Myanmar banking: Digital evolution, not revolution (yet)

By Jonathan Breen

Banks have a difficult time wooing customers in Myanmar. The overwhelming majority – perhaps 90% – of Myanmar’s 55 million people do not have access to a bank account, reflecting a lingering distrust of the sector.

No wonder banks have had to try Trojan horse tactics, investing heavily in digital to attract more customers.

“The best way to access customers is on the device of their choice – people do everything on their smartphones,” says Azeem Azimuddin, chief financial officer and adviser to the chairman of Aya Bank, Myanmar’s second-largest bank.

The take-up of smartphones in Myanmar has been rapid; bankers cite penetration rates of about 90%, to the point where there are more Sim cards than people. The widespread use of mobile phones is a possible threat to traditional banking infrastructure such as branches and ATMs.

Azimuddin points out that the main revenue-generating purpose of a branch network – to facilitate internal bank transfers – is quickly disappearing.

“Internal bank transfers costing money is a hangover from when it was one of banks’ main sources of non-interest income,” he says.

Remittance fees are declining as banks compete with each other and with financial technology disruptors in a country where bank transfers and payments can now be made within seconds.

At Myanmar’s largest bank, KBZ Bank, for example, fees are as low as 0.4% per transaction and in some cases waived for users of its mobile wallet KBZPay, which is a joint venture between the bank and Chinese technology firm Huawei.

For users of banking apps, being able to move large sums of money online or through their phones makes a big difference. Take universities and colleges: these institutions used to be paid in cash by most of their students, forcing them to either hold large quantities of notes or make regular trips to one of the country’s notoriously slow bank branches.

In the past, hoarding money was commonplace, a hangover from Myanmar’s banking crisis in 2003, when several informal finance companies collapsed; people panicked and there was a run on the country’s privately owned banks, leading to a severe lack of liquidity in the sector.

Banks first got a wake-up call when mobile wallet provider Wave Money was launched in 2017. The wallet is backed by telecommunications company Telenor and Yoma Bank and was inspired by phone-based money transfer service M-Pesa in Kenya, a success story that is often cited in Myanmar.

“There has always been a traditional view that mobile money and electronic, digital stuff wouldn’t work here because people have a lack of trust, they want the physical currency, people store wealth in gold and jade,” says Sean Turnell, adviser to Myanmar’s leader Aung San Suu Kyi. “So, at first there was a certain complacency, and then banks saw the growth of Wave Money and thought: ‘OK, we are going to get on with this’.”

Banks responded in 2018, fearful that the sudden rush to digital payments might leave them behind, says Turnell, adding that “it was defensive at first”.

But the authorities have not made things easy, Azimuddin says. For example, “there are three licences and regulatory frameworks that could be used for similar mobile-based services, one for digital banking, one for mobile financial services and another for non-banking financial institutions, all to do mobile financial services.”

In 2019, the use of digital finance through smartphone apps surged. The market for e-wallets is now saturated. Myanmar’s four big telecoms companies all have their own products: for example, state-owned firm MPT launched MPT Money in January. Others are following suit.

Digital finance is more than just mobile wallets: it represents a broad shift away from traditional banking, but that doesn’t mean it is breaking much new ground: mobile banking is, so far, skewed towards people who already have access to the banking system.

Some banks find themselves in a quandary, should they prioritize the banked or unbanked population, though perhaps it is not a surprise to discover that banks are naturally going where they know there is money.

“A lot of people are unbanked and need to come into the financial system,” says Thein Zaw Tun, managing director (business) at CB Bank. “At the same time, a lot of people who are banked are underserved.

“We try to take care of both, but the underserved customers are a priority for us. We feel we can introduce a lot more services and products to them.”

CB Bank has taken what it sees as a top-down approach to digital. It has established networks of merchants such as hotels, restaurants and large shops that use its point-of-sale terminals and is working on linking its mobile banking app to the terminals.

CB Bank introduced a basic app in 2014 – the first bank to do so in the country – and in 2018 launched its latest version, CB Pay, which serves businesses as well as individuals.

“We don’t see CB Pay as a retail mobile banking app,” says Ronald Ye Tun Oo, deputy head of corporate strategy and development at CB. “It is a platform where we can reach out to either our retail customers or business customers.”

A large portion of the transaction flow on CB Pay, which was worth about K600 billion ($420 million) a month as of January, is business-to-business payments, for example from a small and medium-sized enterprise to a large company.

In line with its top-down approach, CB has kept back from the e-wallet market, partnering with other providers instead of launching its own.

“Online banking and mobile wallets are two completely different things,” says Thein.

“The mobile wallet play is mainly dominated by the telecom operators across the region. The banks are looking at something slightly higher tier.

“We appreciate that mobile money and wallet operators such as Wave Money and KBZPay have done a really good job trying to get into this market head on, but we strategically find it a difficult play because it is already fragmented by four big players and now banks are coming in.” 

KBZ has linked its mobile wallet and banking apps to try to bridge the gap between the country’s financial system and the vast unbanked population.

Robin Chua, KBZ’s senior general manager for smart transaction banking, says: “We have the mobile banking app and the mobile wallet app – mobile banking is positioned for the bankable and the wallet is positioned for the majority of the population who don’t have a bank account.

“We need both for full financial inclusion.”

The bank’s apps were merged from the beginning, says Chua.

“It is a lot easier to push the digital proposition when it is united, rather than when you have two entities competing against each other,” he says. “Our wallet and bank accounts are linked at the back. You can move funds to the wallet from your bank account. This creates a seamless experience as compared to standalone mobile wallets, where you have to go to an agent and deposit the physical cash every time money runs out on your account.”

