The Future of Banking in Myanmar
Online Banking and the Challenges that lie Ahead
Since the economic reforms commenced by the current government after the 2010 election, the banking industry has been in the forefront of the sweeping changes in Myanmar. In the public sector, the past year has witnessed the formation of independent Central Bank with more power and authority vested in its proceedings than ever before. In the private sector, we saw the rise of local private banks which now total 22 in number.
Myanmar’s banking sector, under-developed and underutilized after decades of mismanagement, has a lot of room for improvement – and potentials. According to a 2013 report by the International Finance Corporation (IFC), the percentage of the population (about 60 million) with access to formal banking system is less than 5%. In 2013, there were only 863 bank branches in total in the country-compared with 7855 in Thailand, the neighboring country with a similar population size. Moreover, as multi-national corporations (MNC’s) begin to roll into Myanmar, they are expecting the banking sector to perform up to the international standards.
Encouraged by the deregulations being undertaken and the size of the potential market-with one eye on the imminent formation and operation of the Myanmar Stock and Securities Exchange in October 2015, local banks have been trying to come up with innovative solutions to remain competitive. One of the newest services currently developing in Myanmar’s banking industry-also the most frequently requested by the incoming MNC’s for their financial management-is online banking.
Online banking, including internet banking and mobile banking, allows bank users to manage their accounts on computers, tablets, or mobile phones via the internet. With the support of today’s IT technology, it provides users the option of bypassing the time-consuming, paper-based aspects of traditional banking. Through online banking, users can perform basic banking functions such as balance inquiry, fund transfer, bill payment, etc., without having to visit the banks in person. By allowing customers to manage their funds more quickly and efficiently at any place and any time, it provides a much more convenient way for customers to deal with banks.
From the bank’s point of view, online banking helps them cut operation expenses by reducing costly paper handling and teller interactions in an increasingly competitive banking environment. By saving customers from having to visit the banks in person, it also reduces crowding in banks and enables the banks to operate with fewer staff. Online banking is currently one of the services pursued eagerly by the banking industry in Myanmar. It is seen as a powerful value-added service to attract and retain new and existing customers.
Banking experts believe that online banking will eventually assume an important role in the development and evolution of businesses in Myanmar. According to Colin Thura Maung, assistant General Manager of the Strategic Planning Department of Ayeyarwady (Aya) bank, the early stages of online banking features in Myanmar will be similar to the traditional brick and mortar banking services such as balance inquiry, payment, funds transfer, and statement. Eventually, as it develops, online banking will become a medium of exchange of funds, provide trade parties with opportunities to use debit or credit transactions, and help introduce e-commerce to businesses in Myanmar.
Since 2012, the majority of private banks in Myanmar are already providing some of the online banking services such as ATMs, point of sale (POS), and debit cards. According to Thet Lwin Shwe, Chief Operating Officer of Asia Green Development (AGD) bank, AGD Bank has been offering online payment services such as telephone bill payment, electricity bill payment, internet bill payment, online remittance, and tele-banking since a few years ago. At the time of writing this article, there are 12 local banks that have their own ATMs and 7 who plan to do so in the near future. According to Zaw Lin Htut, Deputy MD and the head of the Wholesale and Card Division of Kanbawaza (KBZ) Bank, there are around 600,000 customers in Myanmar using ATM cards and about 200,000 of them are KBZ card holders. Of more than 500 ATMs in Myanmar, KBZ has over 140 ATMs with the majority concentrated in Yangon.
In Order to facilitate inter-bank fund transfer, Myanmar Payment Union (MPU), known as National Payment Network and Switch, was established in the same year jointly by the Central Bank of Myanmar and 19 private banks, with the technical assistant from Myanmar Information Technology (MIT). Now, in addition to the local banks, global payment networks such as VISA, MasterCard, JCP and CUP are actively competing in the banking sector in Myanmar.
The latest entry to the online banking arena is the launch of mobile money and transfers following the Mobile Banking Directive by the Central Bank of Myanmar in December 2013. As the number of Smartphone users in the country increases, Myanmar banks are now trying to take advantage of this trend by offering mobile banking service to their customers. The Mobile Banking Directive restricts the amount per transfer to 500,000 Kyats (about US$500) and allows up to three transactions per day. However, the total withdrawal amount in a day cannot exceed 1,000,000 Kyats (about US$1,000). Currently CB bank and Innwa Bank are offering online money transfer services to their account holders. Leading banks such as AGD bank, Kanbawza Bank, and CB Bank have also developed their own mobile banking applications. The two new mobile telecom operators-Ooredoo and Telenor-also have plans to offer mobile banking services in conjunction with financial institutions once their operations kick off.
One of the challenges to the development of the online banking system is the lack of awareness among the population. Myanmar has always been a cash economy, so most of the bank users do not recognize the benefits and the cost and time saved by switching to online banking. Although there are quite a few customers who already have experience with online banking abroad, the overall customer attitude needs to change before online banking can become truly popular.
Another challenge is the security of online financial transactions. Currently, the Myanmar government has yet to pass laws regarding online/mobile banking. As a result, users cannot put down complete trust in online banking citing card issues and the lack of rules and regulations on card fraud and security breaches. “Without regulatory framework, trust, security and consumer and business protection, the project of online banking could not be successful in Myanmar,” Colin stressed.
Most importantly, the critical issue obstructing the development of online banking in Myanmar is its inadequate infrastructure, especially in telecommunications and electricity. Currently, banks have to rely on IPstar satellite (C band), ADSL, and 3G (GPRS) connections for ATM transactions. However, the internet connection has been less than satisfactory. Online banking also requires stable electricity supply to operate effectively. In order for online banking to be successfully, perennial infrastructure issues such as insufficient internet bandwidth, congested mobile networks, and frequent power outages need to be addressed.
To conclude, although online banking in Myanmar is still in its fetal stage, it has tremendous potential to become the preferred way of banking. Myanmar’s rapidly growing financial industry will have to contend with many challenges in the political, economic, social, technological, environmental and legal (PESTEL) environments. Providing solutions-both hardware and software- to the needs in Myanmar’s banking sector offers plenty of opportunities to potential investors. With adequate support, the imminent development and implementation of game-changing technological advances are on Myanmar’s horizon.