Serey Chea, director general of the National Bank of Cambodia, talks to Bhavin Patel, senior economist and head of fintech research at OMFIF, about the country’s soon-to-launch mobile payments platform, Bakong.
Bhavin Patel: Could you provide an overview of the Bakong system and the specific policy objectives?
Serey Chea: We aim to improve financial inclusion, efficiency and safety, as well as promote the use of our local currency. Cambodia’s banking system consists of banks and payment service providers – these are purely technology companies that provide ewallet and money transfer services.
Banks have mobile applications, but these don’t interact. Payment service providers have a separate customer base. This has resulted in calls for greater financial inclusion, as banks do not serve the lower segment of the market. These two separate parts of the market do not talk to each other, nor do the actors in each respective segment. Each provider is just comfortable within its customer base.
Through this platform, we want to bring everyone together and create interoperability among the players. The conventional way of doing this is usually through the real-time gross settlement system. Cambodia does not have an RTGS system, although we are trying to work on that and see whether we can develop one, possibly using distributed ledger technology. If payment service providers were involved in building the infrastructure, they would need to comply with the same stringent liquidity requirements as banks, which could be challenging for a technology company.
Introducing a separate license would defeat our purpose. The lighter the regulatory cost, the more payment service providers can offer affordable services to the lowest segment of the market. We found that DLT could solve a lot of our problems.
We want to introduce an application that financial institutions can use directly, or integrate into their existing mobile applications. This way, instead of having to invest in developing an app, small players can use the central bank’s.
On the use of local currency, Cambodia is a dollarised economy, mainly out of convenience. People are wary of paying in the local currency, because it doesn’t have a big denomination to settle certain large transactions. With this digitised money, we hope that people will find it more convenient to settle in riel. They won’t have to carry a big stack of bank notes with them to settle in the local currency.
BP: What has been the greatest change in the wholesale payments systems in Cambodia? How does that compare within southeast Asia?
SC: In terms of wholesale payments, it’s not affecting anything. We don’t have an RTGS system. We use a national clearing system, where clearing and settlement happens twice daily between banks and for interbank settlements. Our focus is on retail payments, but we are exploring the possibility of wholesale clearing and settlement using DLT. We are observing project Stella, the joint undertaking by the European Central Banka and Bank of Japan, and learning from various central bank experiments around the world.
BP: How does the Bakong system work, and what role does the private sector play in supporting it?
SC: In terms of how Bakong works, we don’t refer to it as a central bank digital currency, because many of its elements don’t fit that definition. We call it a backbone payment system, because it provides the backbone for all the players to connect to one platform.
It follows a simple process, similar to an ewallet. The banks and the payment service provider deposit fiat money at the central bank in exchange for digital currency, which they can then store in their wallet. They store this digitised fiat money either in riel or dollar. Our liability will be to the financial institutions and the payment service provider. This is just like a traditional emoney service that banks provide, whereby customers deposit cash at the bank and get digitised money into their wallet. The banks and tech companies hold the wallet on the same platform, so they then can communicate and exchange money in real time. It’s almost like an RTGS system, in that it’s not a batch process, but rather a peer-to-peer, bilateral, real-time mechanism. Customers of the bank or PSP can withdraw cash from the bank and place it in their physical wallet, or withdraw a digitised version of their money and store it in the Bakong wallet. Customers can download the Bakong wallet from the Apple Store, Google Play, or wherever they get their apps. They can also store their money in their bank’s Bakong-embedded mobile wallet. They can then send money to customers of their bank, a different bank, or a PSP.
BP: How are the payment service providers remunerated? Do they charge convertibility or transaction fees?
SC: We need to discuss that with our players. If everyone adopts Bakong, then PSP services will become redundant. But we rely on these companies to recruit customers and introduce new products and services to them. That’s why we just want to serve as a back-end payment system. It is not the central bank’s job to talk to water or electricity providers and other merchants – that is up to the PSPs and banks.
We need to come up with a system that is beneficial for everyone. One solution could be charging a fee to digitise fiat money. At the moment, everything is free. Payment service providers could also charge a fee at the cash-out stage. They could add other services, like topping up mobile phone credit. It is up to PSPs to discuss this with telecoms firms, and decide whether to charge phone companies or customers.
BP: You would drive a lot of competition in the system.
SC: The competition will be more meaningful, rather than providing endless discounts to attract more customers. It will be about providing the most convenient and efficient service.
BP: Have you faced any other regulatory or interoperability challenges in developing the Bakong system?
SC: On interoperability, we initially thought that we could simply launch the Bakong system and a QR code, and everyone would adopt it. But in reality, banks are embedding Bakong into their apps, and each banks has its own QR code. Therefore, to ensure widespread adoption of our system, we need a standardised QR code, so that regardless of their provider, anyone can use Bakong to send money or make payments, even to someone who does not use the system. We are working with the industry to develop a standard QR code, but this has delayed the launch of Bakong.
As we go along, some things may not turn out as expected. It is a learning process for everyone. Still, we are happy with how Bakong is developing, even if progress is slow.
BP: What are the next steps?
SC: Thirteen organisations are part of the Bakong system, with new interest in the programme daily. We are working on cross-border operations and have already signed a memorandum of understanding with Malaysia’s Maybank. We want to allow migrant workers – many of whom are women – to send money back home free of charge, and have more control over their finances. Instead of sending a bulk amount each month to someone in their home country, who could misuse the funds, we want to enable them to transfer money directly to a school or hospital, or to pay a utility bill.
This interview originally appeared in the second edition of the Digital Monetary Institute Journal.