Since last October, the Cambodian central bank has been experimenting with Bakong, a peer-to-peer money transfer service. Often referred to as cryptocurrency, that’s not quite it.
It is also not a central bank digital currency, as Chea Serey, the vice-governor of the central bank, has tried to point out in recent months.
Instead, it’s a token system that makes it easier and cheaper for users to transfer money between banks and financial services. Nikkei Asia reported that more than 1.4 million Bakong transactions were recorded in the first half of 2021, for a total of around $ 500 million.
A nifty piece of fintech, but it could be a game-changer for many Cambodians as it has the potential to significantly reduce the transaction costs of remittances. Since August, it has been possible to make payments from Maybank in Malaysia, allowing Cambodian migrants to send their money home for a small fee.
“Cambodian citizens working or residing in Malaysia will greatly benefit from this service as they can now transfer money to their Bakong e-wallets easily and at low cost,” said Chea Serey.
“This gives them greater financial autonomy as they are able to actively manage their own funds, including paying family bills and transferring money to loved ones.”
The National Bank of Cambodia is also said to be in talks with the Central Bank of Thailand to also authorize payments from there. About 73% of all remittances to Cambodia come from workers in Thailand.
Remittances from abroad now represent nearly 6% of Cambodia’s gross domestic product (GDP), almost double what it was worth in the early 2000s, and a considerable share of rural household income .
Cambodia received $ 1.2 billion in remittances from migrant workers abroad last year, down 17% from 2019, the central bank reported in June.
However, much of that money never makes it into the pockets of family members across the country. Cambodia saw its transaction costs drop from around 15% in 2015 to 11.7% last year, but that still means it has the most exorbitant fees in Southeast Asia.
Basically, Cambodians lost around $ 140 million last year because of these costs, which are going into the pockets of middlemen. A recent study by Moody’s Investors Service found that global banks generated around $ 230 billion in revenue from cross-border transactions in 2019.
About $ 100 million was made by banks in the Asia-Pacific region.
The average transaction cost of remittances is falling for many countries in Southeast Asia, but not fast enough. The global Sustainable Development Goals (SDGs) aim to reduce them to 3% by 2030. For developing countries, they were on average 7% in the first quarter of 2019, according to a study published this year.
Average transaction costs fell from 7% in 2013 to 4.5% in 2020 for the Philippines, which is now considered one of the lowest rates in the world for remittances, according to Bank data. global.
Yet over the same period, they fell from 4.9% to 7.7% for Thailand, where remittances represent just over 1% of the economy. In Vietnam, where remittances account for 6.5% of GDP, costs fell only from 8.7% in 2013 to 7.2% last year.
Despite the Covid-19 pandemic, recorded remittances to low- and middle-income countries reached $ 540 billion in 2020, just 1.6% lower than the 2019 total, according to a Bank report world released this year.
The Philippines was the fourth largest remittance destination last year, as it received $ 34.9 billion from overseas Filipinos, down just 0.7% from 2019. Almost 40 % of remittances to the Philippines come from the United States.
Vietnam was the ninth-largest remittance recipient in the world with an inflow of $ 17.2 billion in 2020, a slight decrease from 2019.
In addition, remittances are only expected to gain in importance. The World Bank predicts that remittances to low- and middle-income countries will increase 2.6% to $ 553 billion in 2021 and 2.2% to $ 565 billion in 2022. More specifically, the landscape is changing. quickly.
The People’s Bank of China has accelerated the rollout of its digital currency, and the digital yuan could become a major currency for global remittances, especially if countries participating in the One Belt One Road program are forced to sign up for it. use.
China is the second largest recipient of remittances, after India. In September, Indian e-commerce company Paytm became the country’s first platform to accept international remittances directly into a digital wallet.
The Philippines’ Digital Payments Transformation Roadmap aims to digitize half of all financial transactions by 2023. The country’s central bank recently reported that digital payments made up about one-fifth of total transactions in the year. last, compared to 14.1% in 2019.
About 70% of the Filipino population does not have a bank account, but “six newly licensed fully digital banks are expected to grab $ 35 billion remittances market share from physical lenders and non-bank platforms.” , said an S&P. Global report this month.
He added: “Virtual banks such as Overseas Filipino Bank Inc and Tonik Digital Bank Inc have said that remittances are one of their main lines of business.”
Cambodia’s central bank is making its way into Southeast Asia. Other governments have all the more reason to graft onto digital financial transformations, many of which are taking power away from banks and handing it over to users.
More money in the pockets of citizens, after all, means more consumption and more public revenue. A to study released earlier this year found that over a seven-year period and in dozens of developing countries, a 1% decrease in the cost of $ 200 remittances results in an approximately 1.6% increase in remittances.