CB officially launches LANKAQR eyeing less-cash society

Trade Minister Bandula Gunawardena makes first official transaction to mark the launch of LANKAQR digital payment method with the participation of Money and Capital Market and State Enterprise Reforms State Minister Ajith Nivard Cabraal and CB Director Payments and Settlements Dharmasri Kumaratunge
Pic by Kithsiri de Mel 

• Says 50,000 merchants and 98% of banks already onboard
• Two mobile-based e-money operators and three finance companies also onboard
• SMEs set to benefit from LANKAQR due to lower costs involved 
• To reduce currency printing costs and promote financial inclusiveness 

By Nishel Fernando
With 50,000 merchants already onboard, the Central Bank (CB) yesterday officially launched LANKAQR, the national QR standard for local currency payments, which would be followed by a dedicated islandwide campaign, aiming to reduce currency printing costs, promote financial inclusiveness and to nudge the country’s large informal sector to the formal sector, ultimately leading towards a less-cash society. The CB in 2018 issued QR standards for the national QR code transactions. It was developed by the CB with the support of the country’s fintech community members, without obtaining the services of an international consultancy agency, which otherwise would have cost estimated Rs.1.5 billion.

The CB prohibited the banking sector from using its own proprietary QR codes while mandating the local commercial banks and licensed operators of mobile-based e-money systems to join LANKAQR, by end of last month.

Delivering the opening remarks at the inaugural event held at the CB, yesterday, CB Director Payments and Settlements Dharmasri Kumaratunge highlighted that SMEs in particular would benefit from the LANKAQR digital payment method, considering the high costs of acquiring and maintaining POS machines. He noted that acquiring a POS machine alone costs between Rs.50,000-70,000 and merchants are also subjected from 2 to 3.5 percent merchant discount rates (MDR) and monthly rentals between Rs.2500 and Rs.3000.

According to Kumaratunge, over 70 percent of the country’s POS machines are located in the Colombo and Gampaha districts, due to high costs. 

In contrast, QR-based transactions are considered to be a low-cost solution, as the maximum MDR—fees paid by the merchant to the bank that issues the LANKAQR code—has been limited at one percent by the CB, with a special rate of 0.5 percent during this year, to further encourage merchants to adopt LANKAQR.

LANKAQR enables customers to pay merchants directly from their bank accounts, using a LANKAQR-compliant mobile payment app on their smartphones and the payment is credited to the merchant’s bank account.

Kumaratunga said so far almost 50,000 merchants have come onboard along with 98 percent of local commercial banks. Two mobile-based e-money operators—Dialog and Mobitel—have also come on board.

In addition, three non-banking financial firms—LOLC, LB Finance and People’s Leasing Company—have also joined the national QR-based payment initiative. 

The CB has instructed local banks to target to onboard minimum 25 merchants from each of their branches across the country.

The CB is also hoping that the National Water Supply and Drainage Board (NWSDB) and Ceylon Electricity Board (CEB) would come onboard with the programme shortly.

“I see this as a beginning of an important project, which is continuous and ongoing with the evolving technology,” Money and Capital Market and State Enterprise Reforms State Minister Ajith Nivard Cabraal said.

He stressed that the CB and industry need to be vigilant on the cybersecurity aspects while moving into new technologies.

Although the CB initiated its digital journey in the 2002-2003 period, Cabraal noted that Sri Lanka is lagging behind its peers in Asia, with India, Thailand and China having launched QR-based payments in 2016, 2017 and 2011, respectively. 

Hence, he stressed that the CB needs to keep an eye on emerging technological developments in the financial industry. 

Meanwhile, speaking at the occasion, Trade Minister Bandula Gunawardena remarked that initiatives such as LANKAQR would support to formalise the country’s significantly large ‘black economy’. 

He said Prime Minister Mahinda Rajapaksa has requested to waive off fees for transactions below Rs.100. 

Meanwhile, Kumaratunge pointed out that several issues have arisen with cash-centric financial systems, including high costs involved as well as fears of viruses. 

The government incurs Rs.3.2 billion for a new currency issue while incurring further costs in terms of processing charges, storage as well as destruction of cash.

Gunawardena noted that lack of financial literacy among the population of the country remains a challenge for a cashless society. The CB plans to rollout out a national campaign with the support of the banking sector to promote the QR-based payments among businesses, particularly targeting the SME sector.