Myanmar is on the cusp of a mobile and financial technology revolution. How can emerging local banks harness this development? And is the rise of fintech an opportunity or a challenge? Peter Janssen reports.

Myanmar telenor embedded

Two years ago, Hal Bosher, CEO of Yoma Bank, made his fintech move. Mr Bosher, a former employee of the World Bank, was attending a business conference at an upmarket Yangon hotel with executives from Norway’s Telenor Group, a few months after the telecommunications giant won one of two contested licences to provide mobile phone services in Myanmar. Mr Bosher joined the Telenor table at lunch. “He was very persistent,” recalls Vibeke Krohn, then with Telenor. “There was my boss and me and Hal and he would just not leave us. He said 'I want in on this' and he was right.”

The outcome of Mr Bosher’s assertive manner was Wave Money, a fintech joint venture between Yoma, a medium-sized Myanmar bank, and Telenor, one of the world’s largest telecommunications companies and run by Digital Money Myanmar. “What [Telenor was] looking for was a very strong local partner who satisfied governance requirements,” says Mr Bosher.

Yoma Bank, part of the business conglomerate of Myanmar tycoon Serge Pun, specialises in corporate lending, primarily to small and medium-sized enterprises. With only 60 branches nationwide, Yoma Bank would struggle to serve Myanmar’s 53 million population, 70% of whom live in rural areas where electricity and roads are scarce and villagers sometimes need to spend half a day to get to the nearest bank. Myanmar is one of the world’s least banked counties: less than 15% of the population holds a bank account.

Mobile breakthrough

While Myanmar nationals have only limited access to formal banking (there are an estimated 1500 bank branches nationwide), they do increasingly own mobile phones. Since Telenor and Qatar-based Ooredoo won licences to offer mobile phone services in the country in 2014, phone penetration has soared to more than 60% of the market, compared with 10% to 13% in 2013. More surprisingly, some 80% of the mobile phones sold are smartphones, in a country where annual per capita gross domestic product is less than $1200. “It’s all about smartphones. That means you can do financial services over an app,” says Ms Krohn, now head of sales for Wave Money.

In two years, Telenor has sold about 15 million SIM cards through 60,000 agents nationwide. That agent network will soon be put to work for Wave Money, if the technology is licensed to operate by the Central Bank of Myanmar. Wave Money will allow Telenor users to top up their airtime or transfer top-ups to other mobile phones. It will also allow small-scale money transfers, and customers may also open deposit accounts on their phones for bills and services payments or to purchase an insurance policy. But if the user wants to earn interest on that deposit, they will need to use Wave Money to open an account at Yoma Bank.     

“For Yoma Bank it’s about increased channels,” says Mr Bosher. “It’s about providing more functionality to our customers, and it’s about providing a nationwide network – basically a bank branch in every pocket.” Telenor’s agents will pay mobile phone users the cash sent to their phones.

Telcos and banks meet

This instant agency network translates into huge savings for the bank. Myanmar’s land prices are dear, and opening a new branch can cost up to $500,000 to rent or $5m to buy. Hiring and training your own bank agents, who act as micro-branches, is also costly and time-consuming.

“What Myanmar bank has $200m to grow 200 branches in the next two years?” asks Aung Aung, IT advisor to Myanmar Citizens Bank, one of the smaller among Myanmar’s 32 banks. “Local banks are a little worried,” Mr Aung told a fintech and agent banking conference in Yangon, organised by Singapore-based Magenta Global. On March 30, the Myanmar central bank pushed through mobile banking services regulation that allows telco-led financial services (under the former rules all financial services had to be bank-led).

Fintech operators, however, must still be licensed by the central bank. They also face a list of restrictions, such as limiting transactions to Kt200,000 ($169) per person per day. International remittances, a huge business for Myanmar, worth an estimated $3bn in 2014, are also off limits. To date, no fintech licences have been issued so the threat to the banks remains only a potential one.

But the smart banks are preparing for the onslaught. “The mobile-first strategy is critical for banks globally and Myanmar is no different,” says Stephane Lamoureux, group IT director at KBZ Bank, Myanmar’s largest private sector bank. KBZ already offers online banking and mobile banking. With 389 branches nationwide and 540 ATMs, KBZ has the greatest penetration of the mass market of all Myanmar banks.

Fintech is an obvious choice to help Myanmar banks leapfrog the expensive process of building up a bricks-and-mortar branch network. “Fintechs are here to stay and we can either fight against them or work with them and maximise our service offerings for the customer,” says Mr Lamoureux. “We will not fight the fintechs. They bring value to our service offering and a blend of innovation with traditional personal banking ultimately is what our customers deserve.”

The will to reform

Myanmar’s vastly under-banked economy is a product of its recent history. General Ne Win nationalised all private banks after his 1962 coup and the launch of his disastrous Burmese Way to Socialism. To punish the black market that blossomed with socialism, Ne Win ordered demonitisations of the kyat in 1964, 1985 and 1987, wiping out people’s cash savings in the process and arguably setting the stage for the anti-military uprising in 1988.

A fledgling private banking sector emerged in the aftermath but poor state management led to Myanmar’s first banking crash in 2003. Again, people lost their savings. The local banking system lost another decade thereafter as the then junta-led regime severely limited the survivors’ operations.

Things began to pick up again in 2011 with the advent of the nominally democratic government of president Thein Sein, who launched both political and economic reforms. He made the central bank semi-autonomous, allowed the kyat to float and granted licences to 13 foreign banks to operate in the country, albeit limiting them to foreign corporate lending and lending to Myanmar banks. His reforms culminated in the passing of the Banking and Financial Institutions Law of Myanmar in February this year, followed by the mobile banking services regulation. The former has been widely welcomed by the banking industry, as was the latter by the fintech operators in waiting.

Are fintechs too strong?

The question for Myanmar’s fledgling banks, just emerging from the bad times, is will the financial inclusion promised by fintech exclude them?

“From a technology point of view we are weak, so the fintech can really influence the customers. So yes, we are afraid,” says Myo Win Yee, head of the department of e-channels and financial inclusion banking at Aya Bank. “We are a medium-sized bank but we are trying to be big.”

Myo Win Yee acknowledges that to get there, the bank will need to hitch a ride on the telcos’ mobile networks. “The telcos are the most powerful organisations to access mobile money because they are the channel providers, so every bank needs to rely on the telcos to provide services. But the telcos require the banks behind them, so the banks and telcos need to work together,” he says.

Fintech has inevitable downsides, such as less control over who is using these financial activities. Banks are responsible for know your customer (KYC) protocols, the process of verifying the identity of clients. Fintechs generally rely on others to do their KYC, such as credit card operators. And there will be fintech fraud as transactions gain mass and attract criminals. “Will there be new regulations in the country to protect the customer? I hope so because if fintechs are to act like banks, they need to be held accountable at the same level as banks,” says KBZ’s Mr Lamoureux.

“If it works and is done properly, fintech could be transforming, but these are early days. We don’t really know for sure,” says Sean Turnell, economics professor at Australia’s Macquarie University, who acts as an adviser to Myanmar’s ruling National League for Democracy party. “We don’t know if it’s going to be transforming or not, but there is real potential.” 

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