Challenging the dominance of cash in Myanmar

Myanmar has struggled to adopt card payment systems. Mobile payment solutions have the best chance of challenging the dominance of cash.

By Oliver Ward

Cash is still dominant in Myanmar. Despite the governmental reforms in 2017, cash is still the preferred payment method. That could be about to change. Myanmar is ready to buck the trend. It could move straight from cash to mobile payments without adopting card payments.

Cash is king

Card payments are struggling to take off in Myanmar. As of 2017, only 0.5% of transactions were carried out electronically. Only 10% of the population have a bank account. Financial exclusion is high. The financial climate does not immediately lend itself to card payment solutions.

In January 2017, the government opened Myanmar up to international payment companies. Companies like Mastercard and Visa began providing credit cards in the local currency. The government hoped the arrival of international companies would spur collaboration. The larger companies would share their human capital and experience with local banks. The government anticipated that this collaboration would spur growth and drive innovation.

Card use has not taken off. Two months after the new regulations came into effect, acceptance remained low. In 2017, there were just 7,000 point-of-sale card terminals nationwide. In comparison, Singapore has 99,000 terminals, and Indonesia has over 1 million.

Sources: FRBSF, The Economist, Central Bank of Myanmar, The Banker

The barriers to card usage remained

The local population are willing to adopt cards as a payment method. 78% of the population want to use them in the future. But Burmese consumers find them uneasy to use and are unfamiliar with the technology. These have been the largest obstructions to bank card adoption.

Source: Deloitte

There are also barriers to merchants. A typical point-of-sale terminal costs US$250-US$300. For merchants who thrive on many small transactions, it is not worth the outlay.

The payment system is also very cumbersome. Myanmar’s banking sector remains fragmented with some 70 different local banking providers. The MPU connects ATMs across Myanmar. However, there is still no central clearing system to facilitate payments between banks.

The financial landscape in Myanmar is crying out for mobile payment solutions

Myanmar does not need to promote card payments. The financial environment and technological landscape are crying out for mobile payment solutions.

Myanmar leapfrogged the landline. The population went straight to mobile use. In 2013 the price of a SIM card and mobile phone plummeted. The price of a SIM card fell to as little as 1500 kyat (US$1.50). Cheap Chinese-made phones flooded the market. People could buy them for between US$20 and US$30.

Mobile phones suddenly became accessible. 89% of the population now have a mobile phone, and 80% of these phones are smartphones.

With mobile phone use expanding, the mobile infrastructure also grew rapidly. Myanmar now has more than 60,000 mobile network tower sites. 70% of the country receives network coverage.

Source: The Banker

The barriers preventing card adoption do not exist with mobile payments

The largest barrier to card adoption was a lack of public understanding of how to use them. This problem would evaporate if Myanmar moved to mobile solutions. 89% of the population already knows how to use mobile phones. Consumers are already accustomed to the underlying technology.

New players in the mobile banking market are using wallets that are not linked to bank accounts. Customers can open a mobile wallet with their SIM card and some form of identification. These mobile payment solutions can reach those without access to a bank account. In this respect they have a far greater reach than card payment systems.

Mobile payments could also overcome the barrier of expensive merchant terminals. Modern mobile point-of-sale terminals are smaller and cheaper than their card-reader counterparts.

The government needs to respond

There are few places in Southeast Asia with the ideal conditions for mobile payments to boom. Myanmar is one of them. But at the moment, all the parties are operating on their own. The government could be the final piece of the puzzle to bring everyone together.

The Myanmar government needs to promote the adoption of mobile payment solutions. Financial sector reforms should aim to remove barriers to adoption. The government could subsidise transaction fees for mobile payments. It could make mobile payment security a priority and enhance security mechanisms. A central clearinghouse would also improve fluidity across the mobile payment network.

The government stands to benefit from a more transparent economy. It would minimise tax revenue lost from those existing outside the banking system. It makes logical sense that the government should be involved in the solution.

It is time to unseat cash as the preferred payment method. The government needs to turn its attention to mobile payment solutions. When it does, there will be a new king in Myanmar.