> Posted by Jeffrey Riecke, Communications Associate, CFI

On Monday, Myanmar launched its first domestic online payment network. The payment platform centers on a partnership between 2C2P, a Southeast Asian payment services company with a history of digital finance work in the country, and Myanmar Payment Union (MPU), the national payment network set-up by the country’s central bank. The new platform allows MPU cardholders, currently 900,000 individuals and counting, to make online purchases in-country. The e-pay advancement is a promising step for financial inclusion in the country, which continues its recovery from economic isolation and military rule.

The Myanmar Payment Union, the country’s only domestic card-based payment system, launched in 2011, encompasses 20 banking partners, including three state-owned banks. In the time since MPU introduced banking cards and ATMs, card adoption has increased, with enormous growth in 2014, from roughly 200,000 cardholders early in the year to the current level of 900,000. With the new online payment system, businesses now need to sign onto the service via one of MPU’s partner banks, which will provide technical support and consultation throughout the process. On both the business and consumer end, achieving the necessary platform traction will require significant awareness building – quelling fundamental questions like: will my payment actually reach the merchant?

Previously in Myanmar, 2C2P set up the Citizen Card, a reloadable prepaid card for Myanmar Citizens Bank clients accepted by MasterCard merchants around the world. 2C2P also supported the launch of the country’s mobile point-of-sales system iACCEPT, with project partners Visa, MasterCard, Myanmar Citizens Bank, and Myanmar Hotels International.

Although Myanmar’s GDP has grown at about 5 percent annually in recent years, the country remains one of the world’s poorest. The UNDP’s 2014 Human Development Index ranked Myanmar in the low-development category, at 150 out of 187 countries and territories. In the UNDP and UNCDF analysis, Making Access to Finance Possible (MAP), released last year, it was found that 95 percent of the adult population in Myanmar earns less than US$10 per day.

In Myanmar, an online payment system offers expanded reach for buyers and sellers and cheaper ways of doing business. The new system also expands the product offering of formal financial services in the country, supporting uptake and financial inclusion. The MAP project, which surveyed 5,100 people across Myanmar, found that only 4 percent of respondents had formal savings accounts in their name and nearly two-thirds of respondents reported that they didn’t save in any form. In 2011, President Thein Sein formally recognized microfinance institutions, allowing foreign and domestic investors to establish private MFIs. Since then, over 100 institutions have been registered, but formal access remains low and commercial banks cater largely to the upper end of the market. About 40 percent of Myanmar’s population lacks access to formal or informal financial services, according to MAP. This is a huge missed opportunity particularly in the country’s agriculture sector, which supports roughly 70 percent of the population.

However, the use of informal services indicates potential for formal services uptake. About 31 percent of the population use informal service options like money lenders or borrowing from family and friends. Informal money lenders reach more clients than formal providers, with a portfolio nearly as large as the commercial banking sector. Faith-based lending groups are experiencing growing popularity and have recorded low default rates. MAP research suggests that formal services currently do not meet the needs of potential clients.

With the implementation of the new online payment system and projected increases in credit and debit card penetration, and many other modernizing steps, the “consuming class” in the country is expected to grow to 19 million people by 2030, according to McKinsey Global Institute. From its current size of US$45 billion, Myanmar’s economy is expected to quadruple by 2030 to US$200 billion. Over the same period, per capita GDP is expected to increase from US$1,300 to US$5,100.

This economic growth will of course involve rapid growth in internet and mobile phone penetration. On the latter, the Asian Development Bank indicates that mobile penetration was below 1 percent in 2012, 10 percent in 2013, and that by 2014 in the capital, Yangoon, it was around 20 percent. The country’s current goal is 80 percent by 2016.

Have you read?

Inclusive Activity in Myanmar

Fostering Responsible Finance in Myanmar’s Infant Industry

Financial Inclusion Trends and Innovators – 2015