Written by Sachin Bansal
Myanmar has been receiving lot of attention recently. As a result of its increased openness with the global community, there have been many articles written on the country, its people, and many are looking at Myanmar to take great strides in the coming years. As a result of the increased dialogue with international players, there has been significant foreign investment in various sectors of the economy. The country is now moving towards a market-oriented economy, a change that is helping the government-driven economy to be more efficient and competitive. As an example of the increased competitiveness, entry of new players in the telecommunications space has brought down the cost of SIM cards from as high as $2,000o to $1.25 today, making it more accessible to the population. This fall in price has resulted in increased mobile penetration in Myanmar, 54.6% as of March 2015. The Ericsson Mobility Report of November 2015 states that 87 million new mobile subscribers were added globally in the Q3 2015, of which Myanmar contributed 5 million – ranked fourth globally of the fastest growing markets.
The Central Bank of Myanmar is eager to leverage this now omnipresent tool to expand financial services to the un(der)banked citizens of Myanmar. In July 2015, it issued draft Mobile Financial Services (MFS) regulations and the final regulation is expected soon. In spite of all the efforts being made by the government, central Bank, financial institutions and telecom companies, the journey to launch MFS will not be easy in Myanmar. There are several challenges facing uptake and usage:
Lack of trust in the banking system:
There is a very high level of mistrust with the banking system in Myanmar and most people still do not have bank accounts. The lack of trust is so ingrained that several big institutions pay their staff in cash, as the employees are not willing to accept a bank transfer. This lack of trust in banks can mainly be attributed to the 2003 Myanmar banking crisis but there have also been several recent rumours of banks failing, leading to people withdrawing all their money from the banking system. The MFS players will have to work very hard to overcome this challenge to change people’s perception.
Low level of perceived risk for carrying cash:
People in Myanmar do not perceive carrying large amount of cash on their person as a huge risk, unlike in other countries. This lack of risk is evident in the country as you can see money changers sitting on the roadside of Yangon streets, with minimal security arrangements, counting large US Dollar bills out in the open. As the perceived risk of carrying cash is low, people may be unwilling to pay fees/charges to store their money in MFS wallets for just safety reasons.
Low pricing of existing formal channels of money transfer:
|Money Transfer Charges of Myanmar Post|
Most successful MFS offerings have person-to-person money transfer (P2P) as their core product offering as it is cheaper than transferring money through a bank. In Myanmar, however, the money transfer service offered by many formal institutions has a very low transfer fee. The Myanmar Post Office, for instance, has an extensive presence throughout the country and offer money transfer service in 335 of their branches. The fee is lower compared to other countries at 0.05% to 0.5% of the amount remitted plus fees. Indian Post Office by comparison charges 5% on low-ticket money order service. Establishing a business case to compete with such low pricing is going to be a challenge for MFS players in the near future. However, there is limited geographical coverage of such formal services available to the citizens and customers may be willing to pay for convenient services if the price was appropriate.
Prevalence of Hundi system (informal remittance channel)
There are several informal channels , such as the Hundi system, that also offer money transfer services to citizens of Myanmar. The Hundi system has been used and trusted for several decades. As per The Economist, people migrating outside the country perceive the traditional hundi system to be cheaper, quicker and safer than anything the banks can offer. The new MFS offering will have to beat the advantages offered by such informal systems.
To launch successful MFS operations in Myanmar, the providers will have to work on an innovative business model and develop customer-centric products that learn a lot from the informal offerings. Pricing will also play an important role as customers may be willing to pay for accessibility and convenience.