Serey Chea, director common of the Nationwide Bank of Cambodia, talks to Bhavin Patel, senior economist and head of fintech analysis at OMFIF, in regards to the nation’s soon-to-launch cell funds platform, Bakong.
Bhavin Patel: Might you present an outline of the Bakong system and the precise coverage aims?
Serey Chea: We purpose to enhance monetary inclusion, effectivity and security, in addition to promote using our native foreign money. Cambodia’s banking system consists of banks and cost service suppliers – these are purely expertise firms that present ewallet and cash switch companies.
Banks have cell functions, however these don’t work together. Fee service suppliers have a separate buyer base. This has resulted in requires larger monetary inclusion, as banks don’t serve the decrease phase of the market. These two separate elements of the market don’t discuss to one another, nor do the actors in every respective phase. Every supplier is simply comfy inside its buyer base.
By means of this platform, we wish to carry everybody collectively and create interoperability among the many gamers. The traditional approach of doing that is often by means of the real-time gross settlement system. Cambodia doesn’t have an RTGS system, though we are attempting to work on that and see whether or not we are able to develop one, presumably utilizing distributed ledger expertise. If cost service suppliers had been concerned in constructing the infrastructure, they would want to adjust to the identical stringent liquidity necessities as banks, which may very well be difficult for a expertise firm.
Introducing a separate license would defeat our goal. The lighter the regulatory value, the extra cost service suppliers can supply inexpensive companies to the bottom phase of the market. We discovered that DLT may resolve loads of our issues.
We wish to introduce an utility that monetary establishments can use instantly, or combine into their present cell functions. This manner, as an alternative of getting to put money into creating an app, small gamers can use the central bank’s.
On using native foreign money, Cambodia is a dollarised financial system, primarily out of comfort. Persons are cautious of paying within the native foreign money, as a result of it doesn’t have a giant denomination to settle sure massive transactions. With this digitised cash, we hope that individuals will discover it extra handy to settle in riel. They received’t have to hold a giant stack of bank notes with them to settle within the native foreign money.
BP: What has been the best change within the wholesale funds techniques in Cambodia? How does that examine inside southeast Asia?
SC: When it comes to wholesale funds, it’s not affecting something. We don’t have an RTGS system. We use a nationwide clearing system, the place clearing and settlement occurs twice each day between banks and for interbank settlements. Our focus is on retail funds, however we’re exploring the opportunity of wholesale clearing and settlement utilizing DLT. We’re observing undertaking Stella, the joint enterprise by the European Central Banka and Bank of Japan, and studying from numerous central bank experiments world wide.
BP: How does the Bakong system work, and what function does the non-public sector play in supporting it?
SC: When it comes to how Bakong works, we don’t confer with it as a central bank digital foreign money, as a result of lots of its parts don’t match that definition. We name it a spine cost system, as a result of it supplies the spine for all of the gamers to connect with one platform.
It follows a easy course of, just like an ewallet. The banks and the cost service supplier deposit fiat cash on the central bank in exchange for digital foreign money, which they will then retailer of their pockets. They retailer this digitised fiat cash both in riel or greenback. Our legal responsibility can be to the monetary establishments and the cost service supplier. This is rather like a conventional emoney service that banks present, whereby clients deposit cash on the bank and get digitised cash into their pockets. The banks and tech firms maintain the pockets on the identical platform, so that they then can talk and exchange cash in actual time. It’s nearly like an RTGS system, in that it’s not a batch course of, however fairly a peer-to-peer, bilateral, real-time mechanism. Prospects of the bank or PSP can withdraw cash from the bank and place it of their bodily pockets, or withdraw a digitised model of their cash and retailer it within the Bakong pockets. Prospects can obtain the Bakong pockets from the Apple Retailer, Google Play, or wherever they get their apps. They will additionally retailer their cash of their bank’s Bakong-embedded cell pockets. They will then ship cash to clients of their bank, a distinct bank, or a PSP.
BP: How are the cost service suppliers remunerated? Do they cost convertibility or transaction charges?
SC: We have to focus on that with our gamers. If everybody adopts Bakong, then PSP companies will grow to be redundant. However we depend on these firms to recruit clients and introduce new services to them. That’s why we simply wish to function a back-end cost system. It isn’t the central bank’s job to speak to water or electrical energy suppliers and different retailers – that’s as much as the PSPs and banks.
We have to give you a system that’s helpful for everybody. One answer may very well be charging a price to digitise fiat cash. In the meanwhile, every thing is free. Fee service suppliers may additionally cost a price on the cash-out stage. They may add different companies, like topping up cell phone credit score. It’s as much as PSPs to debate this with telecoms corporations, and determine whether or not to cost telephone firms or clients.
BP: You’d drive loads of competitors within the system.
SC: The competitors can be extra significant, fairly than offering countless reductions to draw extra clients. It is going to be about offering essentially the most handy and environment friendly service.
BP: Have you ever confronted another regulatory or interoperability challenges in creating the Bakong system?
SC: On interoperability, we initially thought that we may merely launch the Bakong system and a QR code, and everybody would undertake it. However in actuality, banks are embedding Bakong into their apps, and every banks has its personal QR code. Subsequently, to make sure widespread adoption of our system, we want a standardised QR code, in order that no matter their supplier, anybody can use Bakong to ship cash or make funds, even to somebody who doesn’t use the system. We’re working with the business to develop a normal QR code, however this has delayed the launch of Bakong.
As we go alongside, some issues may not prove as anticipated. It’s a studying course of for everybody. Nonetheless, we’re pleased with how Bakong is creating, even when progress is gradual.
BP: What are the subsequent steps?
SC: 13 organisations are a part of the Bakong system, with new curiosity within the programme each day. We’re engaged on cross-border operations and have already signed a memorandum of understanding with Malaysia’s Maybank. We wish to enable migrant staff – lots of whom are girls – to ship a refund house freed from cost, and have extra management over their funds. As an alternative of sending a bulk quantity every month to somebody of their house nation, who may misuse the funds, we wish to allow them to switch cash instantly to a faculty or hospital, or to pay a utility invoice.
This interview initially appeared within the second version of the Digital Financial Institute Journal.