CHUAN HOW TAN | Senior Consultant, Head of Banking & Finance, DFDL Cambodia |

NEARIRATH SRENG | Deputy Head of Banking, Finance & Technology Practice, DFDL Cambodia |

RICHARDS GRAMS | Senior Consultant, DFDL Cambodia |

The Kingdom of Cambodia has transformed into one of the ten fastest-growing economies of the past 20 years. Poverty has sharply fallen from 50% of the population in 2005 to 13.5% in 2014. The World Bank now classifies Cambodia as a lower-middle income economy, no longer a low-income economy as before.

The Fintech Allure of Cambodia

Cambodia’s rapid progress is often chalked up to macroeconomic stability reflected by low inflation, increasing international reserves, modest fiscal deficits, low public debt and well-framed economic policies.

From a fintech perspective, part of Cambodia’s allure lies in its young population demographics, 9.7 million daily internet users by January 2020, 27 million mobile subscriptions and the fact that so far, only 23.5% of the population enjoys financial inclusion. To address that gap, there has been rapid growth of mobile accounts for remittances and payments, with institutional investment channeled to companies like Wing and PiPay in promoting financial inclusion through their apps.

Banks and microfinance institutions in Cambodia have also been quick to embrace digital transformation which is creating opportunities for entrepreneurs to develop third-party service providers (“TPPs”) that can offer banks and MFIs the wherewithal needed to power not only mobile payment solutions but other services as well.

Somewhere in 2021 or 2022, we expect to see the debut of new account-related apps equipping account holders with a variety of personal finance tools such as the ability to get mortgage and personal loan quotes and financing over their mobile devices. In other words, the advent of open banking in Cambodia.

The main hurdles that Cambodia faces are the modest size of its market and its incomplete legal framework for regulating fintech (i.e. nothing present so far akin to the EU Payment Services Directive 2 (“PSD2”) or Open Banking UK). Thus far, major international fintech operators have stayed out of the Kingdom. Accordingly, most fintech business operators in Cambodia are homegrown, which is a double-edged sword: having so few foreign competitors make it easier for local entrepreneurs to compete but at the same time, without an influx of foreign competitors, there is less pressure on the Cambodian government to roll out new policies and regulations that adequately support fintech and safeguard consumers’ rights. This is what we are seeing with mobile payments: local demand for digital solutions is making it easier for startups and SMEs to access cheaper and flexible capital. However, because the only regulatory sandbox that exists in Cambodia is for mobile payments, operators have been hesitant to develop services that cut across regulated sectors until new regulations permitting this are introduced. As regulatory support for the industry grows in Cambodia, it is likely that the necessary legislative changes will inevitably occur.

Recent Progress

Some recent initiatives deserve mention in connection with Cambodia’s evolution as a fintech ecosystem. First, in November 2019, the Cambodian government promulgated the Law on e-Commerce, which dovetails with a new Consumer Protection Law (introduced simultaneously), providing greater certainty to fintech businesses involved in payment systems and the like. Then, in May 2020, the National Bank of Cambodia (“NBC”) announced the launch of Project Bakong which is a ‘next generation’ blockchain-driven payment system that promotes access to banking services through user-friendly apps that run on iOS and Android systems. Users can open a Bakong account and make payments even if they lack a traditional bank account. Powered by a platform developed by Soramitsu of Japan, Bakong has evolved into a Central Bank Digital Currency (“CBDC”) that serves as an ultra-efficient bank settlement system which does away with physical transfers of cash between banks.

The case of Bakong demonstrates such evolution, as Cambodia’s digital economy represents a market opportunity for overseas vendors of both products and services. Cambodian fintech players often look abroad to seek and procure the technical know-how needed to power and formulate services offered at home. Another recent example of this is Vattanac Bank’s July 2020 unveiling of its mobile banking app which relies on data security protocols developed by Paris-based Thales Group.

The Bakong project and CBDC are stunning achievements for such a small country but before the Kingdom can embrace other digital assets such as crypto currencies and STOs (Security Token Offerings which are used to tokenize physical assets such as real estate), bold new policies and regulations are needed. Without regulations akin to PSD2 or Open Banking UK, open banking will struggle to achieve a full launch in Cambodia. Despite demand, local fintech entrepreneurs and banks lack the experience and wherewithal to drive this change themselves, the necessary impetus and backing will need to come from regulators.

The Current Fintech Stakeholders

The main stakeholders are Cambodia’s banks and microfinance institutions and several government ministries, as well as the NBC which serves as the country’s de facto central bank. Cambodia’s banking sector is regulated by the NBC and the Ministry of Economy and Finance. While the Ministry of Economy and Finance regulates the fintech industry with general laws, the primary regulator with respect to fintech remains the NBC. The Cambodian Investment Board is also a stakeholder: it offers incentives to investors looking to support entrepreneurs that are established businesses in a number of fields and while there are no dedicated investment incentives for participation in fintech, it is understood that this is currently under review.

The NBC has publicly endorsed digital policies including the “digital government” concept championed by both the Minister of Post and Telecommunications and the Ministry of Economy and Finance but until it comes forward with new regulations, neither the banks nor their third-party providers will be too eager to roll out any new, revolutionary or paradigm-shifting products or services.

The Regulators

National Bank of Cambodia | Ministry of Economy and Finance | Cambodian Investment Board | Cambodian Credit Bureau

Key Participants

Fintech Start-ups (Wing, Pi Pay, Bongloy, BanhJi, True Money, Ly Hour Pay Pro, SmartLuy, Karprak, Kiu, Tesjor, KB Global) | Traditional Financial Institutions | Overseas workers

Key Regulations

Law on Banking and Financial Institutions | Law on e-Commerce | Law on Negotiable Instruments and Payment Transactions | Law on Financial Leases | Prakas on Third Party Payment Processors | Prakas on Management of Payment

Services Providers  

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