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Wednesday December 8th, 2021

Kenneth De Zilwa’s Global Vision for LankaClear

Dr Kenneth De Zilwa, Chairman at LankaClear

Since 2002, LankaClear has been transforming the financial sector with cutting-edge technology. Some of its payment solutions connected via the national digital payments network are firsts in the South Asian region including one solution as second in the world. LankaClear has transformed banking in ways many of us take for granted.

Cheque clearing used to take several days depending on the bank and branch location, but today it takes a few minutes. Corporations no longer have to issue cheques in bulk to pay salaries and suppliers, but can execute multiple transactions in real-time, sending funds to many accounts across multiple banks at a time. Individuals can shop via apps while paying utility bills online. They can also transfer funds to any bank anywhere in the country on their mobile phones in real-time. Some people do not carry cash with them at all because they have bought into the available digital platforms, but if they need hard cash, they no longer have to hunt for an ATM of their own bank either.

LankaClear has deployed the platforms and technology for a cashless economy. Unfortunately, banks and their customers are slow to adopt these. The explosion of new digital interfaces like mobile apps and the boom in online transactions and e-commerce post-Covid was mainly possible because LankaClear had everything in place, while there is so much more in its armoury.

It would be worthwhile to list them out because even the jargon cannot hide their significance: LankaPay Real-time Interbank Fund Transfer System (CEFTS), Common ATM Switch (CAS), LankaSign Digital Certification Service, Sri Lanka Interbank Payment System (SLIPS), JustPay Mobile Retail Payment Network, LankaPay Government Payment Platform, Payment Exchange Name (PEN), Direct Debit, LankaQR, National Card Scheme, Cheque Imaging and Truncation System (CITS), USD Online Payment System, US Dollar Draft Online Image Transfer System and Financial Sector Computer Security Incident Response Team (FINCSIRT), etc.

However, Sri Lanka still lags behind most countries in the region in building a digital economy. But that is about to change with Dr Kenneth De Zilwa’s appointment as LankaClear Chairman in June 2021. He brings a global and multidisciplinary outlook critical to building the right vision and setting the agenda Sri Lanka needs to unleash LankaClear’s potential.

Dr De Zilwa cut his teeth at international banking giants Citibank and HSBC, holding strategic roles for two decades, formulating market guidelines and policy and pioneering capital market transactions in Sri Lanka. His expertise in treasuries has seen him consult for leading audit firms KPMG and PwC, foreign corporations, and Sri Lankan multinationals like Brandix, banks, insurance, and others. He has been instrumental in helping foreign companies set up BPOs in Sri Lanka in very specialist areas of financial services.

Dr De Zilwa is also an economist with a PhD and a master’s in economics, making him the first multidisciplinary Chairman of LankaClear, which bodes well for the future of the digital economy. In this interview with Echelon, Dr De Zilwa discusses the pioneering and transformative role of LankaClear and shares his vision for the futuristic institution he heads.

What are some of the global or regional factors shaping the future of the economy?

You need to look at it from two points of view, particularly the economic point of view is of significance. Right now, we are experiencing a business cycle that is transforming the global economy. This business cycle event is an event that lasts for about 60 years. In business cycles terms, we call it a long cycle. So, this long cycle unfolded in 2017. And now, it is coming to its fruition where you see the global economy shifting based on technology. Technology is the pillar or the cornerstone, which is now driving this global economic juggernaut. Within that technological vertical, you will see many other subcategories unfolding like green technology, AI, robotics, and all that is part of this long business cycle. And within that long business cycle, you will find winners and losers. So, people who adapt to this cycle will win over the 60-year horizon, and those who do not will go the way of the dinosaurs. There is a clear choice confronting all of us regarding the role we want to play, be it a business or as an individual.

The second point of view is that technology itself has evolved. The seat of technology advancement has shifted from the West towards the East, particularly to Asia. And that has happened with a significant focus and emphasis by the Southeast Asia governments. If you look at the numbers, the e-commerce market in Southeast Asia was at about $5 billion in 2015, and by 2025 it is estimated to be $102 billion. Now, that is a 34% compounded annual growth rate (CAGR), which is phenomenal. So, Asia is leading to establish this new global economic juggernaut that will emerge where the next long-business cycle takes off.

For Sri Lanka in South Asia, and very much part of the Asian family, it is a fantastic opportunity to leverage this push by taking full advantage of declining technology costs, Asian work ethic and access to Asian supply chains and markets. We see geopolitical tussles concentrated in the region for those reasons, and Sri Lanka must better manage its foreign policy. We should avoid getting entangled in geopolitical frictions, focus on surviving these challenging times and explore every opportunity to latch on to the Asia growth story. For this, Sri Lanka needs to get its basic infrastructure right.

