94999
IFC Mobile Money Scoping
Country Report: Sri Lanka
Scott Stefanski
May 2013
Sri Lanka Summary Mobile Money
readiness
Population: 21,675,648 (Jul 2013 est.) Regulation 5
Wireless Teledensity: 43.6%; 57.2% of adults***
Financial Sector 3
Remittance % of GDP 8.7% (2011)
Telecom Sector 5
Percent Under Poverty Line 8.9% (2010 est.)
Distribution Channel 3
Adult Literacy 91.2% (2010)
Market Demand 4
Ease of doing business: 81st of 185 countries (2013)
Main banks:
Bank of Ceylon, Commercial Bank of Ceylon,
People’s Bank, Sampath Bank, Hatton National Bank
Number of Domestic Banks*/Branches: 21/2,920**
Mobile Network Operators:
Dialog (Axiata), Etisalat, Hutch, Mobitel, Airtel
Overview of Mobile Banking in Sri Lanka:
Updates made to banking regulations in 2011, permitting custodian managed mobile wallets/payments, have produced
results with the launch of mobile operator Dialog’s ezCash mobile wallet product. In just 100 days, Dialog has activated
750,000 mobile wallets transacting Rs 10.3 Million daily in utility payments, cash in/out, and person-to-person transfers .
Dialog is now pursuing use of the channel to receive inbound international remittances, having received approval from
the central bank.
As roll-out ensues of the ezCash service, it will be important to monitor any potential risks of monopoly position limiting
innovation in financial product diversification and cost reduction similar as in other markets with a large single player.
Raising awareness among market participants on how they may build on the ezCash progress can catalyze innovation and
financial inclusion deepening (i.e. moving beyond simple stored value account access and use for payments).
Sources: CIA World Fact book, Economic and Social Statistics of Sri Lanka 2012, Wireless Intelligence
* Includes Commercial Banks (12) and Specialized Banks (9)
** Does not include 219 Foreign Bank Branches
*** ITU 2012 data indicates a higher penetration rate of 87% . See: http://www.itu.int/net/newsroom/GSR/2012/reports/stats_sri_lanka.aspx
• Macro-economic Overview
• Regulations
• Financial Sector
• Telecom Sector
• Mobile Financial Services Landscape
4
Macro-Economic Overview
Key Country Statistics Insights
• Population: : 21,675,648 (Jul 2013 est.)
• Need to address financial inclusion requires innovations in
• Age Distribution (% population): delivery of rural financial services; should look to agribusiness
• 0-14 years: 24.8% supply chains, government payments, and FMCG supply chains
• 15-24 years: 15.1% as rural has become greatest driver of FMCG growth despite
• 25-54 years: 42.4% stagnate overall growth in 2012
• 55-64 years 9.3%
• According to World Food Program, 50% of households in
• 65+ years: 8.4%
Northern Province live on less than US$1 a day
• Median Age: 31.1 years
• Rural economy dominated by agriculture with growing small
• Urban/Rural split:
holder labor serving large scale agribusinesses
• Urban: 14% (2010)
• Rural: 76% • AT Kearney ranks Sri Lanka as #15 most promising market for
• GDP (PPP): USD 125.3 Billion (2012 est.) retail sector growth. Organized retail makes up only 3% of the
US$25-30 Billion market, suggesting opportunities for
• GDP per capita (PPP): USD 6,100 (2012) organizing and creating larger scale networks.
• Literacy rate: 91.2% (2010)
• Estimate of 18,000-20,000 businesses in Sri Lanka; 92%
• Total Wireless Subscribers: 9.3 Million considered SME (Interview with Deputy CEO of NTB)
• Urban penetration: 74.2% (households)
• Rural penetration: 59% (households) • Estimate of micro retail traders for Fast Moving Consumer
Goods number 180,000; recently imposed VAT on FMCG
• Wireless Teledensity: 43.6%; 57.2% of adults
wholesalers may induce incentive to explore cost reduction
• Banking penetration: strategies that could spur adoption of mobile ordering and
• 69% of adults payment channels
• 58% of lower income (bottom 40%) adults
• Inward workers’ remittances increased by 17.1% in 2012
• Remittance (% of GDP): 8.7%
Sources: CIA Factbook, Wireless Intelligence, World Bank Findex, , Economic and Social Statistics of Sri Lanka 2012
5
• Macro-economic Overview
• Regulations
• Financial Sector
• Telecom Sector
• Mobile Financial Services Landscape
6
Regulatory Overview
• The Central Bank of Sri Lanka (CBSL) oversees all banking, payment and microfinance activities
and operates the nation’s RTGS. Operation of the Sri Lanka Interbank Payment System, SLIPS, is
delegated to LankaClear Limited, an entity 47.19% owned by CBSL and the remainder of
ownership held by the nation’s commercial banks.
