In today’s rapidly advancing world, digital payment systems stand at the very core of our technologically evolving economy. From simply buying groceries at your local supermarket, to ordering your favorite food from a food delivery app, or even buying a new pair of earphones online, every action leads back to a digital payment that is made to facilitate that purchase.
Fintech is adopted almost seamlessly into everyday life to make our banking and financial experiences safer, faster and more efficient. So, what is the state of fintech and digital payments in Sri Lanka? Let's take a closer look into Sri Lanka’s rapidly expanding fintech and digital payment industry with Mr. Sandun Hapugoda, the Country Manager for Sri Lanka and the Maldives at Mastercard. With over several years of experience driving innovation in digital payments and fintech, he has held key roles, including Director – Account Management and Head of Digital Payments at Mastercard Sri Lanka and Maldives, and previously served at Hatton National Bank PLC, ICICI Bank, Amana Bank and Sampath Bank. Mr. Sandun's influence extends beyond the corporate sphere as he is also chaired and participated in several key policy committees appointed by the government of Sri Lanka and also currently represent the American Chamber of Commerce as its Vice President making him a prominent figure in the evolution of Sri Lanka's financial technology landscape.
1.) What are the main challenges holding back mass adoption of digital payments in Sri Lanka?
The digital economy in Sri Lanka accounts for less than 5% of GDP, and one of the primary challenges is the persistent preference for cash by both the government and the private sector. This preference extends to consumers and merchants, largely due to limited digital financial literacy across the population.
For merchants, encouraging digital payments is essential, as this would prompt consumers to follow suit. However, some merchants charge additional fees for card payments instead of offering discounts, as seen in other countries. This stems from a lack of understanding of the hidden costs of handling cash, which can range from 10% to 15% of the transaction value. These costs include reconciliation, insurance, backend processing, and the time lost in handling cash, especially during high customer footfall.
Another significant hurdle is the lack of widespread card or digital payment acceptance points, particularly in rural areas. While there are about 170,000 acceptance points in the country, this infrastructure needs to expand with low-cost mechanisms like soft POS (which converts an Android phone into a POS machine) and QR-based payments to reach tier 3 and tier 4 merchants.
Additionally, Sri Lanka needs to focus on strategies that promote digital payment adoption. For example, introducing digital payments for public transportation has proven to have a ripple effect globally, as users often continue to use the same payment method in other scenarios. Expanding consumer-to-government (C2G) payments, such as tax payments and other government services, through digital channels is another area with immense potential.
Finally, incentivizing consumers to use digital payments rather than cash could make a significant impact. Currently, there is little motivation for people outside urban areas to adopt digital payments. Offering benefits or discounts for digital transactions can encourage users to make their first transaction and build a habit over time, which would benefit the economy by reducing the circulation of physical cash.
2.) What government policies are needed to promote digital financial inclusion and further adoption of fintech?
In terms of government policies, a key area is launching a nationwide digital literacy program to create awareness about the benefits and importance of participating in the digital economy. For consumers, such awareness can highlight the security and convenience of using digital payment methods. For example, while cash is irrecoverable if lost, a card can be secured by promptly informing the bank. On the merchant side, educating them on the advantages of accepting digital payments—such as reduced costs and operational efficiencies—should be part of this initiative.
Ideally, this digital literacy program should be a government-wide initiative, involving all stakeholders, including payment networks, banks, and other financial institutions. Schools should also play a vital role by incorporating digital financial education into the curriculum from an early age. This would help foster a culture of digital financial inclusion starting at the grassroots level.
While building awareness, it is equally important to ensure the availability of robust digital infrastructure. This includes having sufficient acceptance points for digital payments, expanding access to mobile and online banking services, and ensuring widespread internet availability. Although Sri Lanka already has strong digital infrastructure, scaling it further would be necessary to support the increasing adoption of digital payments.
Ultimately, a combination of education, awareness, and infrastructure development is essential to promote digital financial inclusion and fintech adoption on a national scale.
3.) What is the role of a national fintech policy and what should such a government policy include?
Sri Lanka currently lacks a national fintech policy. This gap is critical and has been a topic of discussion in various forums, particularly when looking at models like the Monetary Authority of Singapore (MAS).
A national fintech policy should go beyond just laws and regulations. While regulatory frameworks are essential, they need to be paired with proactive initiatives that foster the growth of the fintech sector. Regulators should aim not only to enforce policies but also to enable positive outcomes for fintech ecosystems.
For instance, the Monetary Authority of Singapore has a dedicated FinTech unit, managed by highly qualified professionals with a deep understanding of the sector. Their primary role is to drive the enablement and expansion of fintech as an industry. Sri Lanka lacks a similar structure either through the Central Bank or through another government body. Although some ad hoc initiatives exist, there is no cohesive, nationally driven unit to guide and support fintech startups.
