From Zero to 40 Million: The Rise of Digital Payments in Myanmar

Myanmar is in a boom. While seven years ago, financial services were largely unused, today many consumers use their smartphone to make payments. Over the course of only a few years, over 40 million Myanmar people have come online. From no banks to digital currencies, from no computers to smartphones, from no internet to 4G — everything in Myanmar is moving fast despite the relaxed atmosphere. The reason? No incumbency.

The fact that consumers are 4x more likely to have a smartphone (80% penetration rate) compared to a bank account (23% bank account penetration) has paved the way for mobile money to surpass traditional banking services. Wave Money for example, one of the leading mobile money operators, expects to move $4bn in 2019. That’s close to 5% of the country’s GDP ($69bn in 2017). And Wave Money is only one of many players.

Breaking down mobile money

Apps Apps, Baby

Unlike many emerging markets, Myanmar went straight to 4G enabled smartphones which enabled mobile money operators to build rich user experiences in standalone apps on iOS or Android. The first generation of mobile money users in other emerging markets that didn’t have smartphones and were limited to simple interfaces. The most popular example of this is Kenya’s M-PESA which enabled users to transact by sending different codes via text (e.g. SIM toolkit or STK). This behavior was further enhanced through USSD which let operators show menus and screens to users. Yet native applications will improve customer experience and increase the value of services offered.

A teller at every corner

The ability to easily and safely deposit and withdraw money is critical to the adoption of mobile money. One way is to use bank account transfers, which can take anywhere from several days in the US using ACH (e.g. Venmo, Square Cash) to an instant in India using IMPS (e.g. Google Pay, PayTM). In countries where bank account penetration is low, agent networks are used. Agents who have cash on hand are compensated for helping customers deposit and withdraw money into their mobile wallets. In Myanmar, Wave Money has created a nationwide network of over 45,000 agents — a far greater number than bank branches and ATMs. This ensures that consumers don’t have to go very far to get access to money.

The overnight sensation

  1. Cheaper access to telecommunications. Back in 2000, a SIM card would cost around $5,000 in Myanmar. Stories have been told about people trading in their cars for connectivity. Things changed once the government liberalized the market in 2013 and large players like Norway’s Telenor and Qatar’s Ooredoo entered. Within a few years, 4G was available in most of the country and SIM cards were mostly free. In fact, there are more SIM cards than people in Myanmar today.
  2. Cheaper access to phones. Along with data costs, smartphone prices have also dropped in Myanmar, thanks to the entry of low-cost phones from Thailand and China. Such phones now cost as low as $20 making them accessible to most Myanmar people.
  3. Poor accessibility of financial services. With only a few banks and ATMs centralized in cities, access to traditional financial services is limited in Myanmar given the large rural population. In addition, services are old fashioned (e.g. writing yourself a check to withdraw money from you account) and require in person visits to a bank that is rarely open (weekdays from 9am — 3pm). This created a dire need for a better solution.
  4. Better access to financial services through agents. Having a connected phone is one thing, being able to deposit and withdraw money from it is another. To overcome this challenge, mobile money operators have signed up thousands of merchants across the country as de-facto bank tellers. In any small town in Myanmar, you are likely to be closer to a Wave Shop than you are to the nearest bank.
There are more Wave Money tellers than all ATMs combined in Myanmar

Enabling Financial Inclusion

  • It’s safer. Before mobile money, workers sending money to their families in rural villages had to travel with cash or pay someone else to do so, which often led to theft or loss. Now, money can be transferred to just about anyone across the country in an instant. Money is also stored digitally with proper authentication methods to restrict access, a safer alternative to cash under your mattress.
  • It’s cheaper. The cost of sending money across the country is significantly reduced. On top of this, many mobile money operators enable users to make purchases in the app at a heavy discount, such as “top ups” which enable users to buy more airtime with the telco companies.
  • It helps businesses grow. Those typically underserved by traditional financial services can now open an account at a local shop and begin accepting payments. This is particularly important for rural economies and unregistered businesses. Mobile money tellers make commission on each transactions which helps support their business. At Wave Money, over 80% of such merchants are women. This is the case in many other emerging markets as well.
  • It increases resiliency and access. Mobile money makes it easier for businesses to collect on payments such as loan payments, debt, invoices, etc. This helps businesses reduce costs which in turn enables them make products more affordable for underbanked consumers.
  • It’s more efficient. Transacting in cash requires time to move, count, and store money. Mobile money helps business accurately account, reduces corruption, and decreases costs. Mobile money still has a ways to go to completely replace cash, but the trend is up and to the right.

