Despite experiencing rapid growth in the
last few years, financial technology (fintech) services in the Kingdom are
still underdeveloped and underused. To fulfill its potential in the Cambodian
economy, fintech must overcome a number of challenges, including lack of
consumer awareness, a weak regulatory framework and scant funding and investment.
Khmer Times’ Sok Chan talked to Bora Kem, partner at Mekong
Strategic Partners, about the evolution of the fintech industry in the Kingdom.
Cambodia’s fintech is currently dominated by mobile wallets and payment
providers. It is expected to see additional players in the insurtech, regtech
and neobank segments.
KT: What is your view regarding the
financial technology industry in Cambodia and how has it developed over the
last five years?
Bora: The sector has
certainly grown. In terms of the number of firms, we have around 50 fintech
companies in the payment space and other software and service companies will
make a smaller proportion of that as well. So, in general, the sector has
certainly grown and in some cases doubled over the last five years.
However,
in the market we may have too many firms and over the course of the next two to
three years there might be some form of consolidation. This consolidation will
most likely be brought upon by competition between the firms, but also the
pricing pressure that results.
But
all in all, I think it is actually potentially positive for the customers
because now one of the trends we are seeing is that there is quite a bit
collaboration between all the different players and that means more convenience
for customers.
In
addition, the collaboration also means a lot of transaction costs are decreased
because of technology but also because of how integrated the different players
in the market are, such as merchants, customers and banks.
KT: What are the areas in which fintech is
mostly used and how important is the fintech sector for business in Cambodia?
Bora: I
think in general we view fintech as being complementary to the financial
service sector – banks in general. What the bank can do is complementary to
what fintech can do as well so now one of the main value propositions for
fintech companies to the consumers is that they provide ease of use and access.
This
has been something that may be more difficult for banks to do. For example, a
lot of digital wallets are relatively easy to operate in the sense of knowing
your customer (KYC) such as sending a picture and signing up for an
account for a digital wallet.
A
bank requires face-to-face interaction and lots of documents and lots of time
so ways that fintech players and the payment space for example could add a lot
of value is in this area where it is easy for customers to get the first taste
of what the financial service looks like before they migrate in greater numbers
to them and their services.
KT: Do you think the Cambodian government
could also introduce less face-to-face verification for its applications too?
Bora: I heard from the
NBC (National Bank of Cambodia) that it is considering e-KYC because it is very
well aware that this is coming in our market. We have seen a lot of Southeast
Asian country slowly adopting it.
Now,
the issue for any regulator I guess is the different risk gaps that could be
encountered that may engender doubt when someone migrates digitally into a
system from something more traditional. But I think they are well-aware of the
need in the market and lot of fintech players are pushing for that as well so
now it’s just a matter of coming up with the guidelines that reduce risk in
terms of consumer protection,
Generally,
we have seen the government taking a lot of steps to allow ministries to share
information with each other. There is a trend to integrate data digitally
across the different ministries. The same applies to the business registration
processes. These are all moves in the right direction and they are all pushed
by the fintech sector and fintech players.
KT: Most banks and others in the
financial sector are pushing for the adoption of new technology, but most of
these activities are seen be concentrated mostly in urban areas. What are the
barriers for Cambodia related to fintech? How can they be overcome?
Bora: If you look at
fintech in terms of distribution networks and agents, if you count True Money
and Wing alike, SmartLuy and others, I think distribution is quite wide in the
provinces.
That
is traditional money transfer business, but those players are moving towards
apps and I actually think that the penetration of smartphones in those areas is
actually quite deep so it might not be true that fintech only reaches
urban areas.
It is true that usage is much more frequent in urban areas because you have more merchants and options for customers but, in terms of coverage, it is relatively good throughout the country.
KT: Have you observed any policy and
regulation in the fintech sector to build trust among the service providers and
customers?
Bora: Now, the
regulations for Payment Service Institutions (PSIs), the compliance and
requirement processes are quite extensive, so that to extend to anybody a PSI
licence there should be a threshold of compliance. If the NBC says a business
is a PSI, people should trust this, whatever or not the customers see as value
in the terms of validation. Most people tend to trust the branch system versus
a company that is largely just an application on a phone that might possess a
different concept of what trust is. I think it is a more mental sensibility
than just the government pushing the policy.
I
think the barrier is not so much about policy, but it is about the consumer and
what he or she chooses plus the market. The NBC should not the one to force the
customers to do something unless it is for their own protection.
If the customer is waiting to understand this and waiting for the market to move in a different direction, then I think the policy will make slow progress. It is mostly about awareness.
KT: What is your prediction for fintech in the next three to five years?
Bora: We
see a lot of banks now. If you do not have a digital platform then you are not
competitive for users and against rivals. Some of the big market share shifts
are in the banking industry and that is because one bank is more strategically
advanced than others in terms of moving to offer those things to customers. If
we look at fintech players or banks that have a very good app, such as ACLEDA
and ABA, the transaction volumes they have are much faster than any others in
the market. Now, who will be the winners of this trend? We are not so sure yet.
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