The National Payment Council (NPC) together with Central Bank (CB) and LankaClear (LCPL) will be launching a Common Payment Switch (CPS) to enable online, real-time, secure and reliable fund transfers for low value interbank payments.
Chairman of LankaClear A. Sarath de Silva said this national system will have multiple multilateral net settlements during a day, via the Banks' Current Accounts maintained at the CB.
In an interview with The Sunday Times FT, Mr. Silva said the document process for the software and hardware has been finalized and pirate testing will begin in February 2009. "There are a good number of banks coming with us but they will be joining depending on demand." Out of the 23 licensed commercial banks operating in Sri Lanka, he expects 60 to 70% to join by mid-2009 with the rest coming on board by the end of next year. "So far, the response has been very good."
Mr. Silva said Sri Lanka is moving towards a paperless society with the CPS being the first step towards this vision in the banking sector. He added that it will also benefit quality of life as banking becomes virtual and the payment of electricity and other utilities can be done from a computer of cell phone.
Mr. Silva said given the fact that value is transferred among participants in the economy every minute of the day and increases as the economy grows, Sri Lanka's payment system must be efficient so that funds can quickly move among market participants for productive use, thereby promoting more activities in the economy.
Through the years, payment systems have considerably changed as forms of payment have evolved from precious metals to currency and cheques and recently to electronic payments.
These changes have been made because of the need to facilitate voluminous transactions occurring in rapidly growing and increasingly more sophisticated economies. Customers naturally seek the most efficient payment method, while providers of payment services normally seek the most profitable payment system, he said.
Mr. Silva said legislation will be gazzetted under the Payment and Settlement Act No.28 of 2005 under which regulations will be issued to mitigate any legal risks that will be exposed, if any.
He added that the government has taken a policy decision to channel all public sector salaries through bank accounts, a non cash instrument and CPS will be able to facilitate it immediately.
Benefits to banks
Mr. Silva said the CPS system will greatly assist banks in three major areas, those being higher operational efficiencies, greater revenue generating capabilities and cost savings as well as high-tech capabilities. In terms of higher operational efficiencies, banks will benefit tremendously by lowering its operational overheads by almost eliminating the manual work and errors induced due to most processes being manual in the current operations. CPS will help banks to create new products and thus significantly increase the top line as well as the margins.
With the CPS system, banks can easily take advantage of creating an efficient salary payments system that has a potential market of 4.5 million transactions a month. Also not forgetting 3rd party payments, bill payments, direct debits, card based POS payments, local credit cards, inward remittances, statutory payments, etc. Thus the products banks can create around these features CPS provide are numerous, resulting in high revenue. Also, banks will save on cost associated with counter-times (i.e. a physical visit of a customer) and also by repurposing employees involved in manual work towards other income generating activities. Since CPS is an online real-time system, banks will have 24 hour access to standard or customized reports, transactions status, etc.
Benefits to customers
Mr. Silva said some of the main advantages for bank customers will be faster realization of interbank payments via secure transactions that has multiple access points (i.e. ATMs, Internet banking, Mobile banking, etc.) and 24 hour access to banking services. He said Sri Lanka already has a very technically savvy community as evident from the mobile and SMS penetration in all demographics and regions. With the introduction of this online, real-time payment system where the payment is realized instantaneously, there will be an explosion of usage given its ease of use and the high security of each transaction.
Benefits to Sri Lanka
Mr. Silva said some of the main benefits this nationwide system will bring into the economy will be higher liquidity in the payment and settlement system and will induce rapid economic activity and growth. This will assist Sri Lanka in realizing its goal of being a regional economic hub. The CPS framework will create the infrastructure required for a payment super highway to enable future development in the banking sector, such as eCheques, integration of payment modes such as mobile cash, card integrated POS systems, ATMs, etc. This will result in creating an explosion in the payments and settlements industry in Sri Lanka which Mr. Silva said will place us as a global leader, if not at least a regional leader.