I pay, you pay, we all pay

  • Telecom owned mobile money (e.g. MyTel’s MyTel Pay, Telenor’s Wave Money). These companies leverage large telco subscriber networks to distribute the product quickly. Limitations include high level of regulatory burden and process, as well as diffibulty expanding beyond telco specific customers.
  • Bank owned mobile money (e.g. KBZ Pay by KPZ bank, OnePay by AGD bank, CB Pay by CB Bank, Ongo by MOB). These companies leverage their large customer base to push better mobile payment capabilities. They are limited, however, by their geographical footprint given users still need to access ATMs to cash in and out of the app.
  • Independent mobile money (e.g. OkDollar). These companies are not restricted by a specific network but have more legwork to do to scale. They also face more scrutiny by consumers due to the lack of an official trustworthy partner.

At the end of the day, payments is largely an undifferentiated product. Consumers care only about a select number of factors:

  • Access to funds: Can I deposit and withdraw money quickly? The size of the merchant network matters greatly, which explains the current race for mobile money operators to acquire as many merchants as possible. On top of this, merchants need to be adequately trained and have enough cash on hand to handle customer withdrawals. This is a complex operational problem to solve.
  • Acceptance: Can I make payments with app? Onboarding partners to enable consumers to make online payments using the digital wallet is key (e.g. Facebook, Amazon, etc.).
  • Cost: How much does this cost to use? Most mobile money operators charge consumers when making payments or withdrawing money. As competition intensifies and functionality achieves parity, consumers will opt into using the cheapest solution available, driving prices down (similar to Lyft vs. Uber in the US).
  • Reputation: Is this trustworthy? Being owned by a bank or a large telecom company will give certain players an edge over others simply because consumers will trust them more with their money.
  • User experience: Is this easy to use? Remember that people in Myanmar didn’t have access to mobile devices or the internet until recently and are therefore not familiar with common design patterns. Apps that leverage human centered design to make the experience as clear as possible will win out. For example, simplicity is the reason why WhatsApp is used by most in emerging markets, not Facebook Messenger.

Goal: Super Apps

Here is a common roadmap followed by many FinTech companies:

  1. Identity: The first step is to ensure the customer is who they say they are so as to reduce fraud risk (e.g. KYC, AML). Without a proper identity verification foundation, the entire tower collapses.
  2. Payments: The second step is to make it easy to move money digitally between people and companies. This starts offline, and moves quickly online.
  3. Storage (e.g. Wallets, Checking): Once money can be moved, it can also be stored in digital transaction accounts.
  4. Wealth Management (e.g. Savings, Money Market, Brokerages): Once money is accumulated, it needs to be correctly monetized through investments.
  5. Lending (e.g. personal loans, mortgages, credit cards, car loans, etc.): Transactional data such as payments to existing debt providers or salary deposits are signals that can be used to assess their credit risk. Paired with the ability for institutions to send and receive money, many digital lending products can be built.
  6. Insurance: Consumers will continue to need more coverage as the number of contracts increases. Micro insurance help protect assets at a fraction of the cost by leveraging digital underwriting and claims processes.

Mobile money providers start with Identity and Payments, but it won’t be long until they expand to other product classes, such as providing loans to merchants and consumers who use the apps. This trend is visible in the US with payment providers like Square and Stripe launching their own capital arms.

AliPay lets users pay for just about anything within the app

Challenges ahead

  • Fraud. The lack of a centralized identity service in Myanmar makes it difficult to adequately assess a person’s identity. In fact, a lot of “official” Myanmar ID’s are still handwritten. While fraud risk is still relatively low given the small dollar value of mobile payments and the limited number of cross border transactions, this risk will increase over time.
  • Consumer protection. The limited regulatory oversight in Myanmar makes it easier for companies to operate and do business, but may leave the system susceptible to bad players who can ruin the industry’s reputation. Regulation should be defined and implemented to make sure all players are transparent and fair. In addition, there needs to be better standards with privacy and data security to protect consumers.
  • Interoperability. Each player is focused on building the walls around their empire, not necessarily the bridges between them. For example, it is difficult to transfer money from one wallet to another, leaving the consumers worse off. Open banking is the future, and FinTechs should build towards this vision.
  • Credit reporting. The lack of centralized credit bureaus in Myanmar makes it hard for lenders to properly assess risk and provide loans at acceptable rates to consumers. Data is currently siloed in each player, making the system overall worse off. Investments should be made to build a centralized bureau and incentivize reporting credit behavior.

Myanmar is a great case study in how FinTech can catapult a society from 0 to 1 in terms of access to financial services. Still, it’s one of the poorest countries in the world and still struggling with the protection of human rights. While FinTechs can help encourage financial inclusion, it certainly cannot do it alone. The right ecosystem balances forces between for profit companies, non profits, think tanks, consumer advocacy groups, regulators, data providers, policy makings and investors alike.

I enjoy building products that try to make the world more equal. Head of Product @Ramp.

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