Photo credit with thanks: arileu, cc

The State of FinTech in Cambodia

Samuel Hall
Dec 11, 2016 · 10 min read

Last week, Startupbootcamp FinTech’s FastTrack tour saw us take in stops in Kuala Lumpur and Phnom Penh. The opportunities to meet, mentor and learn from early stage FinTech startups were as always, insightful, informative and very enjoyable.

Cambodia’s FinTech scene is more nascent than some other markets in ASEAN, but like many developing ecosystems, the touch-paper has been lit.

Key Strengths

Strong economic growth. Cambodia can now boast more than two decades of growth, and in 2015, the country attained lower-middle-income status. With this, comes a growing middle class whose spending power and consumer behaviours give rise to a need for a range of new solutions in relation to payments, credit and mobile technology.

Credit is available for those who want it. Whilst far from the most active regulator in the region, the National Bank of Cambodia (NBC) supports lending, and banks in Cambodia have continued to make credit available for consumers and companies in the country. When judged in terms of the ease of obtaining credit, Cambodia currently sits in the lofty position of 7th out of 190 economies overall. That placing is much higher than neighbouring countries, and should inspire confidence amongst entrepreneurs that the financial means can be obtained to take their companies forward.

Support is available for investors looking to invest in early stage tech entrepreneurs. The Cambodian Investment Board (CIB) offers incentives for investors looking to support entrepreneurs that are starting businesses in specific fields — (technology, job creation, exports, tourism, environmental conservation, and rural development). These include exemption from taxes, duties and application costs. For FinTechs, the opportunity here is in the platforms that will support these activities — for example B2B and C2B payments, mobile security, accounting and alternative lending products.

100% foreign ownership is allowed. Unlike most of its neighbours, Cambodia allows 100% foreign-owned companies. Hopefully, this will incentivise foreign entrepreneurs to venture into the country and spark a growth in talent and innovation within financial services.

The Hurdles

Institutional/administrative sclerosis. Overall, the ease of doing business in Cambodia ranks very low: 131st globally. A lot of bureaucracy remains, it’s slow and expensive to set up businesses in the country, and the lack of an established and collaborative FinTech ecosystem means that entrepreneurs often feel like they’re going it alone, which inevitably leads to more busts and fewer breakthrough successes.

Regulatory hesitance/uncertainty. Unlike other countries in ASEAN, the NBC’s regulatory strategy remains relatively disengaged with FinTechs in the country. At this stage, the best characterisation of NBC’s approach is perhaps ‘learning and observing’, which doesn’t particularly instil confidence in those early-stage innovators struggling to understand the boundaries of their playing field.

As ever, the lack of regulation in multiple areas in Cambodia can be categorised as either an opportunity or a hindrance, depending on your viewpoint. Sceptics will note that whilst NBC continues to stay on the sidelines, the regulatory grey zones will remain, and for many, this makes taking a chance on an innovative solution unpalatable.

And for the entrepreneurs where this uncertainty does prove prohibitive, it acts to diminish development not just in the case of individual FinTechs, but more worryingly, for the collective FinTech ecosystem. This in turn does damage to the development of the financial economy in Cambodia as a whole.

Lack of a strong, established FinTech ecosystem. The local ecosystem — of which Phnom Penh is the hub — is growing, but at the moment it can’t hold a candle to those seen elsewhere around Southeast Asia. The lack of local support, influencers and opportunities for collaboration means that too often in Cambodia, good ideas are not exposed to the support, guidance and partnerships that they need, and bad ideas are not killed quickly enough.

Doors open for a Startupbootcamp FinTech social event in Phnom Penh.

The Current Path

First and foremost, the challenge in Cambodia is to bring retail banking consumers onboard. The scale of financial illiteracy in the country is significant, and there is a clear need to bridge educational and behavioural gaps in order to effect financial inclusion in the country.

The proportion of Cambodians with bank accounts is estimated at just 17%, and credit card penetration currently sits at just 30,000 cards across a country of 15.5 million.

