Fintech in Myanmar: Leapfrogging to Mobile Money?

As part of our Best of 2016 series, we are re-publishing some of the top articles from the past year.

fintech-in-Myanmar-Accion-Dawn-client-Daw-Myint-Han

Daw Myint Han, an Accion Dawn client in Myanmar, sells fish in the market.

Myanmar has a lot of catching up to do. With 90% of the population currently lacking access to formal financial services, the country must take the time to build sustainable financial service providers that can serve base of the pyramid customers with transparency, good governance, and strong client protection principles. Myanmar’s financial inclusion industry must be built on that foundation to meet the needs of its people.

That is not to say that Myanmar must follow a long and windy road to reach such a lofty goal. On the contrary, Myanmar is uniquely positioned to leapfrog brick and mortar microfinance and achieve large-scale inclusion with the aid of – you guessed it – smartphones.

There are currently three mobile network operators in Myanmar. Private companies Ooredoo and Telenor were granted licenses to launch in 2014, to compete with state-run MPT. As of August 2015, MPT still led the field with 14 million subscribers, but Telenor had already hit the 10 million mark, and Ooredoo clocked in at 5 million. Combined, the three mobile networks achieved nearly 300% subscriber growth in the past year. Myanmar was recently reported to be the third-fastest-growing mobile market in the world, after India and China.

80% of these 29 million subscribers are not only active users, but active smartphone users – and why? Because the country has completely leapfrogged feature phone usage mainly due to prohibitive costs including SIM cards that once cost thousands of dollars. For perspective, the United States has a 75% smartphone usage rate, and only two other countries (Singapore and South Korea) can boast greater than 80% smartphone usage.

Paralleling the explosive growth in smartphones is an equally remarkable increase in data usage. Telenor reports that its voice traffic grew 90% in the first half of 2015, whereas data usage grew 200%. 55% of Telenor subscribers use data on a monthly basis, and web-browsing consumes the highest percentage of that data. These trends are moving in only one direction: up. Telenor estimates that by 2016, 60% of the population will be online, up from 2% three years ago. Explosive growth in subscribers and especially in data usage has prompted Telenor to adjust its strategy of initially focusing on deploying 2G networks to now exclusively building 3G towers and increasing its network capacity to handle ever-higher data demands. Looking further ahead, they’ve also begun a free SIM card swapping program, which allows Telenor customers to trade their SIMs in to the company for 4G-ready cards, to keep up with the rapid pace of change.

This kind of infrastructure and active mobile usage by consumers is the exact foundation needed to successfully layer on digital financial services.

An enabling regulatory environment is also essential to continue the trends and leverage mobile growth to achieve financial inclusion at scale. Luckily, the government has made financial inclusion a priority, and since 2011, has been active in revamping regulations covering many business activities, including foreign investment, banking, and microfinance. Going forward, much depends on how effectively the newly elected government, led by Nobel laureate Aung San Suu Kyi’s National League for Democracy, can transition after last November’s historic elections. Many challenges remain, but there is room for optimism. We hope that the new government continues the previous government’s policies regarding investment and mobile development, and maintains the same focus on enabling financial inclusion.

The road ahead

Current regulation permits bank-led mobile money solutions, and several banks have teamed up with the mobile networks to offer basic banking services accessible through customers’ mobile wallets. We are particularly excited about the upcoming launch of Wave Money to drive financial services for the unbanked since it will start with money transfer, an important on-ramp feature to active usage in such a nascent country. Other innovative payment models in the works include Myanmar Mobile Money and myKat, as well as local app MyCHAT, which is planning to enable mobile payment on its social chat platform. Red Dot, a company whose 3,000 kiosks allow merchants to offer customers streamlined mobile top-up without scratch cards, is also planning to expand its offering to include bill pay services. There is still much work to be done in training and equipping such merchants, who currently sell airtime, to enable them to additionally offer financial services, and thereby build out an effective agent network of banking correspondents. While expanding agent cash-in, cash-out points, aspiring mobile money providers must simultaneously build trust in formal and digital financial services, which is no easy task.  Despite the enormous popularity of Facebook and simple messaging app Viber, it will require customer education and trust to go beyond basic social media usage to conducting e-commerce and especially digital financial transactions for the unbanked.

Meanwhile, public infrastructure lags far behind growth in banking, telecommunications, and construction. World Bank data reveal that barely half the population has access to electricity. Going forward, unequal access to electricity could be a major stumbling block in realizing fintech’s potential to advance financial inclusion in Myanmar.

Thus, despite the fintech fervor in the financial inclusion space, a cautious optimism is warranted. It will take many concurrent improvements in digital content, pricing, enabling infrastructure, and education for our partner DAWN and other financial service providers’ clients to access and benefit from digital financial services from smartphones of their own. Despite these challenges, we are enthusiastic about the opportunities and eager to see what Myanmar’s future holds.

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