In Cambodia, fintechs and banks find it pays to join hands

Written by || January 27 2020

Across Southeast Asia, traditional banks and fintechs have been inking partnerships. The fintechs, despite the "fin" in their name, almost always have stronger technology than banking acumen. In contrast, banks have deep financial expertise and clunky legacy IT systems.

In the Kingdom of Cambodia, the line between traditional banking and fintech is increasingly blurred. ABA Bank, a traditional lender which has become a leader in digital banking, is a good example. In a January report, AsiaMoney notes that the bank has undergone an unlikely transformation. Founded in 1996, ABA did not perform especially well for the first 13 years of its existence. But a decade ago, under the guidance of some deep-pocked investors from Central Asia, the bank hit the reset button and changed its business strategy. Today, ABA is a leader among Cambodian banks with assets of about US$4 billion.

The investors, who had a technology background, focused on developing a comprehensive suite of digital services while maintaining a significant physical footprint. ABA had about 70 retail branches as of 2018. Its digital services include-cash for card-free ATM withdrawals; ABA Pay for QR codes and cashless payments; and PayWay, an e-commerce payments service.

At the same time, ABA Bank has largely avoided the consumer lending market, where competition is fierce. Instead, it has set its sights on providing microloans to SMEs. According to AsiaMoney, SMEs account for 90% of ABA's loan portfolio, in industries such as manufacturing, agriculture, trade and services.

In October 2019, National Bank of Canada increased its stake in ABA Bank to 100% with an investment of almost US$63 million. National Bank first invested in ABA Bank in 2014 with a 10% stake, which grew to 42% in 2015 and 90% in 2016. The Canadian bank has invested a total of US$320 million in ABA Bank, according to an October 2019 press release.

Both ABA Bank and National Bank have benefited considerably from their partnership, the press release said. Since 2014, the profitability of National Bank's investment in ABA Bank has risen more than tenfold and return on equity is roughly 30%. Meanwhile, ABA Bank's market share has doubled and its clients have increased from 60,000 to 600,000.

Separately, in early January Cambodia's Acleda Bank and mobile-banking services provider Wing signed a partnership that connects many of their services. Under the agreement, Acleda Bank’s clients will be able to transfer money instantly from a Wing to an Acleda Bank account. Customers can also use Acleda's local remittance services to transfer money to their bank account and then withdraw it from any Wing agent nationwide, the two companies said in a press release.