In Cambodia, fintech development is slowly gathering pace

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When it comes to Fintech adoption and funding, Cambodia trails its ASEAN neighbours. However, that presents significant growth opportunities in the future.

By John Pennington

As Singapore strides ahead of other ASEAN nations in the arena of fintech development, Cambodia lags some way behind. Its fintech infrastructure is one of the least developed in Southeast Asia.

At the same time, in some areas – notably fintech regulation and growth potential – Cambodia has made strong progress. As investors target the fintech sector for 2019, few are rushing to invest in Cambodia. But could that change in the near future?

Progress is slow but steady

It took Cambodia until August 2018 to launch its fintech association (CFA), which aims to increase inclusion among the vast numbers of unbanked or underbanked Cambodians.

When payment provider Clik secured seed funding of US$2 million it became Cambodia’s best-funded fintech company. It pales in comparison with what other companies across ASEAN are receiving, but it is a start.

Source: Fintech News

There are significant challenges to overcome

One of the biggest challenges fintech companies in Cambodia face is the country’s fragmented payment structure. Several have already tried to solve this problem and failed.

They failed, in part, because cash is still the dominant method of payment, accounting for 70% of all transactions nationwide.

Whether Clik can make progress towards unseating cash as the preferred payment method will be hugely significant. If it succeeds, it will open the door for other fintech companies to work with a streamlined payment structure. That will accelerate Cambodia’s fintech development and boost investment.

Elsewhere, a National Bank of Cambodia (NBC) report in 2017 highlighted the lack of co-working space, accelerators, incubators and university support for fintech start-ups. However, they published this report before the launch of the CFA, which is actively seeking to address these issues.

Across Southeast Asia, all parties are working towards regulating fintech effectively. Despite its relatively weak fintech infrastructure, Cambodia has made good progress with regards to regulation – or “regtech” as it is sometimes known.

The NBC put together a clear legal framework for fintech companies. Rather than introducing stifling legislation, the NBC introduced a licensing framework for payment service providers. This allowed fintech firms to apply directly to the NBC without needing bank sponsorship first.

There is potential for fintech growth within Cambodia

For Cambodia, boosting the country’s fintech capabilities is part of its nation-building strategy. Fintech could be a game-changer for the country, and there are ample opportunities for growth.

Firstly, there is a considerable gap between financial services needs and formal supply. The NBC estimated this gap at US$24 billion in 2017. In theory, that makes it easier for fintech companies to disrupt the financial sector because there are clear gaps in the market for them.

Secondly, technological advancement and adoption in Cambodia are accelerating. Mobile phone penetration is up, but less than one-fifth of phone users are using them to make payments. “What is in the market is not answering the demand,” explained Clik CEO and co-founder Matthew Tippetts.

Financial inclusion is key to Cambodia’s fintech development…

The Asian Development Bank (ADB) estimated that fintech development could trigger US$1.7 billion in electronic payment flows and a US$2.5 billion credit uptake in Cambodia. Those numbers – even if they are optimistic – highlight tremendous opportunities for Fintech development in the country.

Many Cambodians remain either unbanked or underbanked, although this number is falling. Bringing them into the financial fold is at the heart of fintech innovation in Cambodia.

Often, rural villagers will have access to a mobile phone. Developing mobile solutions, as NBC director general Chea Serey explained, would allow financial service providers, “to reach more remote areas at a lower cost in a safer way and at a larger scale”.

Fintech can also provide a platform to help other industries grow. Once fintech is established in the financial sector, companies can use what they have learnt and innovate elsewhere. For example, savings and insurance are also ripe for disruption.

…but it will not happen quickly

At the moment, Cambodia rarely features in any general discussions about fintech in Southeast Asia. It lacks funding, few companies are operating in the country, and until recently, it had little framework in place.

Things are changing, but more companies need to invest. Now the CFA is up and running, that should help. Investors will be watching Clik with intrigue. It is very much a litmus test, that if all goes well for Clik, it could spark a flurry of investor interest in the country.

Cambodia does have potential. It has a regulatory framework. It has a young population and a stable economy. The government is also on board and is now encouraging fintech development.

Fintech will eventually disrupt Cambodia’s financial sector and give the nation a boost. That much is certain. However, like its payment structure, Fintech in Cambodia remains fragmented. That means its development will continue to be slow, sure and steady.