High smartphone penetration and a large unbanked population make Cambodia a seemingly ideal location to launch the next big digital wallet. Favourable demographics, however, are no guarantee of success
This article was published in the June edition of Southeast Asia Globe magazine. For full access, subscribe here.
In a dimly lit room on the outskirts of Phnom Penh, 27-year-old Em Seyha and a member of Acleda Bank’s customer services team are sitting side by side, hunched over a smartphone. The pair are discussing the bank’s new Unity ToanChet digital wallet, a mobile phone application that allows customers to top up their mobile phone, pay for bills and send and receive money to others using the app.
“I heard about ToanChet from one of my friends, but I wanted to make sure how to use it properly and to learn about the benefits I can get, so I came to the bank to register today,” Seyha said. Either side of him, similar conversations are taking place against the din of squeaking chairs and the faint tapping of keyboards. And in a country where a growing number of companies are attempting to make physical cash a relic, Acleda is not alone in engaging their customers in conversations about a new way of banking.
In recent years, Cambodia has seen financial technology, or fintech, startups blossom, with entrepreneurs drawn to the sector by the country’s young, smartphone-obsessed and largely unbanked population. But while the country is ripe for financial innovation, those wishing to disrupt the Kingdom’s financial sector face a tall order: they must convince customers to jump from using physical cash to adopting relatively advanced mobile phone applications. It is no mean feat – especially when everyone else is after the same slice of the pie. As Southeast Asian tech entrepreneur Steve Landman put it: “How many fricking wallets do we need on our phones?”
That’s not to say that the pie isn’t a big one, or that fintech won’t play an important role in delivering financial services to previously overlooked segments of the country’s population.
According to a 2016 study by professional services firm KPMG, only 5% of Cambodia’s population has a bank account. Addressing the needs of this population through the provision of digital financial services could increase the country’s GDP by 6%, the Asian Development Bank (ADB) estimated in January this year. Further, by bringing large numbers of Cambodia’s population into the folds of the formal financial system, fintech promises to bring much-needed financial security to millions of Cambodians. And the wider societal benefits extend far beyond the economic realm, according to In Channy, CEO of Acleda Bank.
“When customers use ToanChet [the new app], it reduces road traffic as people don’t need to travel to the branch; it saves money for the government as they need to print less money; it saves money for companies as they need less staff to process transactions; and it protects the environment as less paper is printed,” Channy told Southeast Asia Globe at his high-rise office in Phnom Penh’s nascent financial district.
In payments and transfers alone, the gap between demand and supply equates to $5 billion in Cambodia, according to the ADB. In short, there is plenty of room for new operators to enter the market here, said Yanese Chellapen, founder of Unkapt, a platform for Asia-Pacific SMEs to raise non-equity capital.
“There are proven needs, a significant total addressable market and plenty of scope for existing and new fintech players to operate in addressing financial inclusion,” he said. “Financial inclusion is a work in progress and fintech players are yet to fully capture this opportunity.”
But to exploit the country’s latent demand for financial services, startups must focus on facilitating user adoption and education, as the jump from the current way of doing things to the proposed solution is far bigger than in other countries. This means that building an aesthetically pleasing app that has lots of interesting functions is less important than tailoring your product to the needs of the market and explaining its uses adequately to your target audience, argued Chellapen.
“The [right] approach is to start with a low level of complexity, easy implementation, visible advantages for the users and [something that] does not create a big disconnect from past practices,” he said.
Emulating a business model that did well in another market is also no guarantee of success, said Khemara Ros, Cambodia country manager for ADB’s Mekong Business Initiative, a joint project with the Australian government to facilitate innovation in the country.
“You cannot just copy the whole technology and then adopt it here and think it will work well. You need to adjust to the culture. You need to adjust to the way people carry out their transactions,” he emphasised.
And while the importance of building comprehensive adoption strategies is not lost on the CEOs and founders behind the country’s fintech companies, doing so is often easier said than done.
“The holy grail is always adoption when you target the unbanked,” Jojo Malolos, CEO of mobile banking services provider Wing, told Southeast Asia Globe. “But there’s a lot of factors [to consider], right? It’s difficult to predict how [customers] will want to use their money electronically.”
Since its inception in 2009, Wing has registered 700,000 account holders – 150,000 of whom are active – and claims that a total of three million people use more than 5,000 Wing kiosks to send money across the country, helping the company register a profit of $5.2m last year, according to National Bank of Cambodia statistics.
But Wing’s success was not built overnight and new competitors are fast entering the market. In April, Acleda launched its Unity ToanChet mobile application, which has already picked up an impressive 61,000 users. PiPay, a slick mobile wallet supported by the Cambodian Anco Group conglomerate that says it has “thousands” of users, joined the fray a month later, adding to the already swollen ranks of companies vying for the loyalty of the country’s smartphone-wielding youth.
“Nowadays, it’s very easy to set up a wallet. The real issue is: sometimes there’s a tendency for [these companies] to busy themselves in one corner when in fact it’s a huge market altogether,” said Malolos, adding that Wing was continuously exploring different product offerings and avenues for expansion in order “to go viral”.
As with any new product, the marketing campaigns for these mobile wallets emphasise how they can improve people’s lives. They are `safer than cash’. They are `secure’. They are `convenient’. But whether or not a company chooses to promote these benefits through face-to-face interactions, or via Facebook videos, the battle for the hearts of consumers will be won by the number of merchants these companies sign up, according to Ros.
“The technology is just one thing to make the product work; the partnerships are more important,” he said.
Coupled with the difficult task of user adoption, this level of intense competition has led some to conclude that their efforts would be better spent developing products that serve other businesses, rather than fighting for the loyalty of fickle consumers.
Chanda Pen, co-founder and managing director of Bongloy, an application-programming interface (API) that allows businesses to accept electronic payment from their customers, said he had this realisation “several years ago”.
“We noticed everyone was focusing on remittance and mobile payment,” said Pen. “[We thought]: `Why not let the entrepreneurs develop their [own] products and Bongloy become the bridge between them and the banks?’”
Only two Cambodian companies – Banhji in 2016 and Morakot in 2017 – have ever been selected in the top ten fintech companies in Asia by the well-respected accelerator Startupbootcamp FinTech Singapore. The fact that both were business-to-business (B2B) companies perhaps suggests that Bongloy, too, is heading in the right direction.
Wing CEO Malolos also confirmed that B2B activities held the greatest potential for his company in the future. “B2B is the thing that will make our business expand and bring it to the fintech level,” he said.
Not only do companies entering the B2B space face less competition, user adoption is far less of an issue, according to Steve Landman, CEO of Kiu Asia, a software company that helps businesses across Asia streamline their back-end processes.
“The opportunity is bigger in B2B because you don’t have to change the way people are doing things. They’re already using some systems. They need working capital, they need an e-commerce marketplace to market their goods,” he said.
The way Landman sees it, the lion’s share of mobile wallets in the region today won’t be around tomorrow, as few will possess the advanced technology, extensive partnerships or number of users required to fend off the bigger players when they decide to expand into the region.
“Apple and Google are not here yet, but when they launch, all those other mobile wallets are going to be gone because those guys work with everyone,” he said. “The only way they can defend themselves is to become an acquisition target, where they sign up so many users that they become interesting to Apple. But I haven’t seen that happen.”
According to Ros, it is about timing as much as anything.
“Even big companies will sometimes need to spend years getting partnerships, so it may be cheaper for them to buy out a local startup,” he said. “But if you are still learning how to walk and a big company comes in, it could be a big problem.”