In the second webinar of the webinar series on Financial Transformation, Credit Markets and Household Debt in Southeast Asia Dr Sean Turnell explores the beginnings of mobile financial services in Myanmar, their dramatic expansion since the country’s (albeit, incomplete) political transformation, the state of play of the sector, and the issues and obstacles it faces.
REGIONAL ECONOMIC STUDIES PROGRAMME WEBINAR
Webinar Series 2020-2021: Financial Transformation, Credit Markets and Household Debt in Southeast Asia
Wednesday, 14 October 2020 – ISEAS – Yusof Ishak Institute hosted a webinar on “Myanmar’s mobile finance revolution? Disruptions and Promise”, delivered by Professor Sean Turnell, Special Economic Consultant to Myanmar’s State Counsellor; Director of Research, Myanmar Development Institute (MDI), Naypytaw; and Associate Professor, Macquarie University, Sydney.
Dr Turnell began the presentation by introducing Myanmar as a place that is ripe for the promise of mobile financial services; Myanmar has got an unusually high mobile penetration rate, low levels of formal financial inclusion and a geographically disperse population. Together with the expansion of the Mobile Financial Service (MFS) regulations, the environment has given rise to the formation of homegrown mobile financial services providers (MFSPs) that are non-banks like Wave Money and M-Pitesan. Initially, banks were hostile. However, in light of the way MFS has been changing the landscape on a universal level, they eventually created their own MFSPs as well.
The Central Bank of Myanmar (CBM) has authorized and regulates mobile financial services (MFS) since 2016. Dr Turnell noted that having the CBM as the regulator signals the seriousness Myanmar is going about regulating the MFS. The CBM has allowed MFSPs to open and maintain MFS accounts and conduct other financial activities that were initially limited to banks and microfinance institutions. However, all transactions were to be in kyat only with international transactions requiring permission from CBM, limiting the interoperability of the system. Fortunately, international transactions are currently in talks and could be enabled in the near future. In addition, the CBM also has prudential and anti-money laundering regulations to ensure there is trust and safety in the system.
Dr Turnell then referred to two case studies: Wave Money and KBZ Pay. Wave Money is the pioneer and largest MFSP with a massive network of customers and exponential growth in money remittance. They were able to provide unsecured instant credit to its own agents through Yoma Bank since November 2018. Dr Turnell highlights that this was possible because of the information collected by MFSPs, enabling banks to better credit score people. Without the information flow, credit would not usually be extended to these individuals. In addition, Wave Money partnered with Myanmar Economic Bank to enable individuals to make pension payments and Myanmar Agricultural Development Bank for loan disbursement, enabling better financial inclusion and significant rural outreach. The second case study is one of the banks’ responses to the MFSPs, KBZ Pay. It is the largest bank-based MFSP by Myanmar’s largest bank. Similar to Wave Pay’s strategy, they have also extended ‘shopper loans’ to salaried customers. KBZ Pay also partnered with government ministries to enable services such as bill-paying, tax payments, pensions and COVID-19 Economic Relief Plan (CERP) transfers.
On the impact of COVID-19, Dr Turnell shared that COVID-19 has led to some transaction substitution from cash to non-touch forms of payments in Myanmar. However, he noted that the substitution effect (movement away from paying cash) exceeds the income effect (lower economic activity due to loss of income) in Myanmar. Hence, overall mobile payment transaction volumes have been going up. Moreover, the Myanmar government sought to encourage the use of mobile payments through the COVID-19 Economic Relief Plan (CERP) by making cash transfers through mobile payments to vulnerable groups. Unfortunately, its effectiveness has been limited.
Looking at the future trajectory of the MFS sector, Dr Turnell opined that we are likely to see more international investments, like Ant Group’s investment in WAVE, and arrival of ‘super apps’ like Grab. There could also be more products offered to consumers such as micro-insurances. However, credit algorithms may be problematic due to privacy, cyber security, digital and financial literacy concerns. On top of, the government’s regulatory capacity would become an issue. Dr Turnell also touched on Myanmar’s newly released national payments system strategy that includes a real time retail payments system through a National Switch at the CBM, full interoperability within Myanmar and across ASEAN systems and international standards in cybersecurity.
The webinar concluded with Dr Turnell engaging in a question and answer session with the audience. Questions that were answered included how the regulatory environment deals with frauds and scams in MFS, the impact of MFS on consumer credit and the role for US payment firms in the Myanmar payment ecosystem.