This edition of In conversation with is done in collaboration with Fintech Connect Asia, which will be held from October 11th - 13th in Singapore. It promises to be one of the must do events this fall with speakers including Brad and some of the Kapronasia team.
For those who may not know you or Wave Money, could you give us a bit of your background and of Wave Money?
It is an absolute pleasure to be here today, thanks very much for the invite. I've been the CEO of Wave Money since 2015. As you mentioned, I was the founding CEO. Wave Money is a mobile wallet and money transfer platform that operates throughout Myanmar. We have around 70,000 agents and essentially, we help people move money around the country. We also have a digital wallet that allows customers to move money, pay bills, buy airtime, and do those sorts of use cases that are emerging in many Southeast Asian countries. As I said, I've been here for about eight years. I've been in the fintech space for probably about 15 years now, having founded a similar business in Cambodia around 2007/08. But yeah, it's been a really great experience in Myanmar, with the opportunities that this market presents.
Speaking specifically about the market, can you talk us through some of the challenges of moving money in Myanmar?
When I first moved to Myanmar, I had a sense of what I wanted to do from my experience in Cambodia. One of the first challenges of the Myanmar market is its geographic size. Not many people know this, but you can go from the south of the country which has beaches just like Thailand, and you go to the north of the country and it's the eastern tip of the Himalayas. You have the last peak of the Himalayas there, and then this massive country in between. So, I think geographically creating a business model that could go and reach every part of the country was a huge challenge.
The other challenge obviously was the massive unbanked population. When we came in it was probably about 90% unbanked. The banks find it difficult to serve the bulk of the population of the country because of that geographic size and the fact that many of the people are living a long way from cities, yet reliant on income coming from the cities. They are reliant on their children working in the cities and sending money back to their home villages and communities.
The domestic remittance market is critical; that was the initial use case. It was the use case we monetized on. So, when we first came into the market in 2015, we saw a huge opportunity to start with money transfers as it was a major need that the average Myanmar consumer had.
We are quite an unusual fintech in that we make money. We were profitable from August 2018, and we've maintained profitability since. I think that's been very good, obviously for our shareholders, but it's also been very good for the company, because we've been able to focus whilst we serve the customer and gave them the product that absolutely met their needs. We have also been able to pivot into other areas such as the digital side of the business and really focus on the growth where the market's going to move to.
Why did you pick Myanmar as the next place that you wanted to focus on after Cambodia?
When the team and I set up the business in Cambodia, we used to look at Myanmar and think, can you imagine the opportunity to go and set up a mobile operation in that country? 10, 15 years ago, Myanmar had a mobile penetration of around 3%, and had a bank penetration of 5%. It was a complete virgin territory where if you give people a sim card, you could effectively give them a wallet or a bank account. You had the ability to basically transform the country.
So essentially when my colleague Hal Bosher, who was CEO of Yoma Bank at the time, and a chairman of Wave for a period, reached out to me when I was in Singapore and said, "Look, there's an opportunity for a role as CEO of a fintech in Myanmar." It didn't take a lot of convincing to be honest, because what excited me about the country was the potential for transformation. It was already in the middle of a transformation from the telco side. International telcos had already launched and were very, very rapidly rolling out sim cards. So essentially this telecommunications revolution was happening, and then we came in next and were able to overlay that telecommunications infrastructure with a fintech infrastructure. But if we didn't have the telecommunications infrastructure, it would've been a complete failure, so one had to come before the other. And so that really was the exciting opportunity in Myanmar.
And I'd have to say the fact that we've made such a difference to people's lives, and we've made it so much easier for people to move money in Myanmar. Before we came into this country, if you worked in a factory in Yangon, you could quite easily have your family living in a village in Kayin state, which is three days by bus. So, that’s the only way you could try sending money home. You couldn’t give it to the bus driver. A three-day bus ride would mean multiple buses, so the money will unlikely be received. Your family had to wait until you get home from work to get that money. So, the factory worker had the risk of holding the money, while living in hostels or dormitories near the factories.
We have been able to push so much money out to the rural communities and these are the communities that have needed it the most. One of the things I'm proudest of in terms of what we've been able to achieve in Wave is uplifting the rural communities that we've worked with.
How did the pandemic impact the way that Wave Money provided services, and did you have to rethink the way that you addressed the market and the products?
Firstly, for those who don't understand, Myanmar leapfrogged 2G; 2G never really existed here. It was here in the early days, but when the operators launched in 2014, they started with 4G, and so Myanmar people went straight to smartphones. And it makes it a unique mobile money country. I've talked to colleagues in East Africa, and they'll tell me that in some of the biggest mobile money markets in the world, they're still only running at 35% to 40% penetration of smartphones. We went straight to 80% to 85% penetration of smartphones. Every single one of our customers, whether it was a factory worker, construction worker, mom, or dad in the village, they were very likely to either own a smartphone or have access to a smartphone.