There are a couple of hundred MFIs and private credit providers active in Cambodia. Yet the size, quality and coverage of these organisations ranges wildly. And with this highly fragmented market, it has proven difficult to really harness the potential of their collective offering for the purpose of bringing unbanked customers to the table.

Proportion of the population that has bank accounts in Cambodia (marked in red).

Anecdotally, 4G coverage across the country is impressive, and the rate of mobile penetration is extremely high — estimated at between 90–130% — although notably, more than 50% of phone users are not using smart phones. With a dispersed population and a dearth of brick & mortar bank branches outside of major cities, mobile promises to be the path to inclusion for a large proportion of the country’s unbanked population. It’s no surprise then, that the focus of FinTechs in the country is often payment gateways or core banking platforms that can bring key customer-bank interactions entirely online.

The front runner for payments in Cambodia has long been Wing, which offers a money transfer and mobile payments platform. However, recently we have seen leading telecommunications company Smart Axiata enter the fray. Earlier this year, Smart launched SmartLuy — a mobile money service that allows mobile consumers to transfer funds and transact digitally — and SmartPay — a mobile payment system using a virtual MasterCard to instantly make purchases on App Store or iTunes. Smart is in the enviable position of being able to leverage the significant strength of its well-established telecoms network, and its development of mobile payment platforms equips its users with the ability to increasingly move their transactions online.

Proportion of the population in Cambodia that has mobile phones — conservatively estimated at 90%.

When questioned as to the FinTech opportunity in the country, Smart’s CEO Thomas Hundt talks about the “importance of connectivity” and his focus on “investing significantly in the mobile network” in the country. For Hundt, the key opportunity at this stage of development is that offered by mobile technology in terms of empowering entrepreneurs and SMEs to bring quicker and more efficient solutions to the country’s traditional and existing areas of strength.

The Role of E-commerce

Similarly to neighbouring countries such as Vietnam and Thailand, e-commerce promises to form the platform for a raft of FinTech innovations in Cambodia. However, unlike these other countries, the industry in Cambodia remains relatively nascent. There are difficulties with making payments online, problems with delivery providers, and an overarching behavioural convention: Cambodians are accustomed to paying with cash.

There are those attempting to change this. In the space of just 24 hours, serendipity led me to meet a number of companies aspiring to be the Lazada, Carousell or Tokopedia of Cambodia. As with other markets, one factor that has held back the development of e-commerce is the lack of an established, reliable payment gateway for online purchases.

Proportion of the population that has credit cards in Cambodia (marked in blue).

Tales of cash being shipped in taxis and on buses are ubiquitous, and don’t paint a picture of a country that makes things easy for aspiring entrepreneurs and SMEs. By building and optimising the infrastructure to allow for cost-efficient movement of money, Cambodia stands to benefit from quicker, cheaper and more efficient purchase and delivery, and to provide a platform for two of its traditionally strong sectors: tourism and consumer goods.

Beyond consumer commerce, another huge opportunity for FinTechs in Cambodia is P2P lending and alternative finance. We are about to see the first big move online of invoice discounting/factoring services in the country, following a well-trodden path globally in opening up streams of working capital to SMEs.

Chankiriroth Sim, CEO of cloud-based accounting platform Banhji, talks about this development as being a gateway to growth for Cambodian SMEs: “Since 90% of businesses in Cambodia are SMEs, bringing digital access to finance to Cambodia is very important. Technology can allow people to have more trust in cashless transactions… and that will really help the economy. It will open the door for numerous entrepreneurs to grow businesses in the country, and for Cambodia that can only be a good thing.”

Given Banhji’s focus on SMEs, Sim’s support for alternative finance is perhaps not surprising. What is heartening about this for FinTech in Cambodia is the support that it demonstrates for collaboration and building an engaged ecosystem in the country, with Phnom Penh as a hub for development.

