Who We Pay for LankaPay

Full doc.x with images at bottom.

Arvind Subramaniam recently made statements in the Central Bank about rebuilding the social contract. He put forth a narrative of reform whereby he called for the building of trust in government institutions. The statements also coincided with the revelation to the general public that cheque payments had been made to the former president, members of COPE, and to political foundations. Here the general public should see an opportunity. We have a Central Bank eager to impress Mr Subramaniam and a political desire for some action. On your behalf this article looks to achieve two things;

  1. Reduced cheque usage via a reduction in the SLIP system cost to the consumer
  2. ITCA representation on the LankaPay Board

Cheques are notoriously bad instruments of payment. They are slow, subject to error, and expensive. According to LankaPay’s annual report “Out of the 51.45Mn cheques  presented for clearing, 2.15Mn cheques were  returned due to non-payment. This amounts to  4.18% of the cheques presented for clearing of  the total cheques returned, around 48% were  returned due to lack of funds.” Cheques also facilitate fraud and money laundering as they can be easily transferred and even encashed by 3rd parties notably members of a Minister’s Security Detail (MSD) with no questions asked. We have a perfectly good SLIP system which is underutilized due to extortionate pricing which was written about earlier (http://www.ft.lk/columns/Money-transfer-and-the-CBSL/4-658243). The previous article shows that to the consumer cheques are cheaper than electronic transfers even though the bank would find it cheaper to perform the latter via LankaPay.

 

 

Source- Central Bank Q3 Payments Bulletin

Looking at the charts from the payments bulletin we see that the majority of transactions in the SLIP system are also only for salary payments. These payments tend to happen only once a month. More widespread usage can be achieved with a lower price. The regulatory hatred towards digitization is also unfounded. Take the IRD, one of the few revenue institutions not to show a marked improvement since the taking over of the new government. One of their only long term achievements is the collection of PAYE tax. This is because the system does it for them. Mandating for instance that doctors and lawyers receive payment via the SLIP system or via card would be easy to implement given a more widely used digital payment system. This would then make it easy to collect revenue. To be fair to the IRD, it is the CBSL down the road in the much nicer office who are to blame. According to the Central Bank’s Payment Bulletin in excess of 90% of the total retail payments continue to be made via cash. The Central Bank is keener to see their friends at De La Rue succeed than for the IRD to meet revenue target.

All of this is facilitated by the undue power and lack of public accountability with the Central Bank and its many subsidiary operations. LankaPay, running contrary to the Capital Maharaja narrative, is a private company. It has some state and proxy state ownership but operates for profit and in the interests of its shareholders inclusive of the private banks. Also its monopoly status is not in the public interest. The board is also oddly comprised with the regulator taking board seats in the company. This ensures that the company is not particularly well regulated. The board also lacks any technical experts or any involvement of ICTA. This ensures that state institutions are unable to interface directly with the company bypassing the banking system. Sri Lanka customs was only recently given a solution through LankaPay. Institutions like the SEC who would greatly benefit from an operational digital payment platform have been noticeably silent. This may be due to the SEC commission comprising of one Ranel T Wijesinghe who is also on the board of the Bank of Ceylon, a major beneficiary of the poor payment system. The existence of these so called independent commissions might increase the number of interests represented but one must question if these interests are public or vested?

Name of Bank No. of Lanka Pay Shares Mn Value Rs. Mn % Held
Central Bank 2.95 29.5 19%
HNB 2.2 22 14%
Bank of Ceylon 2.1 21 14%
People’s Bank 2.1 21 14%
Sampath 2 20 13%
Others 1.85 24.75 12.17%
Commercial Bank 1 10 7%
Seylan 1 10 7%
Total 15.2 158.25 100%

Source- Lanka Pay Annual Report 17/18

LankaPay is best judged by the status of their planned expansion. The Central Bank has squashed both PayPal operations in Sri Lanka and also the planned operation of a competitor by ICTA. This is sad as PayPal would have helped Sri Lankan businesses better interact with companies overseas and ICTA’s competitor might have brought in innovation into an otherwise sluggish sector.

LankaPay acts as a rent seeking monopoly. The profits however are on respective banks profit and loss statements as they charge excessive mark ups on services provided by the company. It has failed to implement a national card system. It has failed to bring about wide usage of its certification technology. It reinvests in outdated technology. It prevents entry into the industry both through regulatory pressure and also through the excessive unutilized capacity of its own systems. The current switch has been tested and proven to process approximately 7 Mn commercial transactions a day. Sri Lanka is nowhere close to this figure. The marginal cost of processing an additional transaction must be negligible and as such the usage of cheques can be phased out in a few years.

