In recent years, fintech has provided a boost to transform the economy of Sri Lanka. As India goes through digital transformation, two fundamental areas are set to evolve the country’s future fintech growth — digital identity and electronic Know Your Customer (e-KYC).
Though these terms may sound technical but their impact is wide-ranging including how a person gets a bank account, how a small business gets access to credit or insurance, and so on.
An individual’s digital identity is essentially a way for people to prove who they are in the digital realm. It is much more than a physical document, such as a national ID card or passport. It isn’t just secure and verifiable; it’s often biometric-backed, and that’s useful for accessing financial services from afar. When combined with an efficient e-KYC mechanism, it allows financial service providers to verify customer identity without any physical paperwork, which lowers the onboarding time from days to minutes.
Why digital identity matters
A huge part of the population in Sri Lanka especially in rural areas or not officially served still have no access to formal finance. Many are unbanked or underbanked, not due to lack of demand, but due to the paperwork and expense of traditional KYC.
It used to be that opening an account at a bank or signing up for insurance required going into a branch several times, and filling out paper applications, printing documents, giving certified copies and doing physical verifications. The process became a barrier to financial inclusion for those lacking access to reliable transport, digital skills, or steady income.
To mitigate this issue, a common identification linked with biometrics and government data is being proposed.
This helps service providers approve applications online, disburse loans, sell insurance and allow micro-invests on an immediate basis without any face-to-face contact. In a post-pandemic world, a digital-first solution is not considered a luxury but a necessity.
Quick, safe, and scalable
e-KYC is the digital version of traditional KYC, being the use of technology to verify a customer’s identity which includes facial recognition, fingerprint matching, and document scanning. Basically, a person can open a digital wallet or get a loan by simply sending a photo of their ID and selfie via a mobile phone.
The manual processing time and costs could be significantly reduced with this method. It audit trail and supports regulatory compliance very importantly. In a space where trust is critical, e-KYC fosters transparency and helps prevent fraud which is often an escalating challenge in the digital world.
Sri Lanka’s financial regulators have taken significant steps towards ensuring a secure digital ecosystem. The intent is to digitise citizen services through national digital identity initiatives which will ease the e-KYC process in banking, insurance and fintech.
Challenges
While the vision is promising, challenges remain. Digital literacy and accessibility is the first and foremost challenge. For e-KYC to be inclusive, the process must be easy to understand and navigate, even for those with minimal education or smartphone experience. User interfaces must be intuitive, multilingual and support local dialects.
Next, privacy, as well as data protection. The systems for biometric and identity data protection must be sufficiently secure, including security systems. Citizens must be assured that their data is protected, stored securely, and not shared without consent. As the Government and regulators make an effort to create, and scale up, digital identity systems, one thing must not be lost sight of – a strong data privacy law that is enacted and enforced in line with international standards.
Most Importantly, third, interoperability and standardisation across providers. Incompatible systems in various institutions will lead to fragmented digital identities that compromise the objective of seamless financialisation. Thus, there is a strong need here for public-private partnership for open standards, so everyone speaks the same digital language.
Innovation
In future, blockchain-based digital identities and AI-powered fraud detection can help e-KYC solutions in Sri Lanka become more reliable and scalable. Using decentralised systems, users may potentially control their digital identities instead of relying solely on centralised databases. The innovations in identity verification are still being worked on, but they promise to be more secure and user-friendly.
Likewise, there is a possibility of merging the digital ID systems with government welfare schemes, tax platforms and national registries, thus creating a unique, secure and efficient ecosystem enabling realtime eligibility check and faster service delivery.
Digital foundation for financial inclusion
Fintech growth in Sri Lanka depends heavily on a solid foundation. Digital identity and e-KYC are allabout inclusion, trust, and transparency, but not technological advancement. They empower people, help small companies and support the digital economy by making financial services easy to access.
As a nation travelling towards the digitally empowered society, these building blocks will be critical. Being about technology alone; it is about giving dignity, access and opportunity for all Sri Lankans.
