Online Payment Methods in Sri Lanka: The Bad and the Ugly

Dulan is a very good friend and one of the earliest employees of Vesess. He now works in the finance industry, and sent me this email earlier this month:

Sampath Bank—one of Sri Lanka’s leading banks—has partnered with Xoom to make international remittances to Sri Lanka easier. Apparently it’s a big deal.

We are familiar with Xoom. We discovered them 10 years ago, and used their service quite frequently to accept payments from our overseas clients. Back then we were taking our first steps as a web design agency—attracting foreign clients and getting paid in dollars was a new and exciting experience for us. However, actually receiving their payments was always a challenge: banks charged ridiculous fees for fund transfers, and online payment methods like PayPal were not available (PayPal is still not an option in Sri Lanka).

One of our first international clients found this a frustrating experience:

“Lankitha—I am happy to pay you guys extra for the awesome work you do but not the banks out there for just nothing. You have to either absorb the costs of the transactions or give me an alternative solution.”

Compared to our minimum project value of $10K today, back then the average charge was in the range of $500−$1000. When remittances were made through wire transfers, which was the only available option, bank fees ended up being a significant cost. Transaction fees of 5%−8% translated to $35 to $50 off each payment.

We found Xoom under these circumstances. It was comparatively faster (transactions completed in 2−3 business days) and cheaper (3%− 5% transaction fees). They also offered email alerts that were not available with traditional wire transfers.

We were very happy with Xoom, and recommended them to other Sri Lankan freelancers and entrepreneurs.

In 2007 we incorporated Vesess in the United States, and all these barriers for online payment acceptance came to an end. We stopped using Xoom.

Sri Lankan IPGs

If you want to build a successful, sustainable business, don’t ask yourself what could change in the next ten years that could affect your company.

Instead, ask yourself what won’t change, and then put all your energy and effort into those things.

You should build a business strategy around the things you know are stable in time—like that customers will always prefer lower prices—and then invest heavily in ensuring you are providing those things and improving your delivery of them all the time.

— Interview with Jeff Bezos, CEO, Amazon

Delivering awesome products and services at cheaper prices faster: that’s how we can improve a business. Xoom’s entry into Sri Lanka is touted in this vein in the media. According to their newsletter, they promise instant/24-hour deposits to local bank accounts. They waive the transaction fees when the transaction is above $1,000, and charge only $4.99 if it’s less than that.

Compared to the options we had a decade ago, this is indeed a great improvement. Compared to the payment methods available in other parts of the world, we are still woefully behind by at least 5 years.

Through our work with Hiveage, Vesess is currently serving more than 45,000 small businesses in 140 countries. This means that we have partnered with many excellent payment gateways serving various parts of the world, with more partnerships in the works. Yet time and again we’ve had to let down Sri Lankan freelancers and entrepreneurs because we don’t have any partnerships with their local payment gateways, such as those offered by Sampath, HSBC, HNB, Seylan, NTB and Commercial Bank.

This is not for any lack of interest on our part. I follow up on some of these requests personally since I experienced these same difficulties during the early years of Vesess. But I realize that most Sri Lankan freelancers and small businesses have no idea how expensive these gateways can be, especially if they are processing less than about Rs.200,000 per month.

Even for someone who is willing to bear the cost, the integration effort is massive when compared with modern gateways. To put things into perspective, the Hiveage team can integrate a gateway within two weeks of working out the business side of things (partnership agreements, sandbox accounts, etc.). For some developer-friendly gateways like Mollie and Razorpay, it’s less than one day! Unfortunately this is not an option at all with Sri Lankan IPGs, where development times are measured in months.

As far as I know, none of them have publicly available API documentation. There are no sandbox environments. Sri Lankan banks consider their payment gateway services sacred offerings only to be made available to the hallowed blue-chip companies who can afford to pay millions. As we have experienced in several instances when working on consultation projects for local businesses, even after jumping through all the hoops, it is difficult even to gain access to API documentation within a month.