The implementation of a national card system is something LankaPay will not do. It is in the national interests as it allows for lower costs, retention of payment information domestically, and wider financial inclusivity. The Banks however have very lucrative deals with VISA and Mastercard and will not allow for a domestic competitor to form. The technology is already available through a partnership with JCB and probably is already operational in a different form under the previous CPS system. Even though the CPS system is live there are no participant members. LankaPay’s 2018 investment in the common card and payment switch according to the cash flows is zero. The Central Bank is also pretending to work on a payment system for our transportation network. As a country we will continue to be declined widespread card usage by our Central Bank. What do we have to show for 436 million LKR in investment?

The maximum price for a SLIP transfer can be reduced and the cost of a cheque transaction can be increased. This is us, the general public, putting forth an offer for the beginning of a social contract.

Who We Pay for LankaPay

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Kelsey Homes House for Rent in Nawala

Dear Reader,

You are an integral part of this post. I have been instructed by my father to list a Colombo based property on the internet for rent. This happens every two or three years as tenants move out. On doing it this time however I find that the prices have skyrocketed. Services like this a few years ago would have been free or charged a negligible amount.

Lanka Property Web and Ikman.lk both charge more than 2000 lkr for their services and have very complicated pricing cards. Lanka Property Web seems to have a membership charging system which I suspect auto renews. Also, the viewing figures are low and little interest has been generated. My father feels my argumentativeness is of no use to the family and that I should just “do the bloody thing” but he was not averse to advertising on Facebook.

Can Sri Lankans get better value for money by listing on Facebook and pushing their advertisements?

 

Bedrooms number: 4 Bills inclusive? No
Bathrooms/WCs: 2 Deposit: 1 year
Floor area: 2200 sqft Min. lease term: 1 year
Floors: 2 Nearest bus stop: 600 meters
Area of land: 8 perches Nearest train station: 3.1

 

Property-85/7A Senanayake Mawatha, Nawala

 

A house built in 2004 and newly refurbished, consisting of 4 large bed rooms, 2 bathrooms with hot & cold water, Family TV lounge upstairs with a balcony towards the garden. Sitting dining rooms extending to the garden. Pantry fitted with cooker hob and extractor and hot & cold water. Maids room and toilet has separate entrance. Two car parallel parking with remote controlled roller shutter. The house is equipped with a CCTV network and other safety devices. AC units to be fixed in consultation with the occupant. The house is located in a breezy residential neighbourhood with wide roads. Rent Rs. 175,000.00 ONO. Six months deposit. Can be seen by appointment.

For More Details and Contact Info Click Below

https://www.lankapropertyweb.com/rentals/property_details.php?prop=252811- (Does integrate Google Street View)

https://ikman.lk/en/ad/kelsey-homes-house-on-rent-nawala-for-rent-colombo

I hope to follow up with analyzing the results shortly.

In Support of Digital Banking

The Central Bank governor at his recent statement at the Digital Banking summit stated that he felt like a charlatan when asked to speak about technology. He is right. This is not because, as he attributes it, of his recent acquisition of a smartphone but rather due to his regulatory lack of support for digital innovation. The Central Bank through its regulation of our payment and banking systems continues to pander to powerful financial interests. The Central Bank through its regulatory diktat from upon its fortress in Colombo Fort has chosen to strangle economic activity. Let us just take one situation wherein this is true. One massive instance of the Central Bank shunning a digital innovation.

Money Transfer

Let’s focus on transferring money. The prices as I face it, through Commercial Bank, are given below. As the largest non-state bank, I feel the costs are reflective of a broader truth in the economy.

1.10 Cost of Cheque Books
Per Leaf, Including VAT Rs 15/-
4.8.2 CEFTS (Per Transaction)
Over the counter Rs 100/-
Internet Banking Rs 50/-
Mobile Banking Rs 50/-

Source- http://www.combank.lk/newweb/en/rates-tariffs/general-tariffs#filer-c

According to LankaClear’s website “The Common Electronic Fund Transfer Switch (CEFTS) is an integral part of Sri Lanka’s trusted national payment network.” Our interbank payment network is poor. This is by design. Our antiquated means of transferring money, the large costs incurred in transacting, and the difficulty in transferring money all seek to serve vested interests. Looking at the tariff above you would be inclined to use a cheque book over a digitized transaction. It’s as if the post office has somehow become cheaper than Whatsapp or Email. Now to be fair, we on average may not even be aware of these charges as the Banks we use tend to have amazing transfer mechanisms internal to the bank that are free, intuitive, and feature rich. Most major utility providers have accounts at all major banks and as such are accessible through these internal transfers. The impact of these charges and non-charges has a systemic impact on our economy. Think in terms of net neutrality.

