Sri Lanka’s Digital Payment Reform: Card Fees & QR Payment

Sri Lanka’s policy makers are reviewing the cost of digital payment. The government is considering removing the extra fees charged on debit and credit card transactions while also driving a national shift toward QR-code based mobile payments. This move, now under discussion between the Finance Ministry, the Central Bank and the Inland Revenue Department, is intended to speed up the transition to a fully cashless economy and ease the burden on both consumers and merchants.

Background: How Card Fees Work Today

When a customer pays with a debit or credit card, the merchant’s bank typically pays a small percentage of the transaction value to the card network and recovers part of that cost through a per-transaction fee. Although the absolute amount is small often a few rupees per purchase these charges accumulate across thousands of transactions. For small businesses with tight margins, or for consumers who make frequent low-value purchases, the cost is significant over time.

Sri Lanka’s current structure reflects global practice. Interchange fees and merchant discount rates are standard worldwide. Yet many governments have intervened to cap or remove such fees to encourage the use of electronic payments. The new proposal under review seeks to replicate that approach in the local context.

Policy Objectives

The Finance Ministry’s initiative has two broad goals:

• Reduce the cost of digital payments so that card use is more attractive than cash.

• Promote QR-based mobile payments as the next stage of the country’s financial-technology development.

Both objectives support a wider digital-economy strategy. Increasing the volume of traceable, electronic payments can improve tax compliance, reduce the risks and costs of cash handling, and broaden financial inclusion.

Potential Benefits

1. Consumer Savings
   Eliminating fees would reduce the effective cost of paying by card. For households that rely on cards for groceries, fuel or utility payments, the annual savings could be meaningful. Even small daily purchases; coffee, snacks, bus tickets would become cheaper if merchants pass on the savings.
2. Greater Financial Inclusion
   Lower costs remove a key barrier to electronic payment adoption. People who currently avoid cards or mobile apps because of fees would have an incentive to switch. This is important in rural areas where cash remains dominant.
3. Boost for the Digital Economy
   A frictionless payment environment encourages merchants to invest in e-commerce platforms and mobile apps. More transactions through formal channels strengthen the financial system and can raise government tax revenue over time.
4. Alignment with Global Trends
   Countries such as India have shown how low-cost QR code systems can transform consumer behaviour. India’s Unified Payments Interface (UPI) now processes billions of transactions monthly because payments are effectively free. Sri Lanka aims to replicate this momentum.

Challenges and Risks

The benefits come with significant hurdles.

• Loss of Revenue for Banks and Networks – Card issuers and merchant acquirers depend on transaction fees for a portion of their income. Removing them will squeeze margins unless alternative revenue streams are found. Banks may need to introduce subscription models or increase other service fees.

• Fiscal Impact – If government compensates providers to offset lost income, the policy could impose a direct cost on the public budget. The design of any compensation mechanism will influence the overall economic effect.

• Operational Complexity – Policymakers must decide which fees to remove; merchant discount rates, interchange fees, or both and whether the change applies to all card types. Clear definitions and a phased implementation will be necessary to avoid market confusion.

• Security and Fraud – Higher digital transaction volumes create more opportunities for fraud. Regulators will have to strengthen cybersecurity standards and ensure consumers understand how to protect personal data.

Read “Sri Lanka’s FinTech Momentum in 2025: Can the Country Deliver on its $100 Million Investment Goal?” Here.

QR Payments as the Next Step

While removing card fees will help, the government also wants to leapfrog into QR-based mobile payments. QR codes allow customers to pay by scanning a merchant’s code with a smartphone. The technology requires minimal hardware investment and is particularly suited to small merchants.

For QR adoption to succeed, several conditions must be met:

• Reliable mobile and internet coverage so payments can be processed quickly.
• Low-cost merchant onboarding, with simple registration and compliance procedures.
• Consumer education on how to use QR apps safely and avoid scams.
• Interoperability standards, so different banks and apps can communicate seamlessly.

The Central Bank has already launched the LankaQR initiative to set common standards. Removing card fees would complement this effort by creating a unified, low-cost digital payment landscape.

Stakeholder Implications

Lessons from Other Countries

Several countries provide useful models:

• India: UPI’s zero-fee structure encouraged rapid adoption. Government initially subsidised costs but is now exploring long-term funding mechanisms.

• European Union: Caps on interchange fees lowered merchant costs but banks responded by introducing annual card fees and cutting rewards.

• China: QR-based payments dominate thanks to Alipay and WeChat Pay. Government oversight ensured interoperability and consumer protection.

These cases show that removing fees can work but often shifts costs elsewhere. Sri Lanka must anticipate such second-order effects.

Next Steps and Timeline

The review is still at the discussion stage. Authorities will need to:

• Conduct a full cost-benefit analysis of fee removal.
• Design a compensation or funding mechanism to keep banks and networks solvent.
• Prepare a regulatory framework for QR payment expansion.
• Launch a public awareness campaign to build trust and explain the new system.

If a decision is reached in the coming months, a phased roll-out starting with high-volume urban merchants would allow regulators to monitor the impact before nationwide expansion.

Outlook

A successful policy will lower transaction costs, widen access to digital finance and position Sri Lanka closer to regional leaders in fintech. But the transition must be carefully managed. Without strong oversight, banks might introduce hidden charges or cut services to recover lost revenue. Cybersecurity will also require constant attention.

Sri Lanka’s move signals a recognition that cashless transactions are no longer optional in a modern economy. Whether through cards or QR codes, digital payments can increase efficiency and transparency. The next year will reveal whether the government can balance consumer benefit with financial-sector stability.

Check out the latest article – “Sri Lanka’s Economic Outlook: Steady GDP Growth and Forecasts for 2025”