I think for us, we had to rethink straight away. From the very beginning, we had to rethink our offering from a very analog mobile money, USSD, SMS type offering into a digital offering. We had a digital app on launch, which met some needs. It was a money transfer app predominantly, but we knew that we needed to redesign it. So, in 2017 and 2018, we redesigned that app. We made it much more use case-based. When you look at our WavePay app, it's very similar to what you see in all the other Southeast Asian markets, similar interface to the GCashes, Grab, and so on. But that works, right?
But people want utility, they want services in one location. And I think we were very fortunate we had made that investment, very fortunate that we had started to roll out that new app as COVID hit. Firstly, we were lucky to have an app that was going to meet the needs of consumers as their needs changed. Secondly, I think what happened was that we had been trying to attract lots of online merchants, not so many physical merchants. To be honest, we struggled a little bit with the value proposition as they did prefer cash. I think what happened with COVID is that suddenly, we had billers, merchants, knocking on our door, I mean hundreds, literally knocking on our door, saying, "Can we get on the platform?"
I think what we saw during the COVID period was an acceleration of our digital product. We now have over 450, 500 partners, who are a mix of both online billers and billers inside the app, and then increasingly several Facebook merchants as well. So really, I think that was basically the huge growth we saw. And in fact, over the course of COVID, we saw a 10-times increase in volume and transactions across our digital business actually, which was way and above the growth we'd expected.
When you talk about digital adoption, one of the key challenges in emerging markets is trust. How did you overcome the issue of trust and is it still an ongoing challenge for you?
It is one of those things that you've got to be conscious of all the time. We look at our fraud numbers, and we look at our customer complaints very closely, so that we can start to track emerging patterns of fraud. I would say almost invariably it's related to social engineering, which is at the end of the day related to digital literacy. Consumers just don't know that they shouldn't give away their PIN number or their account or their phone number. So, I think that has definitely been a challenge in Myanmar and all these things impact trust. I would say one of the things we've done over the last two years is really hardened our security.
For example, we implemented one wallet, one device. So really it meant that once you're registered to a particular device, we can't have an account takeover unless the customer has de-authorized the account on the device. And that was really to stop the social engineering that was happening around account takeovers during that period. We’ve seen that particular fraud just almost disappear, because one wallet, one device has basically really locked down the app to the consumer's device.
It presents operational challenges though, because then as consumers change handsets, they've got to go through a process, and we maintain a very large call center that deals with a lot of those problems, but it's the age-old problem in financial services. You got to have a balance between security and ease for customers, and we're constantly trying to find that balance so that we can build that trust with the consumer.
When you look at the market in Myanmar from a product perspective, what do you feel is missing in the market, in the financial industry? What could some of these financially excluded individuals benefit from that's not there today?
When I look at financial services, we see the four elements of financial services – deposits, lending, wealth, insurance, and payments essentially being a fifth, if we think about it. What we do very well today is payments. I would say that the traditional banking services are what is lacking in the Myanmar market today and its products are designed for the low-income consumer that allows them, for example, to save money, and perhaps earn some interest. They can save money in the e-wallet, but we don't pay interest on the e-wallet, like most e-wallets.
I think it's also the insurance products. Insurance is a very new industry in Myanmar, so there are international insurance companies operating now, and we partnered with Prudential last year to help them launch a product in the market, which used Wave as the originating mechanism to get that insurance policy. But it's still a very early time for insurance, and it'll take time for microinsurance to really take hold. For wealth, there's still a long way for us in terms of finding products that can meet that need.
But the biggest need right now is lending products. Myanmar is now going through some very difficult economic times, like other parts of the world are. And what is happening in the country is that the informal money lending sector is getting stronger and more prevalent; it is very common for informal money lenders to be charging 20% month on month. So, when the poor are getting into these sorts of situations, they find themselves indebted and completely unable to get out of debt. So, I would say on the payment side we're very well covered now in Myanmar and in fact, we are seeing very strong growth in payments. But some of those more traditional financial services products, particularly lending, I think, are real needs in this country.
Is lending products something that you're looking to be involved in for Wave Money?
