At the CamTech Summit 2021 Powered by Prudential Cambodia Investment Review and the National Bank of Cambodia Head of Payments Mr. Sarat Ouk discussed the central banks new digital payments platform Bakong.
Cambodia Investment Review: Some media outlets, both locally and internationally, have reported incorrectly about Bakong – can you explain to our audience exactly what Bakong is, what it does, and also what it is not?
Sarat Ouk: As you can see recently that there are a lot of discussion about BAKONG in relation to the Central Bank Digital Currency or so-called CBDC, if you look at the concept of CBDC it has been around within the past 3 to 4 years, which refer to digital representation as banknote issued by the central bank.
The definition of it is not standardized as yet but its main characteristics are focusing on central issues and liability of the central bank. CBDC concept is still at an early and it is an evolving topic.
Several central banks around the globe right now are really interested with the CBDC. On the other hand, if you look at our Bakong, the project started in 2016 even before the hype of CBDC.
We tried to explore what can we do with the new technology to improve the payment system in our country.
Bakong, as you can see, is, in fact, a payment system, a platform to connect different players and users, like other payment systems operated and run by the central bank.
While Bakong has some of the characteristics of the CBDC, that is why you can see that it is sometimes considered as indirect CBDC, hybrid CBDC, or synthetic CBDC depending on the writers or researchers.
CIR: Why did the central bank decided to embark on this project and what have been the major policy / technical challenges to implementing it?
SO: Well, there are, actually, four considerations or reasons why the central embark on this project. The first and second considerations are inter-twin and related to each other so that I would like to put it together is to promote interoperability and interconnectivity in the payment system aiming at improving efficiency in term of cost, speed, as well as security.
This is the main reason. What do we mean by promoting interoperability is simply, like I mentioned earlier, to allow different players and users to talk to each other and conduct operations on a real-time basis. Before Bakong each player operated on a close loop basis and there was mounting pressure for bilateral connection. Bakong reduces that need because it is a multilateral connection.
The next consideration is to promote financial inclusion within our country. There is three aspects of financial inclusion that we want to achieve are access, usage, and quality.
With Bankong we wish to promote access of the unbaked population, increase usage of the already banked population, as well as bringing quality products and services offered by the financial institutions. The last consideration is on promoting the use of local currency which is our Khmer Riel.
As you may know that Cambodia is a highly dollarized economy. Most banking institutions offered bank account and e-wallet account in US dollar only. Bakong operates in both US dollar and Khmer Riel which allows the possibility to conduct in local currency, especially for the rural population who use Khmer Riel very frequently compared to the urban population.
Hopefully, this would promote the need for local currency transactions. In terms of challenges, we have seen two issues in particular consumer protection and digital literacy and now we have been working with the member institutions to address them.
CIR: How has / will the application assist Cambodia’s unbanked or underbanked class that may have previously relied on ‘human teller machines’ such as Wing outlets to collect and transfer funds?
SO: In addition, can you touch on the opportunities the platform has for remittance payments back to Cambodia. The Bakong application itself provides several language options for users such as English, Khmer, and even Japanese too.
Those with the ability to read Khmer hopefully would be able to access the application. However, adopting digital devices require certain knowledge and behavioral change toward them as well.
This is why, as I mentioned earlier, digital literacy is important to equip the unbanked population or even banked population with sufficient knowledge to use digital applications.
Currently, we have been working with development partners and the private sector to deliver digital literacy programs to both urban and rural populations. It will take time before we can see the benefit of such programs.
CIR: Many of Cambodia’s Payment Service Institutes are concerned that the continuing rise of Bakong will start to impact their own market share…What response does NBC have for those companies’ concerns?
It depends on how they look at Bakong actually. To our understanding, Bakong is a compliment to the products and services provided by the banking and financial institutions.
If you look at the nature of Bakong closely, it enables interoperability among different players in the market which allows the members to access to more customers base and funding base where they can strategically use it as a tool to booster their growth.
Of course, there might be some overlap on some functions of some providers but if we look at the holistic view of Bakong on the public and society as a whole, it provides more opportunity rather than a threat.
CIR: Some in the industry believe it has been designed as the platform for a digital Khmer riel within the next 10 years – what are your thoughts on the future of Cambodia’s local Reil currency, de-dollarization and payment methods?
As we discussed before, Bakong is a payment system and should remain as it is. We have not crafted the next 10-year plan as yet, so I cannot comment on it at this point in time.