• Banking, payment and identification rules and guidelines are in place and many have been
updated in the past five-eight years.
• Mobile Payment Guidelines No. 1 (Bank-led) and No. 2 (Non-bank custodian accounts) have been
in force for a year. The second guideline has had an important effect in the resulting ezCash
mobile wallet and payment service offered by mobile operator Dialog. These guidelines do not
mandate interoperability with competing mobile networks on mobile payment products.
Sources:
7
Regulatory Bodies
Roles & Responsibilities Implications
Overseer of all financial institutions and non-FI
payment providers. Actively promoting electronic
payments infrastructure and has expressed intention
Central Bank for the SLIPS interbank payment system to evolve to
handle real-time retail payments, including mobile
payments.
• Registration of Persons Act No.32 of 1968
Central bank has exhibited a progressive
• National identification policy requiring everyone
over the age of 16 to register for identification; approach to policy and relatively
Identity current initiative underway, Electronic National agnostic to market players (i.e. mobile
Protection Identity Card Project (e-NIC Project ); may be operators v. banks) in its stewardship of
coupled with fingerprint scans the development of an inclusive and
• Act No. 11 of 1981 legislates issuance and usage of
effective financial sector for Sri Lanka
NIC
LankaClear Limited is a private entity, 47% owned by It is fair to anticipate notable progress in
Payment the central bank, the remainder owned by the addressing financial inclusion
Coordinator country’s commercial banks. It operates SLIPS.
Guidance provided by Central Bank. Use of LankaClear collaboration between
public and private sector bodes well for
responsiveness to market developments
Teleco
None relevant to payments
Regulations
Sources:
8
Regulatory Framework & Requirements
Current Regulations Implications
• Mobile Payments Guidelines No. 1 of 2011 for the
Progress of the past year by Dialog is
Bank-led Mobile Payment Services
Mobile Money directly attributed to clear and progressive
Issuers • Mobile Payments Guidelines No. 2 of 2011 for guidelines.
Custodian Account Based Mobile Payment Services
Banks are now in a position of more arduous
mobile service customer acquisition and
Banking Act No. 30 of 1988, the Monetary Law Act proportional identification rules do not
No. 58 of 1949 and the Companies Act No. 7 of 2007, apply to bank customer acquisition.
as amended from time to time, and the Directions,
Circulars and other regulations issued by the Central
Deposit Taking Will be important to monitor any
Bank of Sri Lanka from time to time. The
amendments to the Banking Act as of date are by unanticipated consequences such as a risk
Acts No. 39 of 1990, No. 33 of 1995, No. 2 of 2005, that mobile operators will only pursue
No. 15 of 2006 and No. 46 of 2006. features that promote transactional
revenue, hindering progress towards
introducing a deeper and more diverse set
• Mobile Payments Guidelines No. 1 of 2011 for the of financial instruments to address financial
Bank-led Mobile Payment Services
inclusion objectives.
• Banks are permitted to delegate to 3rd
Retail Agents
parties for cash in/out to only their
+ accounts; customers must be acquired
through existing bank channels (i.e. must
Customer have account first)
Acquisition • Mobile Payments Guidelines No. 2 of 2011 for
Custodian Account Based Mobile Payment Services
• Non-banks can acquire for wallet-only
services
9
Regulatory Framework & Requirements
Current Regulations Implications
National identification policy requiring everyone
over the age of 16 to register for identification;
Proportional identification guidelines are already
current initiative underway, Electronic National
KYC/AML and will continue to prove benefits of removing
Identity Card Project (e-NIC Project )
Requirements New mobile wallet guidelines permit proportional a primary barrier to entry in accessing financial
identification with wallet thresholds limited for services.
accounts without verified ID credentials.
