Suresh asked, “Albert Uncle, do you have any advice on how to invest my savings for the future?” The answer he got was, “Suresh, just collect your savings and make a Fixed Deposit at the bank!” This has been the go-to financial recommendation for decades. It would be normal to see Suresh call or visit different banks and websites to check his options. Sri Lanka, although having a high adult literacy rate of 91.7% (in 2018), is not as well off when it comes to financial literacy. The attitude towards investment is either to invest without any research or with just a little research (speaking to friends or relatives).
“This is why people invest all of their money in unregulated financial institutions and lose all of their money. They can’t differentiate between regulated and unregulated institutions. Neither do they understand the risks associated with investing, even with established institutions like banks,” observes CEO of Fipbox and GoCredit, Kalana Meneripitiya.
One may choose the best option through luck at times, but when investing hard-earned money or life savings, vigilantly reducing risk and making an informed decision is always better. The same also applies when applying for loans and seeking credit whether it be to build your dream house or dealing with an emergency. These are the challenges, which Fipbox, a member of the initial batch of startups accepted into the HatchX fintech accelerator has chosen to tackle. It aims to do so through its flagship platform for fixed deposits and the GoCredit platform that aims to help you find the best loans for you.
Many of us may not think twice about putting our money in the bank. The general idea being that, ‘My money will be safe if I keep it in a bank.’ However, this is far from the truth. A depositor essentially lends his or her money to the bank so that the bank can take risks with it. As a thank you for trusting them, the depositor receives some interest. In most cases, as with established banks, everything works smoothly.
However, if you’re not careful then you can end up losing your hard-earned life savings. Examples of the public losing billions of rupees investing in substandard institutions such as with Sakvithi Housing and Construction and Golden Key, among others, give testament to the public’s lack of knowledge in the financial market and its workings. Many people are unaware that when a legitimate institution collapses, the maximum payout (as per the deposit insurance scheme) will only be 600,000. Shockingly, this same reimbursement applies for investments of 1 mn or even 100 mn.
From such instances, the perception emerged that, ‘A bank is the safest place to keep money because finance companies are not secure.’ This widespread generalization within society influences where people invest; some may even avoid finance companies connected to reputed banks (e.g. Sampath Bank over Siyapatha Finance). This is a reality in spite of independent bodies such as Fitch and ICRA publicly rating the stability and credit quality of registered financial institutions. Some creditworthy finance companies even give better rates than banks – which means that depositors who generalize stand to lose out on interest earnings.
Commenting on this perception, Kalana said, “People are losing out on potential earnings. This again is a clear indicator of Sri Lanka’s low rates of financial literacy. The information about different financial institutions is out there for everyone to see. But not everyone can understand it. That’s why we created a single hub where consumers can easily find this information in a easy-to-understand format.”
Too Much Hassle
Opening a Fixed Deposit or obtaining a loan is a tiresome task for most as it includes visiting a bank and dealing with long forms. Yet, it is required by law that the officials of the institutions carry out their customer due diligence, a process formally known as Know Your Customer (KYC). Regulatory bodies have not yet approved digital onboarding for deposit customers unless the customer has an existing account with the institution.
Due to the effort needed, the standard is to invest a large sum in one go even though the minimum required deposit may be as low as 10,000 rupees. In a world of social distancing and limited physical interactions, if processes were made easier, we would see higher growth in savings through more frequent small investments at stable institutions that offer good rates. This would essentially mitigate or even sidestep the issues of security, prejudice and inconvenience.
“Picture being able to view your investing options and then selecting the one ideal for you – much like you would when planning a vacation. Our focus is to leverage technology to empower financial institutions to offer this level of convenience to their customers,” said Kalana describing the philosophy of Fipbox after recognizing the bottlenecks in the system.
Thinking Inside the Box
Fipbox is a product of the new generation of fintech startups and mentored by HatchX (the country’s first fintech accelerator). It is an online marketplace for FDs and loans that also plays the role of financial educator and mythbuster. The team behind is composed of the top-level leadership from Capital Alliance Group as well as the founder of Orion City, Jeevan Gnanam, on board as a strategic investor, and aims to make the financial sector function better while staying within its current guidelines.
When using Fipbox, a customer creates an account by filling in his details. The ideal FD can be picked from a lineup of products displaying information such as credit ratings, deposit periods and interest rates from various banks and finance companies (over 20 institutions are on board with them currently). Future FDs and even loan applications can be done directly through their integrated platform (GoCredit) using the details saved on the customer account.
If required, a representative from the institution will visit to obtain a physical signature. FD creation ‘in 3 clicks’, a history of user activity, financial advice and relevant news such as alerts when institutions lose their credibility are some of the features offered. For users with pre existing loans where current rates are lower, they will even advise on how to reduce the loan’s cost (which is advice that institutions will not provide). With usage on multiple devices, sessions services are fast and convenient (under 5 minutes). Plus, it’s free.
A Synergistic Mentality
The philosophy of Fipbox is more about connection and bridging gaps beating any competition. This ideology is in line with the spirit that the accelerator program encouraged while providing support via thought leaders versed in financial markets around the world. The startups themselves worked together during the program, enhancing and improving each other. Kalana Meneripitiya, the CEO of Fipbox points out, “When a banker needs advice, he’d ask a senior banker.” But for a trailblazer, finding a relevant expert in the field is the needle in a haystack – and sometimes, there is no needle. With the counsel and guidance they received, the Fipbox team pivoted toward the correct revenue generation models and now tries to address the pain points of financial institutions.
Due to factors including societal bias, the country’s investment distribution statistics show that a few institutions have the major part of the deposit market; leaving only a sliver of pie for the rest. High competition, tightly regulated policy rates, regulator approvals being required for advertising, low marketing budgets and the sector’s painstakingly slow adoption of regulatory technology and digital infrastructure (compared to other sectors and global trends) are some of the troubles that financial institutions struggle with.
While tackling these issues, attracting and connecting with clients is a tough job for both banks and finance companies. Fipbox (equipped with their knowhow, user base and reach of 800K) assists here by attracting potential customers, doing necessary checks and supporting them to make effective loan applications. Fipbox provides qualified lead generation services to institutions which cut acquisition costs.
Although they earn from institutions and not from customers, Kalana stressed, “In order to get mutually beneficial business, consumers should be protected and safeguarded. This is why we also offer important alerts of happenings within the financial sector. While improving financial literacy amongst the public, we play the role of the watchdog in a bid to protect them from financial harm.”
Today, Fipbox has a user base that is 43,000+ strong. With its proliferation, Fipbox aims to add all reputed financial institutions on its platforms and negotiate better rates for its customers. Kalana adds that another highly-anticipated development on horizon is Blockchain KYC. In July 2020, the CBSL entered agreements to develop such a KYC system. “This will allow the secure storage of KYC information and make it readily available to financial institutions with customer consent. In turn, offering a higher level of freedom for all parties involved in the financial sector,” states Kalana.
The necessity and inevitability of digital banking has been reinforced by the pandemic. Kalana adds that the digitalization of the sector puts Sri Lanka on a trajectory to create a cashless payment economy; where even betel vendors on the street can accept payment via QR code. As amusing as this advancement sounds, in order to give people the power to easily build assets for their future and reach the standards of other developed financial markets, we still have a long path ahead of us. Fortunately, it seems like today’s innovative fintech entrepreneurs will be playing an eager part in it.