Coronavirus adds huge flywheel to Lankan banks’ digitisation drive

• Banks see massive upsurge in digital transaction volumes during lockdowns 
• Want to lock-in low-cost model in post-COVID environment

Sri Lanka’s banks have seen a massive upsurge in their digital transaction volumes as the COVID-19 pandemic has upended how banking should be done and the banks are now refusing to go back to old ways, since they want to lock-in the low-cost business model.  

“We have seen a massive shift in the case digital fees, etc.,” Hatton National Bank PLC (HNB) Managing Director/CEO Jonathan Alles told a recent online discussion on the impact of COVID-19 on Sri Lanka’s banking sector, organised by a Colombo-based think tank. 

He said HNB, the country’s second largest private lender, has witnessed a substantial uptake in its digital banking channels during the lockdowns.  

“While COVID-19 is a very dark and a heavy cloud which came upon this world, there are many silver linings in that. And one of them is the online platforms that have come in. 

Those who were hesitant to go into digital banking, go into cards, go into products like SOLO and wallets and to use their mobiles for their transactions, are today doing it quite comfortably,” Alles said. 

SOLO is HNB’s digital wallet, which enables customers to make payments using any of their bank accounts or debit or credit cards added into the mobile app and scanning the merchant’s QR code using a smartphone. There are similar products by other banks also. 

“And we should never go back,” Alles insisted.  

Sri Lankan banks’ ability to generate incomes greatly waned since mid-March as loans ceased to get repaid due to moratoriums, loan growth came to a standstill and other fees froze. But they continued to incur operating costs on staff and other overheads as they remained opened since banking was listed as an essential service.

And thus, the banks are now trying to divert their investments earmarked for elsewhere, including non-essential IT projects, to strengthen their digital channels, enable remote-working and flexible hours for their staff and building an eco-system surrounding merchants, logistical service providers and customers to strengthen e-commerce.

Demand for direct-to-customer services saw a massive explosion since the lockdowns went into effect but a lot of informal businesses could not capitalise on the opportunity completely, due to their inability to receive payments via cards or digital wallets. 

The few e-commerce platforms operating in Sri Lanka were hamstrung to cater to the massive jump in demand during the lockdowns, as they did not have the capacity. 

Meanwhile, Alles quoting an expert from McKinsey Consulting said the banking sector should now expedite its digital journey and strive to get done in the next six months what it expected to get done in the next 18 to 24 months, as the pandemic has offered a fitting atmosphere for that. 

Despite delivering a crippling blow on the banking sector and the economy, ironically the COVID-19 pandemic expected to add a great flywheel to the Central Bank’s agenda for a less-cash society, which they set forth at the beginning of the year by naming 2020 as the year of digital transactions. 

“So, with all that, things like flexible working, working from home, change in policy manuals relating to health and safety, new hygiene factors, following COVID-19 guidelines in order to maintain social distancing and getting people back to work, are things that we do while exploring all avenues to trim the waste lines, cut costs, where it makes sense, in order to cater to the anticipated lower revenues and profits and try and achieve somewhat reasonable profits for our shareholders in the industry,” Alles said.  

To this effect, the banks have now begun to reassess the need for all of their branches and are contemplating if they could operate with three-quarter of the branches while on-boarding customers into digital platforms as they attempt to stay nimble.