Licensing All banking and custodial banking licensing is under
requirements the oversight and discretion of the central bank
Commercial banks are required to interconnect to
the Sri Lanka Interbank Payment System, SLIPS,
permitting same-day settlement among all Coordination of the banking sector could prove
account-to-account transfers. Intent is to expand beneficial to envisioned efforts to launch a Common
Interoperability capability to retail payments as well. Card and Payment Switch intended to support real-
Under custodian account mobile banking time clearing and settling of all electronic retail
guidelines, mobile operators are not required to transactions.
interoperate with competing network operators.
Payment and Settlement Systems Act No. 28 - 2005
Financial Transactions Reporting Act No. 6 – 2006
Payments Electronic Transactions Act No. 19 – 2006
Exchange Control Act No. 24 – 1953
Service Providers of Payment Cards Regulation No.
1 of 2009
Sources: Central Bank of Sri Lanka, annual and statistical reports, bank website
10
• Macro-economic Overview
• Regulations
• Financial Sector
• Telecom Sector
• Mobile Financial Services Landscape
11
Financial Sector Overview
• According to the Sri Lanka Central Bank, The Bank for International Settlements, BIS, recognized
Sri Lanka as the 16th country in the world to receive BIS-Red Book status for modernized
payments systems. It occupies the third place in Asia in terms of payment reforms and has been
the first country to operate RTGS/SSS system with SWIFT link in the SAARC region.
• Opportunity for improvement is highlighted by Standard & Poor 2012 assessment of the banking
sector. S&P rating service assigned Sri Lanka to its Banking Industry Country Risk Assessment
(BICRA) group '8'. At the same time, it assigned an economic risk score of '8' and an industry risk
score of '7’ (a ‘1’ is considered relatively lowest risk and ‘10’ is highest. Other countries in this
risk category include Nigeria, Tunisia, and Kazakhstan. The industry risk score of '7' for Sri Lanka
is based on S&P opinion that the country faces "very high risk" in its institutional framework,
"high risk" in its competitive dynamics, and "intermediate risk" in its system-wide funding.
• Clear evidence of SLCB intent to shepherd continued progress for the sector is seen in terms of
recently enacted guidelines that promote innovation and expansion of the sector through mobile
banking. Future progress can also be anticipated given expressed intent by SLCB to advance
financial sector infrastructure to accommodate real-time retail transactions through the
interbank payment system, an achievement that would place Sri Lanka at the forefront of
innovation in electronic banking and payments. More broadly, the business climate continues to
make impressive strides with another lead in the World Bank Doing Business rankings from 96th
to 81st in the 2013 ranking report.
Source
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Financial Sector Snapshot
Regulated Financial Institutions 2009 2010 2011 2012
Banks 36 31 33 33
Commercial Domestic 11 11 12 12
Commercial Foreign 11 11 12 12
Specialized 14 9 9 9
Branches 2,715 2,897 3,204 3,329
Commercial
Branches 1,382 1,432 1,616 1,676
Extensions 832 898 989 1,041
Total 2,214 2,330 2,605 2,717
Specialized Banks
Branches 465 500 515 527
Extensions 36 67 84 85
Total 501 567 599 612
Electronic Points of Presence
ATMs 1,876 2,006 2,237 2,390
POS 24,977 27,588 27,073 27,689
Credit Cards 892,291 778,544 837,662 935,783
Debit Cards 5,097,616 6,520,891 8,337,502 10,071,192
Province Western Central Southern Northern Eastern North Western North Central Uva Sabaragamuwa
Area (sq. km) 3,684 5,674 5,544 8,884 9,996 7,888 10,472 8,500 4,968
Population 5,919,000 2,719,000 2,519,000 1,203,000 1,584,000 2,366,000 1,255,000 1,342,000 1,962,000
Bank Branches 1,150 337 364 181 226 287 179 171 243
Pop/Branch 5,147 8,068 6,920 6,646 7,009 8,244 7,011 7,848 8,074
Branches/100,00
0 pop. 19.43 12.39 14.45 15.05 14.27 12.13 14.26 12.74 12.39
Branches/sq. km 0.31 0.06 0.07 0.02 0.02 0.04 0.02 0.02 0.05
Sources: Central Bank of Sri Lanka Annual Report 2012, 2010; CBSL Payment Bulletins
13
Financial Infrastructure
Clearing and Settling Credit Bureaus
LankaSettle System (RTGS + Central Depository Credit Information Bureau of Sri Lanka (CRIB)
System + Scripless Securities Settlement System) Ownership: 94 financial institutions with lending authority
are shareholders. Majority owned by central bank.
