The Continuous Professional Development Committee of the Association of Professional Bankers recently conducted the second Webinar of the series of Webinars which is part of the Annual Calendar of the APB. Webinar on  ‘Transformation from traditional banking to digitalization’ was presented by eminent personalities from the Central Bank of Sri Lanka; Namely, Mr. D. Kumaratunga,  the Director, Department of Payments & Settlements, and Mr. P. Senaratna from the Department of Payments  & Settlements.

The Webinar discussed Crypto Currency, its inception, advantages, and disadvantages. Cryptocurrency is another form of currency or an alternative to notes and a currency used as a medium of performing transactions. Cryptocurrency can take in the form of Digital currency, Virtual currency and electronic mediums of performing transactions. Virtual currency is unregulated and decentralized. Cryptocurrency was first introduced in 2008 by ‘ Satosi Nakamoto’, it is not known whether this was a person or an organization. Currently, there are over 10,000 types of cryptocurrencies introduced by various parties. However, Bitcoin being the first type of Cryptocurrencies to be introduced leads the market with over 46% of the market share in cryptocurrency. The objective of introducing a cryptocurrency back in 2008 was to make payments efficient with no transaction cost, to make instant payment and to be independent of any regulation.  The initial narrative of cryptocurrency had a limited issue of USD 21 million. However, today, the narrative of cryptocurrencies has changed from a medium of payment to an instrument of “Investment”.

Cryptocurrencies have its barriers as well. The biggest threat is the frauds that can occur through scams. In addition to the technological risk, the risk of non-regulation, lack of knowledge of the users, price volatility, and uncertainty are the major drawbacks in the progress of adopting to cryptocurrency by economies the world over. Fraudulent cryptocurrency schemes are soaring and the US consumers have lost over USD 80 million since October 2020 to July 2021. Since regulatory monitoring is not available there is no recourses for legal protection. Despite all these risk elements, there are over 10000 types of cryptocurrencies people are investing in currently.

Digitalization has become ever more important in the current context. The main requirement in digitalization is trust.  A gradual build-up of trust is visible towards digital systems in the market. Though the systems need complex programming and Artificial Intelligence, the user interfaces require being simple and accessible to regular consumers. Digitalization has transformed the traditional Brick &Mortar Banking into an “Anytime Anywhere” Banking model. However, from the regulatory perspective, technology can create new and unforeseen risks to customers, and it is essential that the service-providing Bank is adhering to strict compliance with the regulatory framework to ensure the safety of its customers. Regulators the world over utilize technology such as  Advanced Analytics, Robotic Process Automation, Cognitive Computing and the Cloud facilities to ensure that the service providers are adhering to regulatory frameworks. The future of digitalization is “Open Banking” which is the key to digital development that would be witnessed by the Sri Lankan banking customer. Open Banking is a concept where the customer is directly linked with Third-party tech providers. It provides a consolidated view of the financial position of a customer across numerous financial institutions through a single platform. Digitalization adds value by allowing the non-bank sector to access customer data.

In Sri Lanka Central Bank of Sri Lanka (CBSL) would have a digital banknote or an electronic equivalent of cash similar to those researched and issued by most leading central banks the world over as a regulated digital form of currency. CBSL too would introduce Central Bank Digital Currency (CBDC) which would be a regulated currency. CBSL intends to introduce two types of CBDC, retail CBDC for retail transactions and wholesale CBDC to financial institutions. There will be no manual process of documentation and it is expected to help drive financial inclusion, innovation, enabling faster, cheaper, cross-border transactions for the economy.