Developing a FinTech Ecosystem

The FinTech ecosystem in Cambodia lags behind most others in ASEAN, but we’re starting to see signs that this is changing. Engaged institutional partners will add to the pace of growth for FinTechs, but whilst it’s doubtless a generalisation, typically banks in the country have less developed digital strategies than others in the region. The reason is simple: until basic financial needs are met, there is little for the banks to gained by innovating on more sophisticated issues.

As Christopher Loh — Group Chief Strategy Officer at RHB Bank — notes, RHB Bank’s digital strategy in Cambodia looks markedly different to what it is doing elsewhere: “In Malaysia especially we’re in a very different stage of development. We’re working to make the whole end-to-end system cashless, and we’re much further down the road in terms of collaborating with FinTechs. In Cambodia we are hoping to partner with innovative startups, but the startups are at a different stage of development and that impacts the role that we can play in this market at this point.”

Cash-first-bank-absent customer behaviours are entrenched in Cambodia, and as a result of traditional (and prohibitive) tariffs for transferring money both between banks and even between branches of the same bank, there is a lack of trust in institutions among customers, and little appetite to engage with banks.

Both the banks and the emerging FinTech companies are acutely aware that their messaging needs to be on point in order to effectively re-position customer behaviour. And whilst it’s one thing talking the talk, it’s clear that to convince consumers in the country, banks need to walk the walk in terms of offering significant value add to everyday lives.

Happily, we are seeing a real willingness from banks to do so. The financial sector has offered strong support to economic growth in Cambodia over the past few years, and the impact on the everyman has been marked. Domestic credit accelerated by 27 percent year-on-year in 2015.

The Future

With a population of 15.5 million, Cambodia sits at the lower end of the scale when compared with its immediate neighbours in Southeast Asia. In light of that, and given that the pace of development in Cambodia as a whole is likely to remain slower than elsewhere in ASEAN, for entrepreneurs in Cambodia it is strategically sensible to build from the start with multiple markets in mind.

How Cambodia and its neighbouring economies rank re ease of doing business. Source: World Bank.

The need to innovate on regionally transferrable pain-points is therefore strong, and the obvious candidates are financial inclusion, innovative credit scoring and access to capital for SMEs — to fill the estimated $180m funding gap for SMEs in Southeast Asia. Typically, Cambodian entrepreneurs look to the likes of Myanmar and Vietnam as the next stops in their expansion, and with good reason. Vietnam has a mobile penetration rate of more than 100%, and both Vietnam and Myanmar remain close to 75% unbanked.

Perhaps we will soon see branchless service banking in Cambodia in the same way that Timo has made a dent in the financial services market in Vietnam. The signs for success are there: whilst it has proven beneficial to Cambodian consumers in moving money more cost-effectively, Wing’s wide agent network is essentially a more voluminous implementation of bricks and mortar financial interaction.

The next step will be removing the physical access points from the equation, by moving banking entirely online — except perhaps for the initial sign-up process. But that itself must be made quicker, less laborious and more consumer friendly. Next level customer data capture, storage and delivery will do a lot to push this forward, as will biometric onboarding and innovative credit scoring.

What Cambodia need not worry about for now, are some of the FinTech buzzwords from elsewhere in Asia. Robo-advisors, wealth management platforms and the raft of blockchain based applications that flood our newsfeeds in Singapore, Hong Kong, London and New York, are simply not yet relevant for the Cambodian market. What is relevant are the products that can bring onboard the 80+% of unbanked consumers, fill the funding gap and harness the potential of e-commerce to transform the way people do business in the country.

Mobile-powered efficiencies have the potential to alter the make-up of Cambodian commerce, and the country’s banks and regulator should seek to support these developments as a priority in order to continue the recent economic growth that Cambodia has experienced.

Both the opportunity and entrepreneurial spirit are there, and if our recent trip is anything to go by, the future is bright for FinTechs in Cambodia.

With thanks to Vanessa Yong for insights and editorial input.

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Sam Hall is Program Director at Startupbootcamp FinTech Singapore and Rainmaking Innovation.

Samuel Hall

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Writing about professional fulfilment. Venture building w/ corporates & startups. Bball aficionado & Attenborough addict. Rather die enormous than live dormant.