Ownership: Central Bank
Number banks/institutions involved: 95
Banks using: 31 Participating banks/institutions: All licensed Commercial
banks, Specialized banks, Finance companies, Leasing
Check Imaging and Truncation System companies, few other institutions which have been declared
as lending institutions for the purpose of the Act and the
Ownership: LankaClear
Central Bank
Banks using: 31
National Switches and Systems
Common Card and Payment Switch (under development)
Ownership: LankaClear
Banks to use: 33 banks of the Sri Lanka Bank Association
Sri Lanka Interbank Payment System (SLIPS) (small value bulk payments)
Ownership: LankaClear
Banks using switch: 31
Sampath Interbank Link (ATM interconnect network)
Ownership: Sampath Bank
Banks using switch: 10
Sources: Sri Lanka Central Bank Financial System Stability Report 2012
14
Bank Snapshot
• +13 Million Customers
People’s Bank • 705 Branches
• 382 ATMs
• 10.1 Million accounts • 43% market share of in remittances
Bank of Ceylon • 557 Branches • 85,000 credit cards/ +2M debit cards
• 350 ATMs • 4,571 Merchants
Commercial Bank of • 210 Branches
• Goal to reach 100,000 through mobile banking in 2013
Ceylon • 555 ATMs
• Custodian bank for Dialog ezCash
Hatton National • 2.5 Million Customers
Bank • Wants to reach 300,000 customers in next 3 years with its
• 207 Branches
mobile banking
• 209 Branches
Sampath Bank • Leading issuer of cards in Sri Lanka (approx. 13% of market)
• 264 ATMs
DFCC Vardhana Bank • 128 Branches
Seylan Bank • 126 Branches
15
Bank Snapshot continued
Pan Asia Banking
• 62 Branches
Corp
• 57 Branches
Nations Trust Bank • 1,200 POS Terminals
• 71 ATMs
National • 69 Branches • Early mover in mobile payments; hindered by MNO lack of
Development Bank • 41 ATMs support
Union Bank of
• 19 Branches
Colombo
• 14 Branches
Amana Bank
• < 14 ATMs
16
MFI Snapshot (largest MFIs by loan portfolio)
• 4 Million Borrowers • $409 Million Loans
Regional Development Bank
• 253 Branches • $400 Million Savings
• 195,000 Customers • $143 Million Loans
SBDL
• 79 Branches • $132 Million Savings
• 140,000 Customers • $30 Million Loans
SEEDS
• 62 Branches • $23.3 Million Savings
• 73,000 Customers • $11.2 Million Loans
BRAC-LKA
• 90 Branches • $2.3 Million Savings
• 46,000 Customers • $7.1 Million Loans
Berendina Microfinance
• 17 Branches • n/a Savings
• 39,000 Customers • $4.4 Million Loans
Lak Jaya
• 44 Branches • $2.1 Million Savings
• 16,000 Customers • $3.7 Million Loans
VFL
• 9 Branches • n/a Savings
• 17,000 Customers • $3.7 Million Loans
WDFH
• 149 Branches • $3.5 Million Savings
• 16,000 Customers • $3.7 Million portfolio
BDCB
• 9 Branches • n/a Savings
• 150,000 Customers • n/a portfolio
Lanka ORIX Micro Credit PLC
• 145 Branches • n/a Savings
Sources:MIX Market www.mixmarket.org, data for Lanka ORIX from IFC
17
Payment Service Provider Snapshot
• Public-Private Joint Venture of the Sri Lanka Central Bank (47%) and commercial banks of Sri
Lanka.