We have a vibrant tech industry that employs 83,000 people, and that number will gradually increase to about 250,000 or possibly 300,000. Its contribution to GDP will also increase over time to about $5 billion from the current $1-1.5 billion. So, there is significant growth envisaged for Sri Lanka tech.

Now, that is only at that particular vertical. The spin-offs from that to other sectors of the economy, from agriculture to manufacturing, banking and finance, trade, and retail and more, must be considered. The banking and finance sector, which mirrors the real economy, has a particularly central role in driving this agenda of integrating with the emerging economic world order. That is where LankaClear comes in, spearheading the technological infrastructure and product innovation and transformation of banking and finance business models to ensure that Sri Lanka does not miss the global opportunity that is out there.

How does Sri Lanka stack up compared to the world, or the region, in terms of digital transformation?

I think we are still a little behind the curve, if you may want to call it that. We have a banking sector still tinkering with technology when it is supposed to drive advancements in the payments infrastructure. Some banks have graduated to a different sphere and are pushing the digital transformation agenda harder than others. A few of the state-owned banks, strangely enough, are driving that quite aggressively while some private banks are still lagging. There are various reasons for that, but it is baffling to me.

Sri Lanka has a very strong national payment infrastructure and was also the only country in South Asia to test 5G broadband technology. We have fibre optic cables laid out throughout the country and have made considerable progress in terms of internet connectivity. Yet, the banking sector is yet to make good use of the infrastructure, and they need to step up and do so fast. Some of the solutions developed by LankaClear had been around for quite some time, but it was only after Covid-19 that banks started to use them. For instance, LankaClear introduced the Real-time Interbank Fund Transfer System or CEFTS in 2015, enabling banking customers to execute interbank fund transfers 24×7, 365 days of the year. However, it was not until very recently that most banks started pushing the service to their customers and primarily after Covid lockdowns.

The one silver lining from the unfolding pandemic is the compulsion of the financial sector to now fast track digital transformation. It has also helped Sri Lanka refocus on building its digital economy and pushed the agenda to a much more dynamic discussion than to what it was a few years ago. I now believe that Sri Lanka, which lagged in the past, has caught up with many technological frontiers. We now see a vibrant startup and fintech industry taking shape, and LankaClear is supporting that to take off. We work closely with fintechs. We provide the enabling payment infrastructure and establish guidelines and rules for a secure environment within the regulations of the Central Bank. We want the public to see that a fintech stamped by LankaClear is not only using the best available technology but is safe and secure to use. So, LankaClear is driving that particular agenda quite aggressively from where it was.

We have always been seen as a back-office tech company if you want to call it that. And now I think we have to reposition LankaClear for the future. Since its founding in 2002, LankaClear has achieved and exceeded all it set out to do. It is probably the most successful PPP model in the country, with 47% held by the Central Bank and the two state sector commercial banks: and 53% by the rest of the licenced commercial banks in the country. As we look at the future, as LankaClear repositions itself as the enabler of the digital economy, every bank needs to be fully engaged and seize the opportunity to contribute towards this exciting and transformative endeavour.

Could you take us through some of the payment infra[1]structure solutions developed by LankaClear?

The most important thing is to ensure that we have an online payment platform for the entire country, and not just the urban areas. Right now, there is a national focus to achieve this. And within that national focus is where the LankaSign digital signature initiative sits. The digital signature is a fundamental piece of infrastructure. The legislation has been there for some time under the Electronic Transactions Act number 19 of 2006. This piece of legislation has further enhanced the use of digital signatures after a 2017 update. Today, banks and their customers can execute transactions electronically without exchanging physical documents nor moving them from place to place. It improves efficiencies, enhances productivity, and brings significant cost savings to banks and businesses that use this particular technology. That is what we are aggressively promoting at LankaClear. And the Office of the President has issued a directive to all state institutions and local government authorities to switch to electronic documents with an emphasis on LankaSign Digital Signatures.

I would encourage every state agency to get onboard LankaSign and adopt digital signatures rather than allow this piece of technology to become the fundamental digital divide between the private and public sectors. On top of that, we are fast-tracking the efforts to build an e-government platform via our LankaPay Government Payment Platform, which is also an encouraging development.

Our legal luminaries have established the facts towards the reliability, integrity and security of electronic documents signed with digital signatures over traditional forms of documentation. I believe everyone now understands these facts, particularly the banks. Banks are now stepping up to subscribe to this technology. Commercial Bank of Ceylon, the largest private bank, has partnered with LankaClear to adopt digital signatures for their import-export banking services. As more banks sign up for this, customers will suddenly find themselves in a new world. They can execute transactions conveniently and securely via the LankaClear payments platform LankaPay while securing their documentation via LankaSign. The process will be much more efficient and dependable, and people will never have to worry about errors or fraudulent activity. Another bank, NDB Bank, a development bank, signed up for LankaSign for internal and external use. In the public sector, the Office of the President, the Ministry of Finance, and the Ministry of Justice have adopted digital signatures beginning an encouraging trend. Sri Lanka Customs, BOI, Sri Lanka Ports Authority, EPF, Sri Lanka Standards Institute and Import Export Control Department have come on board the LankaPay Government Payment platform to enable digital payments including the Inland Revenue Department for tax payments.

