Sri Lanka becomes first in South Asia for interbank transaction payments on same day

The Sri Lankan banking system will be providing an improved and ‘a first’ in South Asia same day interbank transactions.

To meet the need for a developed payment system, the Central Bank of Sri Lanka (CBSL) promotes an efficient funds transfer system, over the existing paper based systems.  The Electronic Funds Transfer system is the most efficient Funds Transfer system available at present.  This is more secure, cheaper and faster.  

In line with the CBSL’s objective, LankaClear, with guidance of the CBSL developed and upgraded the existing Sri Lanka Interbank Payment (SLIP) System to an Online Secure Interbank Electronic Funds Transfer System for retail payments, with the latest product features.    

Changes to SLIPS will help banks in 3 major areas such as greater revenue generating capabilities, operational efficiencies and cost savings.  

Due to payments being realised on the same day, and the low tariff charges compared to other interbank payment systems, SLIPS may attract customer interest and may tend to induce more transactions which is sure to increase the revenue of banks.   

In respect of outward submission, the cutoff time is extended from 3.30 p.m. to 6 p.m. for session-1, which will allow banks to submit all payment items received during the day to LCPL. In the meantime, multiple outward files are allowed to be submitted for a session and at times, when transactions are more; banks are able to submit them in batches.

Due to the VPN connectivity, Online availability of the outward processed information and the provision of a highly secure payment platform is facilitated as all files and reports are digitally signed by using Lankasign Certificate.

Outward files and delivery statements are digitally signed by the originating bank and it is verified at the time of loading the files to the system at LankaClear. Inward files and reports are digitally signed by LankaClear and it can be verified at the destination to confirm the data integrity of the file.

It will also help to save costs on courier, paper printing and document storage since the transactions are processed electronically.  Operational overheads and errors can be reduced by eliminating manual work. It will also be able to bring the outward CD to LCPL incase of a contingency. LCPL has developed a common platform for banks to introduce new products for their customers.  This will pave the way for Banks to offer new financial products for their customers.

Benefits for customers prove to be improved as it saves costs, and carrying out transactions on the same day with the realisation of credit payments other than salary payments initially. Customers will also have the opportunity of making their payments for same day value.

A reliable fund transfers due to the system, ensures a high degree of security with operational reliability and has contingency arrangements for timely completion of daily processing.

There is no hassle of writing cheques and queuing at the counter carrying cash or cheques to make payments.

There are guaranteed direct credit payments since the originating bank has already debited their client’s account with them for the amount of the transaction.

In respect of operational efficiencies, it has been observed that under the new system customers coming from corporations, the accounting reconciliations will be reduced and simplified, thus freeing staff for more productive work.

Institutions will be able to make available necessary funds, to pay salaries on the value date of the payment.  Previously it was done one or two days in advance depending on the situation.

Stock Brokers could use the system to facilitate payments at a lower cost as well. In respect of utility Companies, Insurance Companies are able to collect payments for their services more efficiently.  As an example, utility companies can encourage their customers to effect the payments via SLIPS instead of paying through cheques or cash.  

If necessary, the customers can authorise the bank to debit their account and pay these bills within a specified ceiling for each payment.  In order to facilitate that, the utility companies can send the bills to their customers a few days prior to the billing date.  In such a situation, if there is any discrepancy the customers can communicate with the billing company.  Under this arrangement, utility   companies are able to collect the funds quickly.  Utility companies can encourage their customers to pay their bills as explained.

The benefits for the economy in the wake of these improvements will be a higher liquidity in the payment and settlement system while it also induces economic activities and economic growth.

It provides an enhancement on the competitiveness of the market for financial services and providing a faster access to low-value and time-critical payments.

The new system lowers the risks associated with the accumulation of un-cleared payments at the end of each day and provides more development in infrastructure facilities that will pave the way for further development in the payment system.

In addition there is also the time management as it would avoid the possibility of idling funds that can quickly move among market participants for productive use.

The Central Bank’s expenses on printing currency notes, minting coins, destroying unfit notes, cash transportation, and insurance premium will also be reduced.

Features of the new enhanced SLIP System:

All banks connect to LCPL through a Virtual Private Network (VPN).  In other words, through a private dedicated tie line.

Ability to submit multiple payment files to LCPL a day.  This will facilitate the banks to submit all transactions accepted from customers to be submitted to LCPL for payments during the day itself.

LCPL is able to provide the facility to give same day clearing for transactions which they receive before 12 noon of any business day.

Digital signing of Outward (from commercial banks to LCPL) and Inward files and reports (LCPL to commercial banks and Central Bank) is compulsory.  Therefore, the process operates with highest level of security.  

There are no hard copies of reports.  This will pave the way for paperless financial transactions.  Paperless transactions support environment protection activities carried out by the participating institutions i.e. Green Initiatives.

Banking hours for customers can be extended since cut off time for file submission to LCPL banks is 6 p.m.

By providing T+0 (same day) clearing facility for interbank payments, Sri Lanka becomes the First South Asian Country which provides T+0 facility for Interbank Payment transactions. This is better than in Malaysia and Singapore for similar interbank transactions.

LCPL increased its system capacity of handling 600,000 transactions per session and enhanced disaster recovery capabilities as well.