• Operates Sri Lanka Interbank Payment Switch, SLIPS, for interbank small value bulk payments.
• Operates Check Imaging and Truncation System, CITS, for digitizing and clearing checks.
• Slated to operate the Common Card and Payment Switch to faciliate real-time retail transactionsl
LankaClear Ltd
Established in 2002
Sources:www.lankaclear.com
18
• Macro-economic Overview
• Regulations
• Financial Sector
• Telecom Sector
• Mobile Financial Services Landscape
19
Mobile Overview
8% Dialog (Axiata)
Mobile Profile Etisalat
35%
Operators Dialog Axiata, Mobitel, Airtel, 22%
Etisalat, Hutch Hutch (Hutchison)
Coverage 96% (Dialog)
Unique 9,281,976*
Mobitel (Sri Lanka Telecom)
14%
subscribers
21% Airtel (Bharti Airtel)
SIMS 22,410,352
subscriber ARPU $6.23
Market Share Activations
60.0% 9,000,000
8,000,000
50.0% Dialog (Axiata) Dialog (Axiata)
7,000,000
40.0% Etisalat 6,000,000 Etisalat
5,000,000
30.0% Hutch (Hutchison) Hutch (Hutchison)
4,000,000
20.0% Mobitel (Sri Lanka 3,000,000 Mobitel (Sri Lanka
Telecom) Telecom)
2,000,000
10.0% Airtel (Bharti Airtel) Airtel (Bharti Airtel)
1,000,000
0.0% 0
2008 2009 2010 2011 2012 2008 2009 2010 2011 2012
Sources:Wireless Intelligence
* ITU 2012 data indicates a higher penetration rate of 87%, or 18.1 million unique subscribers. See:
http://www.itu.int/net/newsroom/GSR/2012/reports/stats_sri_lanka.aspx
20
Mobile Network Operators
Operator Operator Ownership, Partnership and other Information
Information
• Subscribers: • Established: July 07, 1995 as a Public Limited Company
7,825,000 • 83% owned by Axiata Group Berhad and listed on the Colombo Stock Exchange
• HSBC – 2.3%, IFC 0.8%
• Market Share:
35% • Partners Include:
• Hatton National Bank – Serving as Custodian account holder for ezCash
mobile wallet
• Dedicated USSD string for bank access for People’s Bank, People’s Mobile
Banking
• Subscribers: • Wholly owned by Sri Lanka Telecom Ltd.
5,031,045
• Market Share:
22%
• Subscribers: • Wholly owned by Etisalat parent of UAE
4,685,000
• Market Share:
21%
Sources: Wireless Intelligence, company websites
21
Mobile Network Operators
Telco Telco Ownership, Partnership and other Information
Information
• Subscribers: • Owned by Hutchison Asia Telecommunications, subsidiary of Hutchison Whampoa
3,169,307 Limited
• Partners:
• Market Share: • State Bank of India: USSD SMS mobile platform (mobile Wallet) that allows
14% money transfer, P2P fund transfer, balance inquiry, etc.
• Subscribers: • Operations launched in 2009
1,700,000 • Reports are that it is an acquisition target and Dialog has expressed interest
• Market Share:
8%
Sources: Wireless Intelligence, company websites
22
Mobile Outlook
• Current situation
New subscriber growth rate is declining and will flatten in next few years according to
Wireless Intelligence
Industry consolidation is possible and some reports suggest discussions are underway
• Trends/expectations
11.9 million unique subscribers are anticipated by 2018, a penetration of about 52%.
Data enabled phones are already dominant but 4G penetration is anticipated to only reach
2.3 million subscribers by 2018, 19%.
• Implications for mobile money
Mobile money will only benefit from greater mobile penetration; greater adoption of mobile
money service may in fact further increase growth and penetration rates
With a strong data-enabled phone penetration, consumers could enjoy richer and more
intuitive mobile application experiences (in comparison to rudimentary SMS text string and
USSD simple menu options); capability could also open door for phone to serve greater role
as POS replacement.
