The fintech ecosystem in Cambodia has expanded remarkably in recent years, particularly in digital payments and transfers. The Covid-19 pandemic has accelerated this trend as many services moved to cashless transactions.

The National Bank of Cambodia (NBC) has encouraged and supported innovation and the provision of digital financial services to reduce costs, improve interoperability and promote financial inclusion.

More than 70 per cent of Cambodia’s population is below 40 years of age, with a median age of 27. This young population, coupled with high mobile phone and internet penetrations at more than 100 per cent of the total population, have attracted fintech firms to introduce innovative e-wallet and mobile money services with their agent networks across the country.

The rise of digital and mobile banking has given more unbanked people access to formal and user-friendly financial services at lower charges. Banks and microfinance institutions (MFIs) have also leveraged on partnerships with payment service institutions to lower their operational costs, and developed their own mobile and internet banking services to be more convenient, secure, and attractive.

Rapid growth

Despite a late start, mobile money services have been growing rapidly as the number of mobile money agents has increased markedly, reaching 400 agents per 100,000 adults in 2020, from only 34 in 2015.

Over the same period, the number of registered mobile money accounts increased more than 20 times to 9.6 million in 2020, accounting for more than 80 per cent of the adult population, which is higher than deposit accounts with commercial banks or deposit-taking MFIs (Figure 1). Moreover, the number and value of mobile money transactions have also expanded rapidly to 266.5 million transactions in 2020, with the total value amounting to 168.6 per cent of GDP.

This extensive network of mobile money agents has enabled the government to deliver in a timely manner digital cash transfers to a large number of workers and households during the Covid-19 pandemic. The NBC and financial institutions have also encouraged the use of cashless transactions via e-wallets and digital banking platforms to combat the spread of Covid-19 disease through paper-based instruments.

The NBC has developed new payment and settlement systems to support the country’s rapidly expanding digital financial services, including the National Clearing System (NCS), FAST Payment System (FAST), Cambodian Shared Switch (CSS), Retail Pay, and Bakong (Figure 2). The recently added Retail Pay aims at improving electronic payments and fund transfers between participating financial institutions. Meanwhile, using blockchain technology, Bakong is a backbone payment system that enables interoperability among financial institutions, enhances efficiency in payment systems, promotes financial inclusion and encourages the use of cashless payments in local currency.

Nikkei Asia recently reported that as of June 2021, the number of Bakong wallet users reached 200,000, doubling in a mere three months. Also, almost six million people have benefited from this system, including those accessing indirectly through mobile apps of member institutions. In the first half of this year alone, a total of 1.4 million transactions worth around $500 million were recorded.

Challenges remain

While Cambodia’s fintech ecosystem has seen rapid development, some challenges remain, as highlighted in AMRO’s 2021 Annual Consultation Report on Cambodia.

First, a low level of financial and digital literacy can be one of the main obstacles in expanding the reach of innovative financial services, especially to the elderly and low-income people living in rural areas.

Second, cybersecurity threats could affect public confidence and undermine the ability of regulatory authorities to maintain financial stability. With the advancement in digitalisation, Cambodia becomes more exposed to cybersecurity risk that can cause material disruption in the financial system and result in a loss of public confidence.

Lastly, the presence of various payment services in the market offered by similar service providers could lead to inconvenience and confusion among users with limited knowledge of digital and market developments.

Going forward, all stakeholders need to continue their efforts to reap greater benefits from fintech development. Promoting financial and digital literacy is crucial to putting innovative financial products within the reach of the public, and in enhancing the likelihood of their adoption. Policymakers and market players can focus on young adults who are keen to embrace digital services, and who can then share their knowledge with peers and family members.

Meanwhile, regulators and financial institutions need to establish and adopt proper cybersecurity and consumer protection protocols and best practices to ensure stability in the financial system. In addition, further development of supportive and innovative infrastructures, such as payment systems that enable cross currency and cross border transactions, will promote the growth of fintech adoption in the country.

With adequate policy support and risk management, the fintech ecosystem could be a game changer in enhancing financial inclusion in Cambodia during and beyond the Covid-19 pandemic.

Yuthan Chea is an associate at the ASEAN+3 Macroeconomic Research Office (AMRO), an international organisation established by ASEAN+3 members to contribute to safeguarding the region’s macroeconomic and financial stability.