Trend away from cash as nation follows other countries
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When someone thinks of a cashless society, the Kingdom of Cambodia is one of the last places that comes to mind.
The 6.2 million foreign tourists that have visited this gem in Southeast Asia can attest that it is a country that likes cash.
While solid money is increasingly becoming an annoyance to tech-savvy individuals, Cambodians are not going to part ways with tangible riel or dollar in the near future. Old habits are hard to break.
However, the adoption of credit cards in the territory is on an upward trajectory.
This news is exciting because, according to a survey by the English language financial products investigation website Fortunly, the pervasiveness of card-based payment in the country is going to boost its already thriving financial technology (fintech) sector.
In support of the declining percentage of Cambodia’s unbanked population, which stands at about 78 percent, the use of credit cards can help promote financial inclusion and ultimately curb poverty.
End of surcharging
The four phenomena below suggests that more and more Cambodians are going to shop using credit sooner rather than later. Most Cambodians have not gravitated toward any form of non-cash payment for many reasons. Surcharging is only one example.
Merchants in the country actually disincentivise customers from wanting to swipe a credit card or even a debit card commonly found elsewhere.
Indeed, this practice has proven to be prohibitive. When users are burdened with extra fees, very few actually reap the many benefits that credit cards provide. But the status quo is about to change.
Credit card network giants Mastercard and Visa are on an educational drive to preach the beauty of card-based payment and end surcharging once and for all. Only then will Cambodians receive the rewards that come with credit cards.
Digitisation of payment
The payment ecosystem in Cambodia is modernising, slowly but surely.
The proliferation of smartphone sales in the country explains why fintech startups in this space sprang up like mushrooms after the rain.
With 8.5 million active smartphone users, many cities are being viewed as viable markets by disruptors in the financial services industry.
Leading the way is Clik, which is scheduled to launch its payments aggregator platform before the year ends.
The company conducted a large-scale feasibility study three years ago, which revealed that more than eight out of 10 Cambodians are open to making payments through mobile channels.
Research also shows that only 1.5 million smartphones in the country are used for such a purpose. Clearly, there is a large demand that remains unsatisfied.
Clik has a golden opportunity to fill the void this year.
But it has to contend with a myriad of other companies who also want to grab a sizeable slice of the pie.
The fierce competition among fintechs may be bad news for some startups, but it will give more choice to entrepreneurs who want to explore the doors credit can open and shift from tangible cash to digital money.
Popularity of credit scoring
When Credit Bureau Cambodia (CBC) was launched in 2012, it had the daunting task of introducing the concept of credit scoring in a largely unbanked country and promoting financial stability.
Over time, the private company, regulated by the National Bank of Cambodia, has proven to be instrumental in positively changing the psyche of the masses when it comes to money and credit.
CBC’s database is rapidly expanding. In 2016, the number of credit histories stored in its servers soared to 4 million with the addition of 400,000 more borrowers in the system.
Dependence on collateral
This figure does not represent the majority of the population yet, but it is already big enough to bear fruit.
Thanks to CBC’s wide range of credit scoring and analytical solutions, lenders are quickly decreasing their dependence on collateral to offset credit risks.
With the great availability of credit reports and credit scores of average consumers, creditors are feeling more confident in loaning without any security.
CBC is not alone in this endeavour. Agribuddy is a credit scoring fintech that specifically caters to farmers.
The company chose this demographic because it is infamous for having an unpredictable income and poor financial decision-making skills.
Apart from encouraging rural farmers to build their credit, the company also helps them to properly manage their finances. Despite their low educational attainment, many members of the agricultural industry that use Agribuddy are beginning to appreciate the value of credit scoring and learning how to reinvest loans in farming crops.
The more Cambodians that see the boon of credit scoring, the more they will trust other tools leaning towards financial freedom. Eventually, everyone will realise that it is much easier to build positive payment histories with credit cards.
Speaking of spending money without any collateral, the increasing number of qualified borrowers for unsecured loans in the country will give Cambodians the sweet taste of easy credit.
In a heavily cash-dependent society, the growth of unsecured lending can be an influential motivator for making purchases on credit.
The reward-based concept of credit scoring teaches everyday consumers financial discipline, which is a non-negotiable characteristic of a responsible credit card user.
Reshaping the nation
The stars are aligned for Cambodia to embrace card-based payment more deeply in the coming years.
Cash has been the symbol of security and convenience, but it is going to be dethroned by on-demand credit and digital money as fintechs reshape the nation financially.
From a world in which simple barter of goods formed the basis of enriching and benefiting societies to the development of cash in metal and later paper form, the arrival of credit cards proved to be revolutionary.
“Putting it on plastic”was for a while a common phrase uttered in restaurants.
However, the ease of access to credit – when people could spend more than they possessed financially – has often led to personal and economic catastrophes.
Governments now like to be able to control the amount of credit available at a national and international level to cope with the risk of inflation, people having their houses repossessed and other socially difficult scenarios.
This is something Cambodia will have increasingly to deal with as it moves into the world of credit cards.
This is in addition to the burgeoning world of financial technology (fintech).
In fact fintech has paved the way for credit cards.
Fintech is an innovation that aims to compete with traditional financial methods in the delivery of financial services to the general public.
It is an emerging industry that uses technology designed to enhance financial activities and is taking off in the Kingdom.
Fintech can be found in the use of smartphones for mobile banking, investing services and cryptocurrency (which are banned in Cambodia but widely available elsewhere.
Some fintechs are startups and some have been developed by existing companies.
Fintech companies are viewed cautiously by some financial regulators abroad such as issuing banks.
Data security is another issue regulators are concerned about because of the threat of hacking although credit cards also face problems.
Andriana Moskovska is a Contributing Writer, Capital Cambodia