Through the inefficiency of interbank transfers, the regulator is pushing customers and therefore deposits to the banks it chooses. The regulator is also allowing banks to artificially improve CASA ratios by delaying the crediting of payments. As most shareholders will know even if it is that you have instructed the CDS to deposit cheques directly to your account it does not credit as set out by the company. Banks collude with each other to maintain slow realisation of transfers. For instance, my recent dividend cheque from Property Development PLC (subsidiary of Bank of Ceylon) to be credited on the 8th of June was only realised in my account on the 28th of June. The wide usage of cheques in the economy also helps beneficiaries of Central Bank conspiracies to mask payments. To paraphrase Rajitha Senarathne fielding a question on a primary dealer, it is not unusual for a business to write many cheques and it takes a lot of time to trace where payment ended up. Small businesses wishing to automate the receipt of payments are also constrained into either only serving customers within a certain bank or having a costly online credit card payment portal. Sri Lanka’s merchant fees are well above the global average of .99% with smaller merchants having to pay as much as 3.5%. These fees can (and have been in Europe) be capped by the regulator.

Why doesn’t the Central Bank reduce the price of CEFTS and SLIPS and increase the price of CITS and Cheque transfers? Initially because of the high costs and therefore high profits to the banks of cheque returns. More strongly though because of the entrenched interests in a poor payment system highlighted earlier.

Source- Lanka Pay Website

Improved version for publication available at;-

http://www.ft.lk/columns/Money-transfer-and-the-CBSL/4-658243

FT 3.7.2018

 

Independence

Subject: Independence
From: perera_d94@yahoo.com
To: globalmedia@visa.com; lkhelpdesk@bookmyshow.com
Date: Sunday, June 3, 2018, 5:27:41 PM GMT+5:30
This message contains blocked images. Show images or Always show images

Dear Visa and BookMyShow,

I write to you following a failure to place a discounted transaction on your site. As you may know, this month Visa cardholders are entitled to up to 25% off for movie ticket bookings through your site. The error prompt I received instructed me to book more than one ticket to avail the offer. Despite this and my credit card (MasterCard) I decided to go through with a Visa Debit card payment. This was for two reasons; One I couldn’t find the more than one ticket in the terms and conditions, and two I believe it’s in everyone’s interest to support the individual endeavor. This email is about more than a discount. This email is not a mere complaint. This email is about independence.

By choosing to prevent anyone from doing anything alone you are forcing that person to an activity he or she may not choose. Your actions are not that regulatory but rather help bring about stigma around the independent venture. People doing things alone are already at a price disadvantage as restaurants and venues tend to price for two or more. Sometimes you aren’t even allowed in if you are alone. This is saddening as groups of people tend to be both insular and aggressive. Independent people are on average more interesting and trustworthy.

To quote Gustav Le Bon, the father of crowd psychology, “In crowds it is stupidity and not mother wit that is accumulated.”

I put forth these ideas from my visits to the Lionel Wendt. In my observations I find that people as part of larger groups are not the ideal customer. They on average pay less. They collectivise transactions preventing usage of both website and payment card. They are less interested in the play. They are quite insecure with many wearing more make up than those on stage. They are disruptive and communal in their behaviour. They have a symbiotic relationship to each other preventing natural movement to and from exits. They become less attractive proportional to their size. Due to the difficulty of convincing every member they are less likely to try something new or do something unplanned. Let us do away with them.

I have attached all documents to this email. I hope to hear from you soon.

Kind Regards

Dinesh Perera

Visa Card Offer – Get Up to 25% Off on Movie Tickets – BookMyShowError Message.png

A License Raj

Sri Lankan Banking and Finance can be categorised as a license raj. This is not because institutions are regulated by the central bank but rather that the capacity to conduct business is contingent on one obtaining a license. For the NBFI sector, usually understood as the Finance companies, are heavily constrained by this licensing structure. We live in a context where an insolvent company like ETI Finance is more likely to be involved in lending and deposit taking than a cash rich company like Overseas Realty PLC.

This is partly due to a long running conspiracy by the central bank and partly due to the love of financial intermediation by the current governor. The conspiracy is a simple one. They give licenses and limit the capacity to operate to these licenses. The licenses subsequently become of significant value. Therefore, the chronological distribution of licenses is so heavily skewed towards the early 2000s. Insiders knew of the Central Banks policy and obtained licenses which they would sell on to people who honestly wanted to operate as a financial institution in a latter period. Therefore, it is very common for listed NBFI tickers to differ from the existing companies name. Changing names frequently like con artists. It would be in the public interest to rather hand out license to companies that had the honest capacity to operate as financial institutions and take away licenses far more proactively from ones that did not. The CB Governor as an economist has a bias towards the importance of his own profession. The Governor has consistently put forth policy that would require banks to make large computations and prevent smaller players from operating in the market. Take his current stance that Banking corporate debt be limited to institutional players. The debt market sans bank debt is choked of activity as they will not allow online access to the trading system. Large computations can also be very wrong and given the banking concentration the governor wishes to see would pose significant systemic risk.

