced payment technologies and best practices of both UPI and LankaQR, improving the overall efficiency, security, and user experience.
We are working on innovative payment solutions such as real-time INR payments, as transactions are currently settled on T+1, and enabling the dynamic QR code payment experience, which can be adopted and customised for the local market to eliminate settlement risk.
As the popularity of digital and cashless payments grows, what initiatives are being undertaken by LankaPay to educate and encourage both merchants and consumers to adopt and trust these new payment methods?
As digital and cashless payments are now gaining popularity, LankaPay is undertaking several initiatives across the financial sector. As part of our commitment to building a cashless ecosystem, we continue to work with banks and fintech companies, hosting regular knowledge-sharing workshops and seminars to educate merchant-acquiring entities on the benefits and operations of digital payment systems like LankaQR, JustPay, and PayMe.
We have established dedicated help desks and customer support lines to assist our customers with any technical issues or questions regarding digital payments. The CBSL has also mandated lower commission fees – i.e. a Merchant Discount Rate (MDR) of 0.5% for domestic LankaQR payments, 1.8% for international LankaQR payments, and 1% for the National Card Scheme – to incentivise merchants to adopt these secure and cost-effective methods.
With more global partners such as PhonePe teaming up with LankaPay and the LankaQR ecosystem, we can expect rapid development in the merchant engagement pace, increasing the need for digital cashiers. We have already discussed with companies engaged in providing embedded finance on increasing their promotional campaigns and deepening their market reach. Customers across the country too stand to benefit from more product discounts and reward schemes, enhancing the acceptance of digital payments.
LankaPay pays a great deal of attention to educating consumers about the security measures in place for digital payments, such as password protection, encryption, and multi-factor authentication in order to build trust. We work closely with the CBSL and all stakeholders to develop guidelines on how to protect oneself from fraud and what steps to take in case of suspicious activity.
Looking ahead, what other innovations or partnerships is LankaPay exploring to further strengthen Sri Lanka’s position in the digital payment ecosystem and how do you see the landscape evolving over the next 5-10 years?
Looking ahead, I see exciting times for the national payments and settlements entity LankaPay. As a company that sees the future, LankaPay is well positioned to drive the national agenda forward. As you may be aware, LankaPay began its ‘Beyond Borders’ vision only in 2022. During that short period, we have made significant changes to our business model and contributed to driving, guiding, and narrowing the digital divide, both locally and globally.
This marks the beginning of an exciting new chapter. I am confident that with time LankaPay will continue to build with Indian fintech companies and businesses and also move towards integrating with the Asian Payment Network (APN) comprising 13 national payment networks in 12 countries.
This will propel Sri Lanka into Industry 5.0 and with this as a backbone, we can envisage greater access to larger consumer markets, facilitating instant payments and reduced cost of cross-border settlements, creating a thriving marketplace for international trade and remittances, and bringing about stronger regional cooperation in fintech, positioning Sri Lanka as a key player in the South Asian digital economy.
Sri Lanka could be the innovation hub and be home to global incubators that support startups and foster innovation in the fintech space. LankaPay, by its strategic partnerships and collaborations, hopes to integrate financial service platforms and spearhead embedded financial solutions that offer a wide range of services from payments to investments to the Asian region.
I strongly believe that LankaPay is well positioned to lead Sri Lanka’s digital payment revolution, paving the way for a highly-integrated, secure, and inclusive financial ecosystem in the years to come.