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 12 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