So we always reply to these Sri Lankan users that we will consider local payment gateway integrations if we see more demand in the future. But the bitter truth is that we don’t see any future with them, either for us or for our clients, due to their extremely high costs (initial costs + monthly recurring fees + 3%− 5% transaction fees), underdeveloped APIs, terrible UX and lack of compliance/security. Worse still is the Sri Lankan IPGs’ unprogressive attitude compared to the other services we deal with from around the world like Stripe, PayPal, Authorize.net and SecurePay.

For Sri Lankan Hiveage customers, we currently recommend 2Checkout even though it is still comparatively expensive (5.5% + $0.45 per transaction). Yet their service is much more usable and cost-effective than local payment gateways. Perhaps we can now add Xoom to the mix.

Son, we deal with blue chips only.

The problems with Sri Lankan IPGs are perhaps best highlighted by a personal anecdote.

In early 2006, when Vesess was still a garage startup (well, operating from a single room in our co-founder Asantha’s home in Maharagama), I went to Sampath Bank to ask for a payment gateway. I was warmly welcomed into their head office in Navam Mawatha, and directed to their Head of e-Commerce.

I sat in front of him and explained why we need to accept payments online and how it’s going to make or break our future plans for Vesess. He listened to me carefully for over 20 minutes, and even asked questions as to how old I am, where I studied, where my office is (“Maharagama” didn’t seem to be a satisfactory answer), what my background/qualifications were and how much we had in our bank account with them. I replied to all his questions and said that we were not banking with them at the moment but would be more than happy to open an account if they could extend their IPG service to us.

After hearing me out, he put a document in front of me and said, “Son, check this list. See the clients here? We have the top 60 corporates in this country.”

The first name on the list was Singer Sri Lanka, followed by Dialog Telecom PLC. In my naiveté, I failed to get the point and said that we’d be delighted to join that list. Nonplussed, he said, “Perhaps one day when you’re big enough.”

I had more questions for him, but that was the end of the meeting. The Head of e-Commerce at Sampath Bank is a busy man, and I was but a wannabe entrepreneur, green behind the ears.

I left his office with the strong determination that I would find a way to accept online payments as soon as possible, local services notwithstanding. That compelled us to incorporate Vesess in the U.S.—another tale to be told some other time. In the end it turned out to be a blessing in disguise, as we were able to provide a much better payment method when monetizing our SaaS products.

Sri Lanka Today and Tomorrow

I have been leading Vesess for twelve years, and we have been operating two truly world-class fintech products for seven years. That’s why I’m aware of how this industry is changing rapidly, and of how the competition is increasing worldwide as new disruptive technologies emerge that have the potential to dramatically change the way we do business (case in point: bitcoin). Even a kid can easily pay online with a single click when he or she downloads a game from the App Store or Google Play using mom’s phone. Are Sri Lankan gateway providers anywhere near offering that level of service—if not now, at least in the coming years?

One highly publicized innovation occurred when mobile payments (eZ Cash and mCash) were introduced by Sri Lankan telecom operators. These show a lot of potential, but adoption seems to remain very low at the moment, making it a solution in need of a problem. The common issue of bad UX design, seen so often with Sri Lankan tech initiatives, seems to plague them as well.

Another interesting service is MOMO by HNB. While we haven’t dealt with HNB’s IPG to date and don’t hold bank accounts with them, I like the way they promote the service, and what they’re trying to achieve:

MOMO can be used by any business including micro level businesses such as three wheelers, boutique shops up to any large scale business such as home delivery, supermarket chains, clothing stores, luxury cab services etc.

Hopefully it can deliver real value to small businesses.

As Jeff Bezos says, it’s worth planning for needs that won’t change in the foreseeable future and focusing your energies in that direction. There’s a huge opportunity for someone to make online payments not suck in Sri Lanka, help thousands of businesses, and reap the benefits in the process.