I agree with the CB Governor that there are too many finance companies in a certain sense that brings about a need for consolidation. I further think that they should not operate as pseudo banks but rather as specialist lending institutions. Banks in my opinion should be more involved in project financing and have very low risk tolerance. Deposit taking activity of NBFIs on the other hand should have more risk bearing on the part of the depositor with return being contingent on the repayment of the borrower. Finance companies currently do handle large sums of cash with little scope for AML, treasury operations, FX hedging, and portfolio diversification. His policy however of forced consolidation thinly veiled as capital requirements is misguided.

The new license freeze might be in part due to the existence of insolvent NBFIs. The CB and Treasury might be hoping to sell the license in lieu of liquidating these companies and settling depositors from their own cashflows. However, the rescue of these companies has been very slow and fraught with suspicious activity. The ETI group owned Swarnavahini which was too important a media institution to be handed over to any investor. The legal minefield that plagues insolvent NBFIs compounded by the legal minutiae that is our law are heavy obstacles to any potential revival. It is unfair and unwise to expect foreign financiers concerned with operating financial institutions to take such risks. Acting swiftly to liquidate these companies will improve the stability of the system.

When I say there are too many finance companies I don’t mean that there is too much competition. There is a lack of competition. Banking tariffs have become more regressive under Indrajit’s tenure. What I mean is that there are too many companies with common ownership. Starting with the government which owns multiple finance companies and banks through proxy which are very poorly run that should come under common management. LOLC, Vallibel, and the major banks all own too many institutions. Given an incentive to amalgamate and taking away the value of holding a license will result in a much less superficially dense sector. This would make regulation easier.

If our financial institutions were better regulated and policy was enacted in the public interest, we would have better economic outcomes. Our payment system is incredibly expensive and inefficient. The intent of policy is usually seen through outcomes. It is sad that we currently live in a world wherein the markets are gambling on which firm will consume the other to meet minimum capital requirements. Shareholder wealth is being wasted and firms are being told to operate at scales that are in some instances twice their current operations. How is this more stable Indrajit?

Dinesh Anthony Perera

Also available at

http://www.ft.lk/columns/A-License-Raj/4-656211

A License Raj _ FT Online

 

A Lack of a Right of reply to “Right of reply – Rotarian replies to Muttukumaru”

http://www.dailymirror.lk/149962/Right-of-reply-Rotarian-replies-to-Muttukumaru

“Editor’s Note: This correspondence is now closed.”

Amrit Muttukumaru, a self-defined public activist who makes it a point to stick it to those who are in power, is prominent within the local papers. He makes allegations. The allegation relevant to this piece of work is that against K.R. Ravindran. Muttukumara alleges that K. R. Ravindran was involved in some form of fraud while at Rotary. Rotary for those who are not familiar is a sinfully boring organization filled with the most incompetent people on the planet. Members however tend to be wealthy.
On my internet search I find that K.R. Ravindran was able to take Muttukumuaru to court and make him retract some of his statements. This however means nothing in our country wherein power decides judicial outcomes. I can’t find any official response by K. R. Ravindran. If K.R Ravindran with all his money cannot respond to Muttukumaru’s allegations in a manner both outside and within court then I understand why he was made head of Rotary.

I am not standing by Muttukumaru’s allegations or even suggesting that we overturn the societal presumption of innocence. What I am suggesting is that it is plausible that there was some impropriety with regards to Tsunami aid. Helping Hambantota comes to mind. Working under the assumption that Rotary’s funds are held in the public interest and that Muttukumaru’s work is at the very least prominent, it makes sense for a public response.

K R Ravindran should as an office bearer of Rotary be obliged to respond.

Banking in Sri Lanka

“A bank is a place that will lend you money if you can prove that you don’t need it.” – Bob Hope

Banking in Sri Lanka is lending to a person only if it results in that person being worse off.

I recently got rejected for a loan, for the purchase of a government security, and for the collateralizing of my equity/debt. These are things that banks exist to do.

I was rejected for a loan and I quote because arranging a loan as an individual for liquidity purposes/increase OD facility is not a proper purpose for a loan. I didn’t want it immediately and arranging for a loan as a precautionary measure is not allowed.

I was rejected from purchasing a government security in my opinion because I did not want to hold a repurchase agreement but rather hold thesecurity itself.

I was rejected from collateralizing my equity/debt not because the bank wanted to separate its investment banking from its other operations but rather because my portfolio was too small.

Other than giving them a low cost of capital (which they then pass on to the already wealthy) what can I, a normal person, do with a bank?

Is it utopian to think banks provide liquidity and savings?

Dinesh Anthony Perera