Cross Border Payments, A Boon for Cambodians

NBC has been pursuing cross-border KHQR payment deals in Asia and as far as Africa, a move that echoes regional developments, to cut forex rates, expand riel usage and reduce the dollar dependence
A person uses a scan to pay at shop in Phnom Penh. Kiripost/Siv Channa
A person uses a scan to pay at shop in Phnom Penh. Kiripost/Siv Channa

Since the pandemic, the growth of digital payments has been significant with users initially preferring to use non-communicative methods of banking and transactions as a precautionary measure to later enjoy its convenience.

The Bakong payment app launched by the National Bank of Cambodia (NBC) at the height of the Covid-19 crisis, and subsequently the KHQR (Khmer riel Quick Response) payment system boosted payment methods and fintech products in the market.

The Bakong programme has 70 members, of which 48 institutions have officially launched the app, with 550,000 customers registered as of June 30, 2023. There are 20.2 million e-wallet accounts, NBC’s 2023 bi-annual report stated.

In the first half of 2023, payment transactions increased to $89.7 billion, over three times the gross domestic product of about 30.3 million transactions in a population where the median age is 25.8.

Leveraging on the growth of digital payments within Cambodia, connections with regional countries to promote trade, investment, tourism and remittances were made and strengthened.

To date, NBC has built payment system infrastructures with Thailand, Malaysia, Laos and Vietnam to facilitate more efficient cross-border payments.

Among all payment systems, the Bakong and KHQR payment systems continue to raise the profile of the Cambodian payment system on the international stage, NBC said.

“Some central banks are requesting to learn from the experience of the NBC in developing and developing more payment systems which are seen as effective, safe and cost effective,” it mentioned in the report.

Lower forex losses

Cross border payment methods facilitate in-person transactions, allowing foreigners to avoid having to convert currency and minimise costs, opined Eve Barré, ASEAN economist with Paris-listed credit insurer Compagnie Française d'Assurance pour le Commerce Extérieur (Coface).

Unlike credit card payments, there is no sharing of customers’ banking information using QR codes, which reinforces safety of transactions.

“Such payment would support Cambodia’s de-dollarisation as the arrangements make possible for Cambodians to use either the local currency or Khmer riel while abroad, enhancing the use of the currency,” she told Kiripost in July.

In Cambodia, ACLEDA Bank Plc was selected as the sponsoring bank by NBC for riel payment and settlement via QR code in neighbouring countries, which it has done with counterpart banks in Vietnam, Thailand and Laos.

“We want to promote the riel in regional countries and cashless payments, which reduces the risk of carrying physical cash when travelling abroad,” said Mar Amara, ACLEDA senior executive vice president and group chief financial officer.

The move removes the large losses incurred from “unofficial” exchange rate conversion as the user is bound by the official exchange rate stipulated by the central bank which is “reasonable”, while affording cheaper cost of payments.

“Travellers can enjoy cheap costs of payment with this cross border payment solution that was initiated by our NBC,” she added.

‘Stringent conditions’

In 2021, the first phase of the Maybank-Bakong Cross Border Funds Transfer, a real-time funds transfer service, was set up by the NBC and Maybank Malaysia which allowed Malaysians to transfer funds to any Cambodian’s Bakong e-wallet account.

In July this year, NBC expanded its Bakong presence beyond Southeast Asia by partnering with China state-owned UnionPay financial service to enable cross border payments between Cambodia and China.

NBC’s Chea Serey, who was appointed governor in August, was quoted as saying that the deal allows around 10 million KHQR Cambodian users to scan the UnionPay QR code in China.

The NBC has also signed non-binding agreements with India’s NCPI International Payment Ltd and National Bank of Rwanda with the aim of developing cross-border payment initiatives, and with the People’s Bank of China on establishing payment connectivity and local currency settlements.

The latter can be achieved once it is approved as a member of China’s Cross-border interbank payment system (CIPS), which is advantageous to NBC and Cambodia as a strong trading partner of China.

Through CIPS, NBC would be able to expand international payment options, facilitate trade, investment and tourism and strengthen bilateral trade with China and countries that use yuan, as well as enable international reserves in Chinese yuan.

However, NBC needs to first meet the Chinese central bank’s “stringent conditions” and resolve issues in its bid to become a CIPS member, which NBC governor Chea Serey has previously said are comparatively “more challenging”.

This is because CIPS only transacts in yuan as opposed to the Swiss central bank, “with whom we have worked and which deals in all currencies,” Serey was quoted as saying by The Phnom Penh Post in February.

But what makes cross border payments pertinent and rolled out with a bit of urgency, or so it seems, is motivated by the need to reduce the dependence on the US dollar for settlements, raise the riel usage and introduce it to the international market.

Not sent across

Mark McKenzie, a senior financial sector specialist with SEACEN Centre, said significant progress with the modernisation of domestic payment systems has been made by governments, central banks and other stakeholders.