Sources: Wireless Intelligence
23
• Macro-economic Overview
• Regulations
• Financial Sector
• Telecom Sector
• Mobile Financial Services Landscape
24
Mobile Financial Services Overview
• Two types of mobile financial services are currently offered in the Sri Lanka Market:
(1) Non-bank led Mobile Wallets (2) Bank led Mobile Banking
• Mobile Wallets:
Dialog is the only current provider of a mobile wallet in Sri Lanka.
Proportional ID rules apply; no ID/registration required for a simple account with Rs
10,000 max. balance. Greater balance up to Rs. 25,000
Early uptake has been positive, 750,000 in 100 days
• Mobile Banking:
Several banks have offered simple account access and basic utility payment capabilities
via a mobile application. Hatton National Bank most active effort currently.
Central bank requires that mobile banking users must first be a bank account holder and
apply for account under existing rules
• Outlook
Central bank and bank association are actively pursuing development of the Common
Card and Payment Switch with the expressed desire to support real-time mobile payments
and transfers. If realized, would have significant impact on landscape.
Not clear yet if Dialog ezCash will lead towards greater bank penetration but logical path
is available through support of institutional payments; Dialog has expressed interest to
support micro-credit and micro-insurance solutions.
25
MFS Implementations: Mobile Wallet
• A wallet managing funds held in Dialog’s custodian account at Hatton National Bank.
Deutsche Bank AG serves as independent administrator of the custodian account.
• User can make purchases for 15 rupee fee
• Service supports bill payment, P2P, B2C payments (salary), B2B collections, retail
payments, internet payments
• Support for “institutional payments” presents possibility for linking to formal
financial services.
• 750,000 customers in first 100 days
• 13,000 retailers for purchases & cash in/out
• Daily transactions:
Product: • Utility Payments: Rs 7 Million
Wallet • Cash In/Out: Rs 3 Million
• P2P: Rs 0.3 Million
by • Simple account can be opened through the phone without need for registration or
Dialog Axiata credentials with a balance threshold of 10,000 rupees. An account with a higher
(Launched in 2012) balance threshold of 25,000 rupees requires additional identity verification at a
Dialog store
• Central Bank granted permission in April 2013 for Dialog to accept inward
international remittances to the ezCash wallet custodian account to then be
redirected to customer’s bank account.
• Support for ezCash announced for online classified website SmartMarket
Sources: company websites, presentation by Fariq Cader – Senior General Manager Dialog Axiata PLC
26
MFS Implementations: Mobile Banking
• Mobile Cash allows anyone, customer or non-customer, to send cash to anyone who has a
mobile phone. enables anyone to send up to Rs. 200,000/- daily over any Mobile or CDMA
network to anyone, anywhere in Sri Lanka! Beneficiaries/recipients are notified instantly
on the transaction via Sampath SMS Alertz, There is no requirement of a pre-registration
to send or receive money. Money can be collected instantly from any of Sampath Bank’s
island-wide branch network or from any Sampath Bank ATM island-wide, 24-hours a day,
Sampath Bank
365 days a year
Mobile Cash
• Bank also offers traditional mobile banking and SMS alert products that offer added
Re-launched: convenience for existing account holders to access accounts, make transfers to their own
2012 accounts, and pay utility bills
• Annual report of 2012 acknowledges recent central bank guidelines that have opened
competition to non-bank entities (Dialog’s ezCash), have added pressure on the bank to
continue innovations
• Mobile banking relaunched in 2013, building upon preexisting SMS banking servies.
• Supports smartphone and feature phones with its application
Mobile Banking • Goal is to enlist 300,000 of its 7.5 million customers to use the application in 3 years.
by
Hatton National
Bank
27
MFS Implementations: Mobile Banking
• People’s Mobile Banking – USSD menu in collaboration with Dialog
People’s Bank
Launched: February
2012
• early NDB Bank collaboration with Dialog
• Based on MChek software
• 15,000 customers
• 25,000 ez retailer outlets
NDB Bank • 300+ outlets serve as mini-banking outlets as authorized by CBSL
Launched: 2007
Sources: company websites, presentation by Fariq Cader – Senior General Manager Dialog Axiata PLC
28