This lack of direction and support leaves many local fintech startups struggling to navigate the ecosystem. A robust policy framework is vital to provide them with the guidance and resources needed to thrive.
In addition to establishing a governing framework, introducing fintech concepts into school curriculums is essential. Children today have greater exposure to digital media and are becoming increasingly tech-savvy. However, digital financial literacy, including how digital payments and fintech solutions work, remains underexplored in education.
Integrating these topics into the curriculum can prepare students for the evolving digital economy and equip them with the knowledge to understand and leverage future fintech innovations.
4.) Cybersecurity is a growing concern in the digital space. What steps is Mastercard taking to ensure the security and privacy of digital payment users in Sri Lanka, and how can these efforts be scaled to match increasing digital adoption?
At Mastercard, we emphasize adopting a "security by design" approach. This means integrating security considerations into the brainstorming and ideation phases of any new initiative. Too often we have observed, companies—including issuers, acquirers, fintechs, and startups—address security concerns later in the development process. By embedding security into the inception phase, we ensure that safety measures are a fundamental part of any project.
Mastercard encourages its partners to focus on three critical aspects of cybersecurity. The first is securing the customer, protecting customer identities is a top priority and ensuring that no unauthorized entity can impersonate or misuse customer information is essential. Second is securing the account. Safeguarding the customer’s account details and data—such as balances and sensitive information—is critical to prevent breaches and unauthorized access. The final aspect is securing the transaction. Every transaction should go through robust security mechanisms to ensure that the data transfer is secure, initiated by an authorized individual, and protected during transit.
Many discussions on cybersecurity focus solely on transaction security. However, Mastercard highlights the need to secure customer identities and accounts with equal rigor. We offer a variety of solutions, both within and outside of Mastercard, to ensure all three areas are adequately protected.
For transaction security, we adopt a multi-layered approach. Transactions pass through multiple stages or "hops," allowing us to implement security at different levels of the network. This approach is more effective than relying solely on in-house security solutions, which only evaluate transactions upon receipt. Modern cyberattacks often occur before the transaction reaches its final destination, making network-level security crucial.
Some of the key solutions we offer include Safety Net, our baseline security system acts as a protective shield for issuers and acquirers, preventing catastrophic breaches. Our other security solution is called Decision Intelligence (DI), this solution enables issuers and acquirers to establish rules for securing transactions at the network level while allowing them the flexibility to implement additional security measures on their own platforms. We use powerful AI algorithms to evaluate the nature of each transaction processed via the Mastercard network and put a score to support issuers to take a better decision.
Mastercard is a technology company at its core. While we are widely known for payment systems, our expertise extends to technology services. In addition to working with issuers and acquirers, we collaborate with merchants, governments, and domestic payment networks to enhance security and improve the effectiveness and user experience of digital payments.
For instance, we have partnered with LankaPay and other government institutions in Sri Lanka to extend our security solutions. These collaborations include initiatives with entities like Sri Lankan Airlines and Port City Colombo. For Sri Lankan Airlines, we provide tourism insights and advisory services, helping them identify key markets and refine their strategies. Similarly, with Port City Colombo, we assist in developing robust digital strategies.
Our goal is to help governments and domestic networks improve transaction security, streamline processes, and deliver a better customer experience. By working together, we grow the ecosystem and enable collective success.
5.) Western economies are shifting towards cardless payment systems, like Apple Pay in the U.S. Do you think Sri Lanka is ready to adopt similar digital payment methods?
Sri Lanka is indeed ready to adopt digital payment methods and form factors with digital cards and tokenized platforms. However, the challenge lies in whether there is a strong enough business case for global players like Apple Pay, Samsung Pay, or Google Pay (collectively referred to as "X Pays") to establish operations here.
Sri Lanka's digital economy is currently relatively small to make it financially viable for these entities to set up shop in the country. This decision ultimately depends on their perspective and priorities. As of now, none of the X Pays are available in Sri Lanka.
That said, Mastercard is actively working with multiple entities, including issuers and other local partners, to replicate similar experiences for Sri Lankan consumers. Even though X Pays are absent, they still rely on Mastercard's infrastructure globally, so we are leveraging that expertise to uplift Sri Lanka's digital economy bringing in capabilities to platforms such as issuer mobile applications. Also, we are working on other alternative mechanisms extending the similar experiences. Recently launched sticker card is a good example where people could paste a contactless payments enabled sticker on the back of their phone (or at any frequently used/carried device) and make payments at merchant points in Sri Lanka.
Our goal is to develop the digital payment ecosystem to a level that is attractive enough for these global entities to consider entering the Sri Lankan market. By doing so, we aim to bridge the gap and provide a seamless digital payment experience for local consumers.
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