Over the past few years, digital financial services have seen greater adoption in Cambodia, a trend that was accelerated by the COVID-19 pandemic and the social distancing measures put in place to limit the spread of the virus.
Rising usage of digital financial services, including digital payments and online lending, has emerged on the back of payment modernization efforts from the government with hopes for digital solutions and platforms to improve financial inclusion.
Online lending, payments pick up
Despite a late start, mobile money services have been growing rapidly in Cambodia over the five years, a report by the Phnom Penh Post says, sharing data from the National Bank of Cambodia (NBC) and the International Monetary Fund (IMF).
Mobile money usage started significantly picking up in 2015, with the number of registered mobile money accounts increasing more than 20 times to 9.6 million in 2020. The figure implies that, as of the end of 2020, more than 80% of the adult population had a mobile money account.
In tandem, the number and value of mobile money transactions have also expanded rapidly, reaching 266.5 million transactions in 2020 from just around 60 million transactions in 2015.
Looking at historical data, it appears that 2019 was the tipping point for mobile money usage, where the number of registered mobile money accounts surpassed that of deposit accounts with banks.
This means that consumers have been embracing mobile money and digital financial services at a much faster pace than traditional banking services, and implies that fintech providers have been successful in reaching populations that had so far remained out of the traditional banking system.
Number of deposit accounts and mobile money account and transactions, Source: Phnom Penh Post, Nov 2021
Online lending is another area that has recorded strong growth, especially since the beginning of the COVID-19 pandemic.
At Acleda Bank, president and CEO, In Channy, said last month that while the number of in-person loan applications has declined, the volume of online loan applications has increased significantly over the past two years, tallying up to about 400,000 since 2020.
Customers are turning to online channels due to their simplicity, convenience and time-effectiveness, Channy said, noting that the number of “digital users is up to 94%” whereas the equivalent figure for “agency and counter users is only 6%.”
Acleda Bank’s senior executive vice-president Mar Amara indicated that digital payments have also gone up, rising 61% in volume and 90% in value over the previous year. In 2021, the bank processed 85 million electronic payments amounting to US$34 billion, he said.
Digital solutions to improve financial inclusion
Cambodia’s central bank has encouraged and supported the use of technology in the provision of digital financial services with hopes that innovation will help improve financial inclusion.
The government has set out the goals to increase usage of formal financial services to 70% by 2025 and reduce the financial exclusion of women by half from 27% to 13%.
Cambodia is home to about 16.7 million people. Among approximately 10 million Cambodian adults, only about 50% are formally banked, according to Association of Banks in Cambodia. But with a media age of 27, coupled with high mobile phone and internet penetrations at more than 100% of the total population, growth prospects for digital financial services are considerable.
These past decade has seen the NBC developing a number of new payment and settlement systems to support the country’s digital financial services. These include the National Clearing System (NCS), FAST Payment System (FAST), Cambodian Shared Switch (CSS), Retail Pay, and Bakong.
Bakong is a digital currency initiative and peer-to-peer (P2P) fund transfer service for the retail market that leverages blockchain technology for speed and enhanced efficiency. The digital payment system was launched in October 2020 after a yearlong pilot, and is recognized today as one of the world’s first central banking digital currencies (CBDCs).
As of November 2021, there were roughly 270,000 Bakong wallet users, and the CBDC had reached about 7.9 million people, or nearly half of the country’s population. By November 2021, the system had processed a total of 6.8 million transactions worth about US$2.9 billion, according to Nikkei Asia report, which cites data from the NBC.
Lagging behind regional peers
Despite a rise in digital financial services usage, Cambodia still lags behind its regional peers when it comes to the size and depth of its fintech sector.
Although the country is home to some 300 fintech companies, according to estimates by Tomas Pokorny, the founder of local mobile payment app Pi Pay, the sector is dominated by payment providers, with only a handful of them reaching notable traction. Also, Cambodia has yet to mint its first unicorn startup, showcasing the country’s relatively underdeveloped startup ecosystem.
In 2021, 19 startups in the Association of Southeast Asian Nations (ASEAN) reached a valuation of US$1 billion and over, according to a report by Credit Suisse. Out of ASEAN’s 35 tech unicorns, 15 are from Singapore, 11 from Indonesia, three from Malaysia, three from Thailand, two from Vietnam, and one from the Philippines.
Limited access funding and a lack of global vision have been amongst the biggest barriers to creating Cambodian unicorns, experts told the Khmer Times last month, though this may change soon.
Kem Bora, a partner at locally-headquartered investment and advisory firm Mekong Strategic Partners, said several Cambodia-based startups have already started establishing a presence outside the country, including Morakot, a company providing a core banking system for microfinance institutions and banks.
Cambodia is also seeing the emergence of so-called super apps, digital ecosystems that allow customers to access a vast range of services through a single app. These are playing an increasingly larger role in the digital payment landscape.
Homegrown food delivery app Nham24, which bills itself as “Cambodia’s first super app,” said it has seen “rapid growth of cashless payments on the platform,” noting that since April 2021, digital payments have surpassed cash payments. Between April and May 2021, the app’s orders surged 40% to 50%, according to Mekong Strategic Partners, an investor in the startup.
Similarly, E-GetS, another delivery and commerce platform from Cambodia, said the company has also seen a spike in digital payments, adding that orders, meanwhile, increased nearly 100% in the months that followed the lockdown.
“Before the outbreak of the epidemic, transactions of cash payments accounted for about 55%,” Victor Lee, marketing manager for E-GetS, told Nikkei Asia in May 2021. “Since March, cash payments have fallen to 45%.”
