CB pushes for plastic cards in place of hard cash

In a quest to build a cashless society, the Central Bank of Sri Lanka has asked the people to shift from using cash and coins into payment cards for all transactions, though the payment infrastructure in the country is still barely sufficient for such a society to exist. “Do you face a shortage of coins? Hassle to use cash? Inconvenience to carry cash ? Not receiving change money ? Fear of cash being stolen? Use a payment card for your transactions,” the Central Bank said in a message to the people in newspaper advertisements last week.

The Central Bank spends a huge sum of money on printing money and minting coins and the initiative could be to cut that expenditure. It has once been said the cost of minting a coin is higher than the face value of that coin. “We want to reduce the use of cash in the system because it is a huge cost (printing notes and minting coins) to the Central Bank,” the Central Bank’s Payments and Settlement Department Director, Mala Dayaratne said at a seminar held at the National Chamber of Commerce in September, last year.

The Central Bank listed down a host of benefits of using payment cards – debit and credit cards – for all transactions as a complete substitution to hard cash. According to the Central Bank there are as many as 16 million payment cards in use and 60 million transactions annually taking place. However, Sri Lanka is still miles away from shifting completely to an electronic card society as there are only 35, 000 point of sale (PoS) terminals around the country, out of which a large majority is in the Western Province. The fact that more than 80 percent of the currency remaining with the public, also acts as a barrier to yield the full benefit of these systems. According to Lanka Clear Private Limited—the national payment gateway—less than four PoS transactions are made in a day on average. Further there are only 0.15 percent of PoS transactions are made in a day per card on average. This demonstrates the poor card utilisation in Sri Lanka. Although there are little over one million credit cards registered in the country, there are only 350,000 active card users. A further obstacle in accomplishing the Central Bank’s goal would be the relatively higher transaction cost passed on to the card holder by some merchants when accepting debit or credit card to complete a transaction. The issuing bank generally charges between 2.0 percent to 3.0 percent from the merchant when executing a transaction via a payment card. But the merchant pass it on to the card holder, which increases the cardholder’s transaction cost and eventually will discourage people from using payment cards for all transactions. In any case, the Central Bank’s move is a welcoming initiative towards a cashless society but much remains to be done in creating an eco-system to fully enable it. Meanwhile the Central Bank is also in a joint project with Lanka Clear where they plan a ‘National Card System’ (NCS) to deliver the social security payments across the country, which will enable the government to distribute Samurdhi and Divi Neguma payments in cashless form.