FinTech set for take-off

Financial services based on digital technology are poised to bring the convenience of mobile banking to millions in a country where few have a bank account.


WaveMoney, a joint venture between mobile phone service provider Telenor and Yoma Bank, has been field-testing the Myanmar market’s readiness for mobile banking for more than six months.

Its activities have included circulating photocopies of smartphones to see if farmers can understand such digital age concepts as “swiping”.

The joint venture’s staff have been impressed at how quickly farmers “get it” when it comes to mobile phone technology, said Ms Vibeke Krohn, head of sales, marketing & distribution at WaveMoney. 

Farmers and the rural population comprise 70 percent of the country’s 52 million people. The extent to which they “get it” could determine how quickly financial inclusion is achieved in under-banked Myanmar.

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Field tests like those conducted by WaveMoney are a requirement set by the Central Bank of Myanmar for those seeking a licence for telco-led mobile financial services. Their products are referred to in the industry as FinTech – a broad term that covers relatively new financial services based on digital technology.

In Myanmar, the potential for rapid uptake is clear. Fewer than 20 percent of the population hold bank accounts but more than 60 percent own mobile phones, of which 80 percent are smartphones, industry sources estimate. But FinTech solutions pose both a threat and opportunity to the banking sector.

After five decades of military rule, Myanmar citizens have little faith in the formal financial system. Former military strongman General Ne Win nationalised the banks in 1963 and implemented three “demonitisations” of the kyat during his rule, in 1964, 1985 and 1987, effectively wiping out people’s cash savings, which has led to a widespread distrust of banks.

Myanmar’s banking crash of 2003 further undermined public confidence in the formal financial sector. The crash saw runs on banks, the closure of several institutions and a lost decade for the domestic banking system. Since the crash, all Myanmar banks have had to report their borrowing and lending figures daily to the Central Bank, which might explain why most banks close for business at about 3pm.

With little public trust in the formal banking sector, most Myanmar people keep their savings in cash. That might be changing.

“People felt that the banks were too close to the government, that’s why people didn’t trust banks,” said Mr Tim Scheffmann, a former advisor to the Central Bank who chaired the FinTech & Agent Summit in Yangon on May 17 and 18. “Now we have a new government and I believe that [distrust] will slowly fade away,” Scheffmann said.

Myanmar banks arguably entered a new era back in 2011 with the advent of the semi-civilian rule of President U Thein Sein, who paved the way for political and economic reforms. Financial reforms culminated in the Banking and Financial Institutions Law of Myanmar were pushed through parliament in February. It was swiftly followed by a Mobile Financial Services regulation signed by the Central Bank on March 30.

Both the law and the regulation have been generally welcomed by the banking and non-bank financial sectors. It is still unclear if the National League for Democracy government will follow up on the financial legislation. However, as NLD MPs endorsed the BFILM and party policy emphasises financial inclusion, no major backtracking is anticipated.

The MFS regulation was eagerly anticipated by FinTech providers such as WaveMoney because they had been in legal limbo.

FinTech providers were previously subject to the Mobile Agent Banking regulation which stipulated that all financial channels dealing with direct cash transfers be bank-led. Avoiding Yangon’s nightmarish traffic is one reason why the service has proven popular among urban customers and banks.

“The lowest growth we’ve seen is 10 percent increases a month, but in the upper end the players are seeing growth of 45 percent month on month. It’s staggering,” said Mr Patrick Kershaw, investment director of Leo Tech. “All the big banks work with us,” he said.

ConnectNPay spent two-and-a-half years helping to digitalise the payments systems at state entities such as the Yangon Electricity Supply Corporation to pave the way for its service. It charges a percentage fee on the telecom transfers on its billing aggregate platform but never actually handles the cash flow.

WaveMoney is slightly different. Under the MFS regulation it could be permitted to handle actual cash transfers without going through a bank. With the assistance of 3,000 of Telenor’s 60,000 agents nationwide, WaveMoney will allow the mobile phone provider’s 15 million users to transfer money domestically, from say, Yangon to a remote village in Shan State, from person to person, without going through a bank.

Companies could use the service to pay salaries. Once they received an encrypted message, employees could go to the nearest Telenor agent and cash the transaction. WaveMoney will also allow airtime top-ups between mobile phone users, a service already provided by the ubiquitous Red Dot Network, another FinTech.

Where WaveMoney differs from Red Dot is that it plans to deal in actual cash, provided it receives approval from the Central Bank. The joint venture hopes to be able to offer its clients savings, credit and insurance products (about 0.5 percent of the Myanmar population holds an insurance policy). “These products will be developed with partners and many of them with Yoma Bank as our key partner,” Krohn said.

Although WaveMoney might accept deposits from clients, it could not pay interest on them. For that, clients would need to open a savings account at Yoma Bank, which is why Yoma entered the joint venture. The service essentially allows Yoma to use Telenor’s 15 million customers and 3,000 designated agents as a national network to attract new bank clients for deposits and eventually loans.

On the Telenor side, WaveMoney appreciates having Yoma on board because it provides liquidity and cash management to its network. “They’ve developed a really strong cash management process that assures that our distributors are liquid and they can seamlessly move money in and out of their Yoma accounts,” Krohn said. For medium-sized Yoma Bank, with 60 branches nationwide, WaveMoney will offer it a vast agency network that other Myanmar banks still lack.

KBZ Bank, Myanmar’s largest commercial bank, has about 363 branches throughout the country, nearly a quarter of all private bank branches nationwide.

Even training and setting up agents, who can act as providers of basic commercial bank services, can cost a lot, as do land prices to establish branches. It is no wonder that many banks regard FinTech as a threat.

“In a nutshell, FinTech provides something that was unexpected,” said U Aung Aung, IT advisor for Myanmar Citizens Bank. “It’s simple, it’s focused, it’s affordable and accessible.”

Although the banks may be worried, whether the telco-led FinTech providers will be allowed to take off remains to be seen.

Under the MSF regulation the Central Bank decides whether to licence a FinTech product. “The MSF came out on March 30 and we put our application in very quickly, and the Central Bank has 90 days, under the new regulation, to approve,” said Mr Brad Jones, chief executive of WaveMoney. “The industry won’t start until the first registration certificate is released,” he said.

When telco-led FinTechs launch on the market it is not yet known if their services will attract customers. Although mobile banking has proven to be hugely popular in countries such as Kenya, it is still unclear if it will be similarly accepted in rural Myanmar, where cash has been king for decades and remains popular.

“Myanmar being a safe place, it’s not so dangerous to carry cash around,” said Mr Paul Luchtenburg, a financial inclusion expert at the United Nations Capital Development Fund. There is also the well-established, informal cash transfer network known as hundi, that is both reliable and fairly cheap, he said.

Title photo: A vendor looks at her mobile phone as she waits for customers at a Yangon street market. (Ye Aung Thu / AFP)

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