Fintech to promote financial inclusion and end to poverty

Sok Chan

Drive to bring more people into high-technology banking system

Drive to bring more people into high-technology banking system

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Financial inclusion is recognised as an important vehicle to promote inclusive growth and poverty reduction.

Much progress has been made in the sector, but gaps remain large in many parts of the world, including Asia and the Pacific, according to the International Monetary Fund’s (IMF) Financial Inclusion in Asia-Pacific report.

The IMF says about 47 percent of the adult population in low- and middle-income countries still do not have a bank account and only 9 percent of the population borrowed from formal financial institutions in 2016.

Women and young adults (aged 15 to 24) often face even greater challenges in accessing financial services, while, many micro, small, and medium enterprises (MSMEs) and farmers face limited access to credit and often rely on informal markets for finance, at high costs. Lack of access to formal finance leaves poor households more vulnerable to adverse shocks and poverty traps, based on IMF findings.

Remote areas

In Cambodia, the total de facto population on March 3, 2019, stood at 15.288 million people. However, around 50 percent of the population has access to at least one financial service: either a bank account or borrowing account, an insurance account or an electronic wallet (e-wallet) account. For the past 20 years, the National Bank of Cambodia (NBC) has been leading the effort in bringing the financial services to remote areas.

The NBC’s report in the first half of 2019 shows that outstanding deposits in the banking and finance sectors increased to 6.8 million accounts, while 3 million people had outstanding loans in them in the same period. On top of that, customers using the payment services numbered 4 million people.

Access to financial services is identified as one of the enablers for poverty reduction or eradication that was set out in the United Nation Sustainable Development Goals paper. Cambodia’s economy continues to grow in a stable manner and the efficiency of the financial system to support this is critical. Once the financial sector in Cambodia starts to develop more with double-digit growth annually, the number of Cambodian people with access to these financial services will remain limited.

Wide payment options

Financial inclusion is defined as the access to and use of formal financial services and its aim is to boost growth and reduce poverty and inequality by mobilising savings and providing households and firms with greater access to resources, according to the NBC.

The NBC says in the past few years financial technology (fintech) has caught the world’s attention by offering wide options on payments, which are choices to traditional means of payment. Fintech has provided a lot of advantages by promoting payment services to be more effective, through lower costs, acting more speedily and creating higher integration, as well as helping deepen financial inclusion and supporting economic growth.

Favourable conditions

In the context of Cambodia, fintech is still in the early stage of development.

The NBC has provided favourable conditions for such technology to be offered in the banking sector such as the use of mobile payments, QR codes and e-wallet accounts in domestic and cross-border payments and transfers.

Fintech is also making financial services and products more accessible, more affordable and more efficient and cheaper to individual users, said Chea Serey, director-general of the NBC, at the Building Global Fintech Connections: Singapore with Cambodia event, on July 29.

Routine cash payments

“In this sense, the National Bank of Cambodia has been keeping an open-minded and pragmatic policy when it comes to innovative ideas and technology that can help us to achieve a financial inclusion agenda,” she added.

The Global Findex Database 2017 reports that to ensure people benefit from digital financial services requires a well-developed payments system, good physical infrastructure, appropriate regulations and vigorous consumer protection safeguards.

By moving routine cash payments into accounts, governments and businesses could help dramatically reduce the number of adults without bank accounts. Governments make several types of payments to people: paying wages to public sector workers, distributing public sector pensions and providing government transfers to those needing social benefits, according to the report from Global Findex, the world’s most comprehensive set of data on how people make payments, save money, borrow and manage risk.

“Digitising these payments could reduce the number of unbanked adults by up to 100 million globally. Many of these adults have the basic technology needed to receive these payments in digital form,” it makes a note of.

For Cambodia, electronic payment transactions have also increased dramatically as a result of rapid technology evolution. A total of 25 banking and financial institutions have been providing internet banking services and 20 banking and financial institutions have been providing mobile banking services, according to NBC’s annual supervision report 2018.

The total size of the transactions conducted through internet banking is more than 1.03 million and accounted for 20.2 trillion riel, while the total mobile banking services transactions are 14.07 million, accounting for 27.7 trillion riel.

By the end of 2018, 14 payment service institutions and five banks were granted licences by the NBC to operate payment services, including money transfers in and out, bill payments, retail payments, online payments and cross-border money transfers.

Payment infrastructure

Pi Pay is a Cambodian-owned digital or e-wallet that offers cashless payment services through which people can use their smart phones to pay for goods and services without the hassle of using physical cash. Launched in 2017, the Pi Pay mobile payment app now has more than 260,000 users, processing 7.5 million individual transactions valued at more than $170 million.

Tomas Pokorny, chief executive officer of Pi Pay Plc, said: “We see a continued trend of growth in the use of digital payments as evidenced by the number of new players in the market in the past year or so.

