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Thursday, June 13, 2024

The Impact of COVID-19 on Sri Lanka’s FinTech Sector

Over the past two years, the COVID-19 pandemic has significantly changed the way we live and carry on with our day-to-day lives. Unprecedented challenges were cast upon the lives of everyone as well as governments that had to manage their country’s healthcare systems, societal systems and the economy, amidst a crisis. The same is to be said about the massive shift in behaviour and operations within the business landscape, with the impact of the pandemic being felt by numerous businesses and industries across the globe even at present.

Due to the pandemic, there have been drastic shifts to the way most companies and industries operate – ranging from healthcare to education to entertainment. In order to address the unexpected challenges that were caused by the pandemic, companies had to embrace agility, innovation and digital transformation by learning how to adapt to the situation at hand quickly and effectively. The same is to be said for the FinTech sector, which has been affected in several ways.

The Financial Impact of COVID-19 in Sri Lanka

The COVID-19 situation has been a difficult period of time financially, for Sri Lanka in particular. A vast number of people faced severe financial distress during the pandemic and have had to deal with the struggle of providing for their families, on top of the stress of being concerned about their health.

Amongst those who were financially affected were those who had lost their jobs due to unexpected company lay-offs as well as employees who experienced pay cuts during this period. Most laid-off employees also received extremely short notice regarding their employment termination, which only heightened their financial dilemma even further.

Companies that were forced to carry out lay-offs were those that were heavily impacted by the pandemic. Survival was at stake for many businesses and as such, implementing lay-offs was a reactionary measure that was done in order to stay afloat during the pandemic.

Some of the industries that were very badly hit by the pandemic were the tourism & hospitality sectors, owing to the massive decline in international travel amidst safety concerns and global travel restrictions across several countries and borders. With the tourism sector being one of the most important foreign income generators for Sri Lanka, it is needless to say that the decline in tourism has drastically affected the country’s economy.

Daily wage workers were yet another group of individuals who were severely impacted by the pandemic with the numerous lock-downs and travel restrictions that were enforced in the country. With most economic activities having come to a standstill, these individuals found themselves in a situation where they were unable to earn their daily income.

The Impact of COVID-19 on Sri Lanka’s FinTech Sector

Despite cash still being the country’s primary form of monetary exchange, the FinTech sector in Sri Lanka has seen steady growth over the last few years.The first FinTech products that were introduced to the country several years ago were digital wallet products that offered customers a wide range of payment options. By leveraging on technology, raising awareness and communicating the key message effectively to a completely new audience, the first FinTech entrants were able to successfully penetrate the Sri Lankan market.

Since then, the country has seen a growth in FinTech, with large parts of the population seeming to make a shift towards the convenience, safety and reliability offered by FinTech products and services. With the introduction of various digital initiatives, many barriers that once existed in the country’s local FinTech industry were gradually removed – providing customers the option of several financial services and products, without having to limit themselves to a single bank.

Though the pandemic was one of the major contributing factors for the acceleration in FinTech over the last two years, there were several other factors that led to the growth of FinTech in Sri Lanka. Several FinTech products are now allowing anyone to utilize their services, without enforcing restrictions as to who can be a customer. Interbank transaction fees are also being reduced and state banks are now providing customers their own FinTech products to carry out their banking transactions. This is a positive sign and the rise in FinTech can be expected to be seen in Sri Lanka even after the pandemic.

The Future for FinTech in Sri Lanka

Despite being a developing country, a social drive towards online systems and FinTech products can be expected in Sri Lanka after the pandemic. As such, it is essential to have central platforms ready in order to connect to global transaction networks, enabling easy regulation, monitoring and provisioning as a service.

FinTech companies should also start looking at penetrating Sri Lanka’s rural population – which comprises about 80% of the country’s total population – most of whom still depend on cash transactions. It is only after this population segment makes a shift towards the digital space that companies can truly work towards becoming a cashless society. With effective strategies to raise awareness regarding the many benefits of moving to digital – for customers as well as merchants in rural areas, experts believe that this can be possible in the not-so-distant future.

FinTech Trends That Can Be Expected Post-Pandemic

A number of trends can be expected in the FinTech space even after the pandemic. Some of them include:

  • An increased demand for FinTech products and services – with more discounts, offers and heightened customer service.
  • Widespread digital transformation will be a long-term trend as more and more businesses are eager to embrace technology and innovation in their operations.
  • A specific focus on peer-to-peer lending, invoice financing and crowdfunding is likely to be witnessed in the realm of FinTech.
  • Having gained momentum over the last couple of years, a growth in B2B FinTech is to be expected even post-pandemic.
  • Contactless payments will be the new normal. Government policies within the country will also be interested in creating a ‘cashless society’ as a long-term initiative.
  • A large increase in ecommerce and online payments due to the Sri Lankan market being more open to digital transaction options that were introduced to them during the pandemic.
  • More opportunities for tech start-ups, thus improving the country’s digital abilities.

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