Once the banks start adopting and driving electronic payments and digital signatures introduced by LankaPay and LankaSign respectively, their transformative reach will extend to the rest of the economy through their clients. When it comes to LankaSign, we focus on the banks, and from there, it is up to the banks to take the digital transformation forward. Once customers experience these technologies, they will spread to the rest of the economy, starting with urban centres. And soon enough, we would have an entire economy that is integrated and empowered by digital technology. Our ultimate goal is to enable people all over the country and give them access to the banking sector so that their businesses and livelihoods can find the support needed to thrive.

LankaClear launched JustPay a couple of years ago connecting the financial institutions, fintech apps and merchants to a single platform enabling real-time merchant payments via bank accounts. We have made tremendous progress there, exceeding a million transactions alone in September 2021 with a total value exceeding Rs3.6 billion. We are promoting several other initiatives in our repertoire of payments-enabling infrastructure. We recently launched a payment exchange name or PEN; a nickname based real-time person-to-person payment system. We also have Direct Debit, which allows customers to initiate standing orders for recurring payments to other banks, leasing, insurance, and utility companies. PEN and Direct Debit will completely change the way people transact with one another. With LankaPay, PEN and Direct Debit, and LankaQR, which is another initiative recently revamped, we are taking Sri Lanka towards a cashless, efficient, and productive society. We will see business volumes pick up in retail stores, and ultimately, the SME sector will be the biggest beneficiaries of the digital push. And that is why LankaClear will now reposition the brand and relook at our focus for the future. We want to have a broad impact, and it is quite an exciting proposition we intend to unfold.

What are some of the new initiatives in the pipeline?

There are three things. First, we are looking at integrating LankaClear with the Asian Payment Network (APN), enabling us to keep pace with developments in the emerging global economic centre and adopt best practices and technology. The APN will integrate LankaClear with 13 peer agencies in China, Australia, Singapore, Japan, Korea, Indonesia, Malaysia, Thailand, Philippines, Vietnam, and Myanmar. We would integrate with payment infrastructure and platforms within the region, like ATM, payments and clearing networks, leading to better regional economic connectivity and significant cost savings. So that is something we are excited about and pursuing with intent.

Second, we intend to invite an international payment gateway as an alternative to PayPal. Discussions are ongoing with an alternative payment network with cross border payments capability by the first quarter of 2022 because the need is great among young entrepreneurs setting up businesses to sell products and services online to a global clientele.

Third, we are convincing banks to look at our US dollar clearing system that remains underutilized for some strange reason. Maybe banks have been a bit apprehensive, but we are trying to revisit that and promote that. I think the cost savings will be considerable. Banks pay about $20 for each foreign currency transaction, whereas if you route it through the LankaClear US Dollar Online System, the cost per transaction is about $1, which will be also paid in rupees. It makes economic sense for banks to revisit their approach and look at this US dollar clearing function in the interest of their profitability, plus the national savings accruing from routing transactions locally.

What is your vision for LankaClear? What do you hope to achieve as its Chairman?

LankaClear is a remarkable enterprise. It has transformed the banking landscape and has set up the foundation for the transformation of the economy. Unfortunately, it has not received the recognition it deserves. Be that as it may, we at LankaClear have our goals set on a new and exciting journey. There is an energy and buzz around repositioning the LankaClear brand; we will probably announce that in the first quarter of 2022. Two decades ago, LankaClear set out to transform an archaic cheque clearing system in the banking system. Today, it has altered the entire banking system with new payments technologies that have led to the decline of cheques.

As we continue to push the boundaries of payments and settlements with technology, we will have to reposition the brand to reflect what we have evolved to become. We also intend to position LankaClear as a global brand and become an enabler and builder of digital payments infrastructure to the region. We were the first country in South Asia and second in the world to introduce an electronic cheque clearing system. With that kind of track record, we must focus on leveraging our strengths.

We believe our capabilities and expertise will take us where we want to be. Everyone is excited about the road ahead, the envisaged transition and the endless possibilities we will create. We are changing the mindsets of our people from a tech to a more service and solutions type of mindset for them to be more accountable and react to consumer needs proactively and make decisions while thinking on their feet. The business entrepreneur is a concept that we have to bring into these particular individual business verticals within LankaClear. If we succeed in all this, there is no doubt in my mind that LankaClear will become a significant regional player. I foresee that because we already possess the technical skills and the passion among all our people at LankaClear.