Not only are Myanmar institutions improving in safety, soundness and accountancy, they are also expanding their use of technology. Several banks are adopting the latest systems in an effort to become modern financial services companies, while more generally the country is developing its digital strategy to allow for channels that enhance the banking system.
The hope is that the sector will be able to make the leap from traditional paper-based banking to institutions which run sophisticated integrated platforms. Participants emphasise that what some banks are trying to achieve is more than just the use of technology to improve efficiency. They say that they are working instead to utilise technology to completely change they way they operate and how customers relate to them. “We are not just looking at changing the core banking system, we also see it as an opportunity to redefine our operating model and to lead the coming leapfrog,” Azeem Azimuddin, chief financial officer and adviser to the chairman at AYA Bank, told OBG.
Laying The Groundwork
A core banking system was developed for the Central Bank of Myanmar (CBM) by NTT Data in 2014. This was followed a year later by a real-time gross settlement (RTGS) system – which allows transfers to be made between the bank and its customers online – and an accounting system, developed for the CBM by Fujitsu in 2016, which migrated many of the tasks previously done manually onto a cloud-based platform.
While cheques have traditionally been cleared manually, they will now be handled without human intervention under the RTGS system. This has raised some concerns about whether the banks will have the capacity to fully utilise the system, as some do not have the necessary core systems in place, and whether the cheques used by the banks can be standardised. It is hoped that in the future the RTGS system, which is currently employed in the main by the CBM solely for its transactions with other banks, will also be employed for transactions between other banks which do not involve the CBM and with customers.
In addition to the innovations carried out by AYA Bank, a large number of institutions are also making investments in modern banking systems. Myanmar Oriental Bank (MOB) and the Cooperative Bank (CB Bank) have both contracted with Swiss company Temenos to develop banking software, and in mid-2016 MOB signed a service agreement with US-based VMW are for cloud solutions which improve customer experience and the security of accounts, according to local press reports. Elsewhere, The Infosys Finacle system is being deployed at Asia Green Development Bank, while Yoma Bank is using the FusionBanking Essence platform from Misys, which is a UK company. Kanbawza (KBZ) Bank, meanwhile, has opted to employ Oracle’s Flexcube platform.
Payment Services
The Myanmar Payment Union (MPU), an ATM and point-of-sale network founded in 2011, currently has 23 member banks. As of early 2016, 1.8m of its cards were in circulation in the country, according to the local press. In order to expand further, the system has signed a series of international agreements. First, in 2015 it partnered with JCB International to allow for the issuing of JCB cards to Myanmar residents. Two MPU members – AYA Bank and Cooperative Bank – have already agreed to issue JCB cards. The cards will be co-branded JCB/MPU. JCB has had a branch in Yangon since early 2016.
Then in June 2015 MPU and its Singaporean partner 2C2P introduced the country’s first online bill payment service. Known as EasyBills, it can be used to pay Myanmar Posts and Telecommunications; telecoms operators, including MECT el, Telenor and Ooredoo; utilities bills; and internet-based services, such as Skype, Google Play and iTunes. Tax payments are expected to be added to the service in the future.
Lastly, in early 2016 MPU and Korea’s KEB Hana Card signed a memorandum of understanding allowing MPU customers to access their accounts through the Hana Card network, while Hana Card users will be given reciprocal privileges in Myanmar.
Credit Cards
The issuing of credit cards was banned by the CBM in 2003, when the country faced a major banking crisis. Since that ban was lifted in 2012 about 2m secured cards have been issued, mostly by KBZ Bank, although these operate more like debit cards, with some requiring funds in an account and others working within a prepayment system.
In June 2016 CB Bank launched a card for international use. It is backed by the MPU and UnionPay, and can be used overseas anywhere that UnionPay is accepted. Prior to this, in March 2016 CB Bank started offering contactless prepaid mastercards. The product is also geared towards overseas travel.
Only a few thousand true credit cards, in which a loan facility is created, are in the market, according to the Myanmar Times. They are offered by MOB, AYA Bank and CB Bank. In the past, the absence of a centralised credit bureau made it difficult to offer true credit cards. However, with a bureau now under development, future potential in this market is huge. According to Bloomberg, Myanmar is one of the last major growth locations for credit card firms.
Digital Financial Services
The area of greatest opportunity is mobile financial services. While the regulatory environment in this market has been characterised by some uncertainty in the past, most of the barriers to growth have now been resolved, and it is expected that this element of the digital transformation will develop quickly in the future.
In 2013 the CBM laid out the framework for mobile banking operations though the issuance of Directive 4-2013. The directive employed a bank-led model in which commercial banks are the base institutions while mobile operators are service providers acting for the banks. However, the legislation was seen as incomplete. According to a 2015 report by the Japan International Cooperation Agency, the directive did not clearly lay out the responsibilities and scope of power of the mobile operators.
In 2013 several digital financial services initiatives were in the planning stages, including Myanmar Mobile Money, which was developed by Innwa Bank, Oberthur Technologies and Mobilemate Telecommunications; MyKyat, a Frontier Payment Technologies and First Private Bank initiative; MYWALLET plus, a partnership between CB Bank, Leo Tech and MCC Group; Wave Money, a joint venture between Telenor and Yoma Bank; and an Ooredoo service.
Despite the lack of a full legal foundation, a large number of these players had launched by 2015. MyKyat, for example, was introduced to the market in late 2014. The service offers cash in and cash out, a wide variety of remittance services and a number of value-added features. The company now has a network of agents and merchants, and the service works on almost any type of phone.
Enhancing Clarity
The CBM’s issuance of the Regulation on Mobile Financial Services in March 2016 served to enhance the legal underpinning of the subsector. Under the new rules, a mobile financial services company must have MMK3bn ($2.4m) in capital, pay an application fee of MMK3m ($2440) and be a non-bank financial company or a network operator. The mobile financial services companies are permitted to use agents, but they cannot have exclusive arrangements with agents. All fees must be disclosed to customers and placed on display. In addition, only kyat transactions are allowed. The transactions are limited to the following: cash in, cash out, money transfers between mobile financial services accounts, and domestic payments between individuals, between individuals and businesses, and between individuals and the government. Daily transaction limits are set depending on the type of customer making the transaction and the type of registration done for the customer. The highest transaction limit is MMK1m ($812) a day. The maximum possible balance is MMK50m ($40,615).
In a further development, in April 2016 the CBM said that mobile companies could apply for mobile financial services licences. A license was subsequently issued to the Yoma Bank and Telenor joint venture. The product, Wave Money, allows for the storage and transfer of funds and the utilisation of those funds at so-called Wave Shops. Customers of the joint venture would be kept separate from those of the bank. This type of service is seen as a good way of increasing financial services penetration, as more people have access to SIM cards than bank branches.
Questions Remain
The Myanmar digital financial services subsector still faces significant challenges. There are concerns that the lack of trust in the banking system could spill over into the digital side of the sector, while the majority of people in the country still prefer to carry cash. In addition, existing institutions, such as the post office, already offer cheap and convenient methods of sending money to others.
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