“More and more users and merchants are starting to appreciate the convenience of going cashless – in terms of increased security, minimised instances of fake bills or incorrect change and greater efficiency: reducingwaiting time during check-out where people pay with cash and wait for change and having no need to make trips to ATMs or banks to deposit or withdraw cash.

“Pi Pay is primarily available in Phnom Penh, Siem Reap and Sihanoukville – and we’re slowly looking into expanding our footprint to other provinces. Currently, our user base largely comes from Phnom Penh.

“There’s definitely a growing awareness on the importance of financial inclusion as we see a lot of work has been done over the years by MFIs (microfinance institutions) in rural locations to bring much of Cambodia’s largely unbanked population into the formal financial space. In fact, more and more public-facing service providers such as insurance companies, utility companies, banks and government ministries are also adopting digital payments which means more Cambodians can benefit from increased access to financial services.

“Financial technology increases accessibility to financial services among the rural communities, which can help better their livelihoods. With a smartphone and internet connectivity, they can apply for loans more easily, which means having access to capital for their businesses, or they can receive money from their family members who are working in the city to help out with daily expenses. They can also have access to health and insurance products more easily which means reducing the financial burden of any health expenses.

“From our launch in 2017 till today, we have now more than 4,000 merchants, more than 260,000 users, more than $170 million in transaction values and more than 7.5 million in transaction volume [individual transactions].

“There are plenty of opportunities for customers to use digital payments in their everyday purchases. We largely see consumers using them to top up their mobile phone credit and also for purchases of daily goods and services, whether it’s having a meal at a restaurant or buying movie tickets because of the convenience. They don’t have to worry about carrying small notes or encountering fake or torn bills. We also see more and more people using digital payments to pay for their utility bills and other monthly expenditures such as life insurance premiums as people appreciate the ability to do this digitally and avoid lengthy trips to the bank or provider’s offices.

Pokorny was quoted in a recent interview with Chinese news agency Xinhua as saying that for Cambodia to push the cashless revolution, fintech players need to look at how they can build a payment infrastructure that delivers high quality, robust and secure solutions for both urban and rural consumers.

NBC’s Serey, however, says that promoted access and financial inclusion is important. Fintech offers countless benefits, but it also brings more risks that maybe affect the stability of the whole system, mainly cyber-security.

“While we are establishing a conducive environment for fostering fintech, we, as the regulator, have to enhance both its regulatory and its institutional capacity to cope with fast-changing technology and ensure … the system is protected,” she adds.

Beneficial for Cambodians

She says the growth of payment service institutions has promoted competition and expanded access to formal financial services across the country. As a result, payment fees and, in particular remittance fees have decreased remarkably, which is very beneficial for Cambodians, especially for those who live in rural areas.

In early July, to complement the private sector regarding payments and remittances, NBC launched the pilot Bakong project, a mobile payment application using blockchain technology that will bring all payment services providers and banks onto the same platform, allowing the user to experience smooth and affordable services.

The Bakong project is the backbone of the payment system in Cambodia that connects banks and payment service providers. By using the Bakong application installed on a smart phone, customers of financial institutions can make real-time fund transfers across banks and platforms.

It allows users to transfer funds in Khmer riel and US dollars to one another across the platform in Cambodia. It is safe, easy, fast and free of charge.

“The Bakong system is a peer-to-peer fund transfer service available to the retail customers of nine participating banks in Cambodia. Currently, there are four financial institutions that have joined the system. They are Acleda Bank, Foreign Trade Bank (FTB), Wing (Cambodia) Ltd Specialised Bank and Vattanac Bank Plc,” says NBC.

Acleda Bank, one of the members of Bakong, has integrated its system to synchronise with NBC’s system to make them able to talk to each other.

Increased affordability

The bank’s president, In Channy, says fintech is very crucial for all stakeholders. He adds fintech could eliminate the need to travel long distances to a financial institution. And by lowering the cost of providing financial services, digital technology might increase their affordability. They can use the mobile application to pay for all their utilities, other bills, school fees, phone top-ups and business transactions,” he adds.

“Financial institutions, particularly fintech, play a crucial role in contributing to economic development and enable the people to access financial institution services and they also indirectly contribute to poverty reduction.”

Channy says Bakong, for example, will lead to a cashless society.

NBC’s first half report shows that loans in the banking and microfinance sectors rose by about 22.4 percent, growing by $27.7 billion. The value of all outstanding loans has now reached $21.5 billion in the banking sector and $6.2 billion in the microfinance industry.

Cambodia has 44 commercial banks, 15 specialised banks, 7 microfinance deposit-taking institutions, 74 microfinance institutions and 254 rural credit operators, the report points out. Total assets in the banking and microfinance sectors increased by 19.2 per cent in the first half of the year to reach $44.8 billion. There are now 2,367 bank and microfinance offices in the Kingdom and 2,228 ATMs.

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