Packed to the ceiling with snacks, a hole-in-the-wall grocery store in downtown Yangon, Myanmar’s commercial capital, looks like it has changed little in the past few decades. That is, until you look by the cash register and notice an array of placards printed with the names of mobile payment apps.
This mishmash of old and new is a familiar sight in emerging markets. Two factors intersect to explain the ubiquity of mobile payment apps in Myanmar—lightning-speed construction of internet infrastructure throughout the country in recent years, and millions of people being left out of conventional banks’ services.
While bank-led mobile wallets have been able to bring some unbanked people into their fold, telecom companies like Ooredoo, Telenor, MPT, and Mytel have a combined user base of 56.8 million subscribers that they are gradually siphoning into mobile payment services. But Myanmar’s fintech networks, whether developed by major business entities with deep pockets or built from the ground up by small startups, remain scattered and barely connected. For the country’s fintech sector to mesh with existing ways for money to trade hands, the transactional systems of telcos, banks, and other providers need to be interoperable, meaning they need to link up with one another.
This is a condition that is often taken for granted in countries with more advanced internet and banking infrastructure, and plenty of hurdles exist in Myanmar for fintech stakeholders to overcome. For one, the United States government’s economic sanctions on Myanmar were lifted only four years ago. The country still has a long way to go before it can keep pace with the global financial system.
Loose collections of nodes
The current situation was years in the making, and the sector has been moving forward at a cautious pace. As early as 2013, the Central Bank of Myanmar (CBM) allowed mobile money providers to operate by partnering with a licensed private bank, as long as users’ funds were kept in an account at the bank.
Three years later, the CBM outlined its mobile financial services (MFS) regulation in 2016, opening up the field to mobile network operators and non-financial institutions. Telenor’s Wave Money, Ooredoo’s M-Pitesan, and others quickly made their services available to the public. Now, Wave Money and M-Pitesan are the leading players of their type, but there are other bank-led players that have cultivated their own user bases too, including KBZPay, CB Pay, AYA Pay, and OnePay.
Unsurprisingly, most of these wallets are geared toward the banked population, and scattered coverage means an average user needs to wield several apps if they want to go (nearly) cashless in their day to day spending. Yet many people in Myanmar are left behind. Although the CBM’s MFS regulation mandates mobile network operators and non-financial institutions to be interoperable with each other, bank-led digital wallet services are exempted from this rule. The consequence is that new, phone-based financial products, which in other emerging economies bring unbanked individuals into the broader financial system, still cannot be accessed by many people in the country.
“Myanmar is full of closed networks with very little bank integration and interoperability, which I think is a mistake,” said Hal Bosher, chairman of Wave Money and former CEO of Yoma Bank, one of Myanmar’s largest commercial banks. He added that some local banks still believe that a closed-loop banking system is to their benefit, particularly when it comes to retaining their clientele.
Yet this attitude creates isolated pockets in Myanmar’s financial system—loose collections of nodes that aren’t connected with one another. The near-absence of interbank transfer systems poses a huge challenge for banks when it comes to money transfers. It wasn’t until this May that OnePay, a one-stop payment platform backed by the country’s Asia Green Development Bank Limited (AGD), rolled out Myanmar’s first app with interbank services.
Credit scores in the cloud
This is a familiar situation in emerging markets: Myanmar’s underdeveloped banking system hampers consumer access to credit. A country where 74% of the adult population does not have a bank account presents a massive opportunity to anyone who has the guts to wade into fintech lending.
“Consumer credit is probably one of the biggest things that need to be enabled. While banks do a lot of corporate lending with large credit and some small and medium-sized enterprise (SME) lending, they have no capability when it comes to consumer credit or a smaller amount of credit,” Bosher said. “There are millions of individuals that need access to credit. The sector now is being taken up by informal lenders, which is a form of peer-to-peer lending, but not through technology. Ultimately, it is the only solution people have today, but it’s not optimal.”
That means family, friends, and loan sharks are the most common sources for private loans. Microfinance institutions are making inroads too, but they need to charge high interest rates to justify the risk that they take on.
A few tech startups, like Mother Finance and Daung Capital, have stepped into this space, each developing their own algorithmic methods of evaluating the creditworthiness of loan applicants who often have little to no credit history.
Glaring gaps and literacy lags
There’s no lack of choice for mobile payment channels in Myanmar, but relatively low levels of digital and financial literacy obstruct broader adoption for now. “COVID-19 was an existential crisis. The economy could collapse, so there was a sense of urgency. But for [digital and financial] literacy, there isn’t exactly a sense of urgency,” said Ye Myat Min, founder and CEO of Nexlabs, a Myanmar-based digital consulting firm.
Ye Myat Min is also a KBZPay user. He challenges the value proposition of bank-led operators. “For telecom-led wallets, it’s the agent network that makes it work. But for bank-led wallets, I don’t see the value proposition,” he said, explaining that the fine line between mobile banking and digital wallets confuses the local population.
Other problems crop up in everyday usage, complicating the matter in the public consciousness. “I was at a local restaurant and ready to pay the bill via the QR code. The restaurant owner who owns the app was not there, so the cashier had to take a picture and send it back to his boss to report a transaction. I didn’t know if they overcharged me [because the app doesn’t display transaction records], so the transaction was based on mutual trust.”
For people in Myanmar who have embraced mobile money like Ye Myat Min, digital payment is still far from frictionless. Users in rural areas, where much of the country’s unbanked population resides, encounter even more difficulties when attempting to use fintech features. This foments distrust in some of the services that are being offered.
“There is a persistent fear of the unknown when it comes to digital financial services and formal banking,” Matthew Wallace, managing director of Onow Myanmar, wrote in a whitepaper. Onow Myanmar is a social enterprise that runs programs to improve financial literacy and support young entrepreneurs in Myanmar.
“The barrier to entry feels too high for many unbanked to give digital money a chance . . . Most adults are not equipped to make the mental calculations to compare digital money to the risks and costs related to informal channels.”
Pwint Phyu Htun, a former World Bank consultant who helped draft the MFS regulation in 2016, and founder of Mobilizing Myanmar, a financial inclusion non-governmental organisation, shared the same view. “Smartphones in many Myanmar people’s hands have the potential to reduce inequalities between urban and rural populations—whether in health, education, access to information, or access to finance. We need to strengthen digital literacy and awareness of mobile financial services among the general population as a whole, so that the rural population can really reap the benefits offered by these digital tools.”
Cruising ahead of credit cards
The CBM is going to standardize QR codes for mass deployment soon. One of the consequences is that users will be able to scan a QR code to make payments, which could will foster the interconnectivity of payment systems under a unified system and do away with sunk costs in point of sale terminals for merchants.
Like some other countries in Asia, Myanmar may just leapfrog common bank-issued credit cards and dive straight into fintech adoption, much like China and Indonesia. Local startups are in overdrive to develop tech that fits the market.
Wave Money plans to use credit analysis technology developed by Chinese e-commerce giant Alibaba to issue credit scores for Myanmar’s consumers and connecting them with lenders through Yoma Group, which owns a controlling stake of Wave.
“It is very exciting that there is so much innovation happening in the digital financial services industry all over world. Mobile phones give out so much information about someone. Most people may not think how they use their mobile phones is reflective of their creditworthiness,” said Pwint Phyu Htun. “What we need for a more equitable Myanmar is to ensure that rural population is not left behind in this very exciting digital finance revolution, with potential to bring opportunities and prosperity.”