KBZ’s goal is to use both of its mobile apps to roll out banking to the masses: for KBZPay it has the bold target of capturing 30 million customers over the next decade. And on the back of the wallet, it plans to build a digital bank. New additions coming this year for wallet users include access to micro-savings, micro-lending and micro-insurance.

However, using a wallet to capture large swathes of the population is not as easy for a bank as it is for providers outside the financial system.

Manikantan Venkataramani, chief operating officer of KBZ Bank, says: “The wallet is issued by a bank, so it comes under bank regulations. We have to ensure every customer meets the bank-level standards” for anti-money laundering and know your customer (KYC).

Myanmar’s lack of a uniform national identification system is a problem for banks, which need to be able to identify who is sending or receiving money using any of its services. The country’s main ID is the National Registration Card, but the documentation for the system is paper-based, and in rural areas, cards are not so common.

Myanmar’s smaller banks, such as AGD Bank and UAB Bank, are also hot on digital. But they are taking different routes to expand their digital reach, including strategic partnerships. In the case of UAB Bank, the focus is on fintech.

Christopher Loh, managing director and chief executive of UAB, sums up his approach to digitalization in one line: “You either self-disrupt or die from being disrupted.”

Loh has followed that mantra since taking over UAB in late 2017. He immediately got to work on rebranding what was formerly United Amara Bank, a fairly unremarkable lender; in two years has created a modern institution with the goal of being a disruptor.

“We can’t think like a traditional bank any more, we have to innovate,” says Loh, who recently launched UAB’s fintech unit.

Christopher Loh, UAB

The bank announced two partnerships in February. One is with ABC Fintech focussed on SME and consumer banking. The firm operates ABC Financial Convenient Service Platform, which provides bank cards, QR codes and other solutions.

The other is an agreement with Singapore-based Kashtec International, which creates online marketplaces for business-to-business communities and financial institutions.

UAB says it hopes to develop “next-generation financial solutions to serve [SME] and corporate supply chains”. It will provide financing to SMEs within the supply chain.

The bank’s recent moves are indicative of Loh’s aim to target the country’s banked but underserved customer base. In contrast, AGD Bank is pursuing partners to reach new customers, including those in rural areas and outside the formal banking system.

Among AGD’s top clients are 15 of Myanmar’s largest micro-finance institutions (MFIs), serving customers who are mostly outside the banking system.

Pyi Soe Htin, AGD’s chief business officer, is working with mobile wallet Onepay, its official banking partner, to enter the MFI payment system.

“We are trying to recruit [MFIs] to make payments using Onepay, so instead of going around collecting payments from people in rural areas, they can use [Onepay] to make payments back to the MFI,” says Pyi.

Onepay was launched in August 2019. By January this year, it had about 150,000 users and was adding 1,000 a day.

Domestic firms are not the only actors in the local digital market. China’s WeChat Pay and Alipay have become increasingly familiar alongside the growing number of Chinese tourists visiting Myanmar. But the payment services firms have caused a problem in the country as the monetary authorities were not prepared and are only now responding.

It is illegal to have a Chinese WeChat Pay or Alipay account in Myanmar, so for hotels and other businesses tied to Chinese tourism, a market for illegal accounts has popped up.

“Mostly, how it works is various agents in China will sell accounts in WeChat Pay and Alipay; they will create an account for a fee,” says Suu Kyi’s adviser Turnell. “However, some people, particularly those in cross-border trade, have the smarts and contacts to do it themselves.

“But most is done via this agent business, which is a relatively unknown phenomenon. People use the agent, who will arrange to get the money out of the WeChat account for the Burmese entity for a fee.”

The sudden arrival of Alipay and WeChat Pay following mass tourism from China caught the government off guard.

“This was becoming such a problem for the monetary authorities here because you could see Myanmar’s monetary system going out the door and becoming digital,” says Turnell. “So they’ve cracked down on it, and now WeChat Pay and Alipay will be brought into the system. The settlement will have to go through the domestic banking system. That is starting to happen.”

While Myanmar’s banks are putting together impressive digital strategies, they are still working independently of each other. If money could flow easily around the system it would make things easier for all concerned.

“The ideal is to have a closed loop with all the banks,” says a senior banker at one of the country’s largest banks.

For example, AGD Bank’s mobile banking platform AGD Pay, the precursor to its wallet, can be used for transfers from one AGD account to another. But transfers to a different bank are not possible, which is a problem throughout the country’s cash-heavy banking system.

“There is no interbank transfer system in Myanmar,” says Venkataramani at KBZ. “That means a huge challenge for banks in terms of remittance accounts.

“If you go to some of the branches, you can see that most of their resources are being exhausted in counting physical cash.”

The goal is inter-operability between banks. But Turnell goes a step further and suggests a possible future digital financial system that supersedes banks.

Banks and their services would become bolt-on entities to a wider digital financial universe in this scenario, and Turnell points to Alipay as an example.

The ubiquitous mobile payments platform offers all manner of financial products through its parent Ant Financial.

But the idea of a financial ecosystem that includes sophisticated mobile wallet providers and banks’ digital services throws up uncertainties, for example when it comes to how the banks and mobile wallet providers carve up the market between them and the level of competition between them over fees.

“We are in unknown territory,” says Turnell. “Where does the pie go and where is the money? Then we get into issues of fees and how that would work; would competition compete them down or not?”

Myanmar’s banks are diving headfirst into digital finance, but what happens next will be decided by everyone in the financial system.