SEACEN, or South East Asian Central Banks Centre, is a regional learning and research hub for central banks in the Asia Pacific.

In ASEAN, the rapid growth of instant domestic instant payment systems such as Singapore’s PayNow, Thailand’s Promptpay and Malaysia’s DuitNow have radically overhauled the payment landscape at the domestic level.

But globally, progress towards improving cross-border payments lags that of domestic payments, which is partly due to the fact that cross border payments are “far more complicated” than domestic payments.

Cross border payments involve the exchange of value between parties located in different jurisdictions and are subject to different laws.

“Currencies are closed-loop systems. Domestic payment systems are not traditionally directly connected with the systems of other countries so when making a transfer between two jurisdictions, the currency is not physically transferred overseas,” McKenzie said.

“Instead, international banks provide accounts for foreign counterparts and have their own accounts with their foreign counterparts, which enable banks to make payments in foreign currency.”

However, the funds are “not sent across borders”, instead accounts are credited in one jurisdiction and debited the corresponding amount in the other.

Aiding remittances

Payment providers, such as fintechs and money transfer agents, use an interbank network to provide payment services to businesses and individuals.

So, payments across borders are starting to simplify and become affordable but McKenzie stated that “things are worse” for those sending remittances as they “often pay even higher fees”, about 6.5 percent on average.

“Costs fall disproportionately on the poor. While cross-border payments work relatively well in the club of most advanced economies, they fall short for many emerging markets and lower income countries,” he observed.

The cross-border payment apps seek to address the challenge, where agreements with NIPL and Maybank Malaysia offer the option for Cambodians working abroad to remit money home.

In Cambodia, remittances rose to $1.3 billion in 2022 from $1.2 billion a year ago, representing 4.4 percent of GDP, which in years prior to Covid-19, recorded double this figure by migrant workers in Southeast Asia, South Korea and the Middle East.

Nearly 1.3 million Cambodians are believed to be working abroad, a joint report by Asian Development Bank, International Labour Organisation and Organisation for Economic Cooperation and Development stated early this year.

Low-cost transfers

According to SEACEN’s McKenzie, cross-border payments lag domestic ones in terms of cost, speed, access and transparency, where efforts to enhance them were set as a priority in 2020 by the G20.

The work included identifying the challenges associated with cross-border payments which arise from a “series of frictions in existing processes and developing a set of building blocks” to address them.

Key frictions include fragmented and truncated data formats, complex processing of compliance checks, limited operating hours, legacy technology platforms, high funding costs, long transaction chains and weak competition.

This led to development of the Roadmap for Enhancing Cross-Border Payments by the Financial Stability Board (FSB), a G20 global financial monitor, and Committee on Payments and Market Infrastructures (CPMI) with further plans implemented to see it through.

The report details the specific actions that would be taken under the three priority themes to move forward the roadmap and achieve targets by 2027, McKenzie said.

In Asia, various initiatives aligned to the roadmap are “on the way to strengthen payment integration, connectivity and interoperability”, and which support ASEAN’s goal for connected payment systems and stronger regional economic ties.

They include ASEAN's Regional Payment Connectivity cooperation and payments policy framework that are driving cross-border payment innovations, paving the way for faster, cheaper and more inclusive transactions.

In that, a few central banks in the region have signed bilateral agreements to connect domestic payments systems, McKenzie said.

The ASEAN framework aims to support economic recovery, promote inclusive growth as well as facilitate regional trade, investment, remittance and tourism while covering transaction modes such as QR code and instant or fast payments.

“This is being accomplished in some ways by the interoperability of standardised QR code payments and introducing real-time remittance systems.

“Singapore-Thailand, Laos-Thailand, and Cambodia-Thailand linkages have been implemented to facilitate instant, low-cost fund transfers.

“The integration of common guidelines and standards like ISO 20022 and QR codes streamlines processes, enhances transparency and security and shortens clearing and settlement cycles,” he added.

Replacing the dollar?

The idea of managing currencies and payments within ASEAN has taken a turn as governments and central banks partner to speed up cross-border payment systems in an implicit effort to reduce the dependence on the US dollar.

Earlier this year, talks of establishing an Asian Monetary Fund, along with the introduction of a common currency for payments and settlements in the region were rife as the US dollar gained strength against emerging economy currencies.

When asked if cross border payments are a precursor to this vision, Coface’s Eve Barré contended that its growth deepens financial integration among the concerned ASEAN nations.

“However, this is still far from a common currency which would imply, notably, the end of the regional central banks’ autonomy,” she said.

In any case, rising cross-border payment transactions across ASEAN and the current development of a new regional cross-border payment system that relies on QR codes would “surely” reduce the region’s dependence on external currencies, especially the US dollar.

“At a time of economic uncertainty with the possibility of a global recession looming, which supports a strong US dollar against Southeast economies’ currencies, this would help inflationary pressures,” Barré said.


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