The Central Bank of Sri Lanka has shortlisted three software development companies to develop a proof-of-concept (POC) for a shared know-your-client (KYC) platform using blockchain. The central bank aims to develop a blockchain-based platform that would enable the banking sector and the government to securely share and update customer data countrywide.
As per the report, the central bank initiated the project in November 2019, whereby it invited tech companies to develop the PoC for a shared KYC system voluntarily.
Using Blockchain to Help Banks and Financing
On June 30, the central bank’s Director of Payments and Settlements, D. Kumaratunge, spoke at an event in Colombo, the capital city of Sri Lanka. He said that they invited software firms to “develop a shared KYC PoC free of charge, as a national project.” He stated that both local and international responses to the project have been extremely encouraging and they are delighted to announce that they have finalized the selection of suitable applicants to start development shortly.
Kumaratunge disclosed that the central bank obtained 36 applicants for the project, including foreign tech companies. He said the central bank has finally approved three tech companies that would begin developing the PoC of a shared KYC system. Kumaratunge revealed that the development of the system is expected to take between six to nine months.
Once the PoC system has been completed, the developers are expected to submit a report to be evaluated by the central bank’s Payments and Settlements Department, which would then be submitted to the National Payment Council (NPC), and finally forwarded to the Monetary Board of the central bank for its consideration. Following the Monetary board’s approval, the central bank would then solicit proposals to select a company to implement the PoC.
Kumaratunge said that several banks have already agreed to join the project.
The Reserve Bank of Sri Lanka expects the potential benefits of the shared KYC platform to include lower administrative costs, increased efficiencies within the financial sector, more efficient onboarding of new customers, and increased financial inclusion in the nation.
The central bank recently enabled digital onboarding of customers, using digital KYC (know-your-client) to be verified by banks to ensure customers have access to their digital payment mechanism and bank accounts amid travel restrictions and unexpected closure because of the coronavirus pandemic in the country.
Blockchain Overcomes the Know-Your-Customer Hurdle
All financial providers have the responsibility to identify their customers and understand the risk such customers may pose before offering financial services. When the identification of prospective customers is difficult to authenticate or when potential customers lack formal identification, financial institutions cannot easily perform customer due diligence or verify their identities. This causes constraints on financial inclusion. Such constraints include expensive due diligence procedures and customer identification that render low-income customers unprofitable, thus constraining the size of viable markets as well as inconvenient or lengthy onboarding procedures that discourage potential customers from signing up for digital money services.
Blockchain can help to address these constraints. The technology can reduce compliance costs for financial providers, thus making it more profitable to offer services to low-income customers. The technology also can accelerate bank account opening, make it easier to conduct financial transactions, and facilitate digital money access, therefore making digital money more attractive service to prospective customers. The technology thus can assist in increasing the uptake of digital money services and boosting financial inclusion.