In a surprising announcement, the Sri Lankan central bank has made a public appeal for developers who can help build a proof of concept blockchain for a KYC system to be used across the country’s financial institutions. The government believes this can help the financial sector tackle several inefficiencies that have been a hindrance to thus far, reported by PYMNTS, December 3, 2019.
Blockchain for Ease of Financial Activity
The notice put out by the Sri Lankan central bank requests technology providers with a minimum of 2 years of proven experience building mobile applications to apply to help the financial sector wipe out inefficiencies in KYC. Whichever company is selected will be expected to work closely with Sri Lanka’s financial information technology industry.
Corporate adoption aside, this is the first instance of a Sri Lankan government arm openly advocating for the use of blockchain and acknowledging the value proposition of a shared financial network.
As the network will be used to facilitateof KYC information across financial institutions, it is likely to boost risk management practices and help identify serial defaulters to halt fresh credit lines to these entities. Shared KYC data is a grey area, but this is a push coming directly from the banking regulator.
Sri Lanka has seen very slow growth in financial innovation as old habits die hard within the country. However, many new startups within the country’s FinTech ecosystem are a bright spot for future adoption.
Blockchain Doesn’t Solve Everything
An aspect of paramount importance that not many seem willing to discuss is the drawbacks of using distributed technology. Having personal data of millions of people on one shared database is a cause for concern, as a small leak from anywhere across the stack can lead to mass vulnerability.
The central bank’s claim that this is expected to boost financial inclusion is laughable. A KYC database will only encompass everyone who already has a bank account; not every citizen. So how does this even skim the massive issue of financial inclusion in emerging markets?
The truth is that technology like this helps the banks and insurance companies cross-sell products across different customer bases, and makes internal processes and risk mitigation much simpler. For institutional level blockchain, the benefits lie with the institutions, not the people.