More paying by cards

In tandem with growing affluence and sophistication, more Sri Lankans are doing their payments via both credit and debit cards despite the base of the former dipping.

Value of transactions of credit and debit cards via the payments systems last year amounted to a record Rs. 91 billion, up 20% or Rs. 15 billion over 2009.

Payments via credit cards, the larger of the two forms, had grown by 15.4% to Rs. 75 billion in 2010 whereas it had dipped by 11% to Rs. 65 billion in 2009 over 2008’s figure of Rs. 73 billion. Interestingly the credit card base last year declined by 7.4% to 778,549.  The number of transactions via credit cards had only declined marginally (1.1%) to 16.45 million over 2009 but the figure is sharply lower in comparison to 18.8 million transactions in 2008.

Industry analysts said though the number of credit card users had declined the customer base had done higher value of payments.

The outstanding balance of credit card holder base in end 2010 was Rs. 31.16 billion, down by 3% from Rs. 32.1 billion in 2009. In view of high interest rates charged by the credit card industry Central Bank directed a reduction as a prudential measure.

The average interest rates ranged between 21.96% and 36.60% as against 33 and 48% in 2009. By late 2010 the rate had come down to around 24 and 27% following the Central Bank directive.

In 2010 the negative growth of credit card advances was 3% but lower compared to 7% dip in 2009.

An encouraging sign for the industry however is that by January this year the credit card base had increased by 3,388 to 781,862 from end 2010 figure of 778,549 whilst the outstanding balance had increased to Rs. 31.97 billion.

Payments via debit cards had grown by 45% to Rs. 16 billion in 2010 as against an increase of 83% in 2009 over Rs. 6 billion in 2008. A late entrant to the payments market, debit cards had been used for 5.34 million payment transactions in 2010 up by 61.4% from 2009’s figure of 3.3 million whilst in 2008 it was only 2.17 million transactions. The interest rate charged for cash cards ranged between 21.96% and 26% in 2010 as against 30 and 48% in 2009.

The Rs. 91 billion value of transaction payments via credit and debit cards though growing was an insignificant 0.17% of the total payments system value of Rs. 53.5 trillion in the country in 2010. The overall figure reflects a 41.4% increase from Rs. 38 trillion in 2009 whilst in 2008 it was Rs. 30.1 trillion.

Volume of payments rose by 10.8% to 77.36 million transactions in 2010 over 2009 in which year it contracted by 5% from 73.6 million transactions in 2008.

The lion share of transactions through payment systems was enjoyed by real time gross settlement systems worth Rs. 47.8 trillion, up by 44%. Chequeimaging and truncation system generated value of Rs. 5.3 trillion, up by 21.7% whilst the Sri Lanka Interbank Payment System handled 332 billion worth of transaction payments, up by 19% over 2009.

In February 2010, the procedure of granting the Intra-day Liquidity Facility (ILF) to institutions participating in the RTGS was upgraded to providing ILF at their discretion, deviating from providing ILF only on request.

Further, a mechanism was introduced to the LankaSettle system to deal with daily transactions in the event of special holidays being declared. SLIPS was upgraded to provide online connectivity to the participating institutions.

The upgraded system also enables any participant to transmit multiple outward files to the operator (LankaClear Pvt. Ltd.) during one session, and the usage of digital signatures for authentication of inward and outward files and multiple settlements of net balances through the RTGS. Accordingly, SLIPS was advanced to a payment system with same day settlement (T+0) for transactions submitted to the operator before 12.00 noon.

Subsequent to the upgrade, SLIPS has a capacity of handling 1.2 million transactions during a normal business day. To eliminate the time lag associated with the practical issues in the movement of physical cheques from bank branches to LankaClear regional centers and subsequently transmitting cheque images from regional centers to LankaClear and as well as the cost of maintaining such centers, participating banks were instructed to capture the cheque images at the branch level and submit those images to LankaClear in Compact Discs (CD). All banks were able to successfully implement this CD submission system connecting all their branches online to the head offices. Subsequently, regional centers were terminated in 2010.

Under the Service Providers of Payment Cards Regulations No. 1 of 2009, fourteen licensed commercial banks, two registered finance companies and one licensed specialised bank were issued licences to operate as service providers of payment cards under five categories, namely, card issuer, financial acquirer, operator of payment system, operator of clearing system and operator of settlement system, based on their business activities. Further, Credit Card Operational Guidelines No. 01 of 2010 was issued to payment card service providers who engage in credit card business.

Having observed the need to broaden the regulatory framework of payments and settlements systems to ensure safety, efficiency and stability of the emerging electronic fund transfer mechanisms, mobile payments guidelines were prepared and will be released to the banking system in the near future. Further, guidelines for internet payments were also under drafting to be finalised during the second half of 2011.