In February 2025, Sri Lanka introduced GovPay, a centralised payment platform to digitise government-related services and collect revenue, with the aim of promoting secure, convenient and transparent transactions. With the country still heavily cash-dependent, accountants view the move as a progressive step towards Sri Lanka’s digital transformation.
The reluctance of small businesses to move to digital payments is driven by a mix of economic, technological and cultural factors, according to Sarala Kodagoda, a tax partner at Deloitte Sri Lanka. She points to the many small businesses operating within the informal economy – World Bank data suggests that around 70% of the country’s workforce is employed informally – where cash transactions help them avoid having to produce formal financial reports.
‘Many small businesses fear greater tax scrutiny’
Kodagoda adds that making payments through digital channels leaves a clear, transparent record, which makes it easier for authorities to trace income levels and the source of transactions. It is something that, in turn, ‘increases perceived tax liabilities’.
Thadsajini Thavachselvam, finance manager at the non-profit Dabindu Collective, who often works with small businesses and community groups, agrees. ‘Many small businesses fear that digital transactions will automatically expose them to greater tax scrutiny, which makes them uncomfortable moving away from cash,’ she says.
Infrastructure and trust
High digital transaction costs are another big barrier for small and medium-sized enterprises (SMEs). Additional charges such as payment gateway subscriptions, card processing fees and mobile wallet costs can quickly add up. Kodagoda points out that while merchants in Sri Lanka are not legally permitted to charge an extra transaction fee (usually 2.5%–3%) on credit or debit card transactions, even a small fee can be a burden for businesses with low profit margins.
And while mobile penetration is high in Sri Lanka – a 2025 report by Global Digital Insights put the number of active cellular connections at 29.3 million, equivalent to 127% of the country’s entire population – internet reliability and network coverage remain weak in rural areas. Power outages, mobile network disruptions and limited availability of point-of-sale devices further hinder digital transactions.
Trust plays a role, too. Dilum Samaranayake, an accountant at Sparkle Solar Systems, points out that some Sri Lankans have a strong preference for physical cash. ‘They have very little trust in how online platforms and mobile wallets operate,’ he says.
‘They have concerns about fraud, scams or technical glitches’
The preference is particularly common among older generations and the less tech-savvy. ‘They have concerns about fraud, scams or technical glitches,’ Kodagoda says, attributing their worries to limited financial literacy. Cash feels both familiar and secure for frequent purchases such as groceries and transport.
Samaranayake highlights Sri Lanka’s lack of promotional campaigns and incentives for cashless payments. Meanwhile merchants in India are incentivised to switch to digital payment methods, with the carrots including subsidies for the purchase of point-of-sale terminals and tax incentives.
‘Government efforts across India to expand supporting infrastructure have helped create a more conducive environment for the growth of digital payments,’ Kodagoda says. In contrast, Sri Lanka currently has ‘fewer strong incentives or policy-driven motivators’ that would drive ‘businesses and consumers to shift from cash to digital payment methods’.
Expert guidance
Practitioners can help support both SMEs and the public sector in pushing for a cashless economy in Sri Lanka. There is a need, Kodagoda says, to ‘shift the perception of businesses, highlighting that digital payments are secure, efficient and growth-enabling’.
They can also advise the government on how to encourage people to use digital payments while facilitating partnerships between SMEs, fintech companies and state agencies. ‘Their expertise can help ensure that government policies are practical and aligned with the real challenges businesses face,’ Kodagoda says.
Both Thavachselvam and Samaranayake believe that raising awareness is key. Practical workshops and community-based training programmes for small business owners can help them understand how to set up and use digital payment platforms. Awareness campaigns conducted through local chambers of commerce and community organisations can explain the benefits of digital payments, including improved financial transparency, easier bookkeeping and better access to formal financial services such as loans or credit.
Practitioners can help SMEs set up digital wallets
Thavachselvam says practitioners can conduct financial literacy sessions and develop simple guides or toolkits in local languages to explain digital payment systems. They can also help SMEs set up digital wallets and obtain loans or credit lines to facilitate the use of digital payment channels.
Building awareness will prompt small businesses to utilise cloud-based accounting software that integrates with digital payment platforms, Kodagoda says. Practitioners can assist businesses in setting up automated systems for e-invoicing and receipts, which will make ‘digital payments easier and more efficient to manage compared to cash transactions’.
The way forward
Pilot programmes and incentive schemes could also be useful. ‘We are already seeing this,’ Samaranayake says. ‘If you pay your mobile bill online, some merchants already provide a small discount.’
The government, too, could temporarily reduce transaction fees or provide tax incentives for SMEs that adopt digital payment systems, which ‘would encourage businesses to try the system and gradually become comfortable using it’, Thavachselvam says.
‘When cashless is mandatory, people become familiar with it’
The professional expertise and credibility of practitioners would ‘help alleviate fears related to technology’, Kodagoda adds. They can educate people in cybersecurity, fraud prevention and digital payment safeguards.
Practitioner encouragement of voluntary compliance programmes paves a way for small businesses to move progressively toward more transparent financial reporting and switch to cashless payments.
Recently, there has been a significant push for GovPay to be used for government transactions, including traffic fines. ‘When it’s made mandatory, people gradually become familiar with these systems,’ Samaranayake says. ‘And teaching digital economic tools needs to start at school.’