Yes, we are looking at it. We currently don't have a license to offer lending so we are looking at ways in which we could partner to do lending. We have partnered with Yoma Bank, who's our partner bank, previously to do lending to agents. We had loans, and essentially what Wave was doing was looking at the incomes that our agents were making and doing preliminary credit assessments on those agents. We then go to Yoma Bank and say, look, these agents are going to have this sort of working capital or profits going forward based on commissions. Yoma Bank will then issue them a working capital line. We rolled that out to about a third of our agent base, so around 25,000 loans. So that was a great program because we didn't really put any limits on it.
Our agents are mum-and-pop shops, the same as the sari-sari stores in the Philippines and the warungs in Indonesia. We told our agent, “we don't really care what you use this for. If you want to go and buy a few extra cartons of Coca-Cola to sell, go and do that. If you want to buy some extra rice to sell, go and do that. But make sure you've got liquidity when customers turn up to do Wave transactions." And it's all about providing them with a very well-priced loan that enables them to lift their entire business.
So that's been a great program for us. That's been a little bit disrupted in the last couple of years with COVID, but we are talking to the bank again about when we can start to look at relaunching that program, now that we have gone through a bit of a process of cleaning up the book and looking at some of the post COVID situations.
For some of the other fintech founders out there, what do you think that you and the company got right about Wave Money?
The number one thing I would say is that we monetized as quickly as we possibly could. Monetization used to be a dirty word a couple of years ago. Now, it's actually becoming a lot more popular. I think we were a little bit ahead of our time with that. At that time, my CFO and I were great partners in this. We worked together on our strategy, how we wanted to manage our shareholders and meet what they wanted. It was pretty clear that the shareholders were happy to fund, and they certainly funded a significant amount of money for us to get the business going. We only took two funding rounds, with the second and final round in December 2016. We have been self-funded ever since.
Then, we were EBITDA and OCF positive from August 2018. The amazing thing is we've maintained that position all the way through COVID and the political situation here. So, we're still generating positive cash even through all the difficulties we've had. I think my advice to founders really is to monetize. The days of growing massive user bases with no monetization or a limited monetization plan may come back, but I think certainly for the next few years, I expect that potential investors are going to be looking very closely at where the revenue's going to come from.
A couple more questions for you personally. What keeps you up at night?
Oh, so many things. In Myanmar, we've had obviously a bit of a double challenge. We've had COVID and then the political situation. I think it's public record what's happened up here because of that. We've had a bank crisis, we had a cash crisis, we had a very bad COVID crisis, which put extreme pressure on the developing hospital sector here. We've been through all those crises. I was talking to a group of young Myanmar management yesterday at a friend's company. She asked me to talk to them. And I actually said to them, "look, you all have something that your Western compatriots don't have." These are all young executives in their mid-20s to late-20s. I said, "You all have amazing resilience, because what you've been through and the challenges you've seen over the last few years eclipse what most people in developed markets have had. In fact," I said, "in my own home country of Australia, I think people your age are a little bit soft in terms of their lives because they haven't had the challenge that you've got."
And this is the same for my team. They're still turning up, they're still performing, they're still doing their best. So, I think there have been so many challenges we've had, but the one thing that keeps me up is just ensuring that our staff is safe, that we continue to provide this good service to clients, to our customers, as best we can, and that we continue to grow. When Myanmar starts to stabilize again, we are coming out of it very strongly, and we're not using this period for self-introspection. We're using this period to try and grow the business, to actually be there for the people of Myanmar, and come out of it as strongly as we can.
Speaking about the future of Wave Money, where does Wave Money go from here? What do you expect in the next couple of years and what are your strategic objectives?
We're looking at several different things. I think digital's the future, there's no doubt about that. And in fact, one of the interesting things that have happened since the cash crisis last year is that we have seen incredible adoption of QR code payments. And I was always, to be fair, a little skeptical about QR and how quickly it would be adopted. I know in a lot of markets there have been huge incentives invested to effectively drive QR code adoption. Soon as those incentives are taken away, then the QR code adoption drops off.
We're seeing the exact opposite here. In fact, in October last year, we launched our QR code business. We now have 76,000 QR code merchants, we're rolling out 15,000 QR code merchants a month, and we're seeing double-digit growth in both active users and transactions. Essentially, as soon as we're rolling out a QR code merchant, we have transactions hitting that QR code. It's phenomenal. What I'm seeing here is that the market is definitely going to go digital, and we will see continued digitization of payments in the major cities.
The thing you must remember about Myanmar is that what you see in Yangon is not necessarily what you see when you are four hours out of Yangon. It's still very much traditional village life and so on. And that's why our money transfer product continues to this day and we continue to make good money out of it, because the garment factory workers and the construction workers are still there. They're still sending money back to mum and dad. But on the digital side of our business, we are seeing this rapid adoption of QR code payments in the major cities, which is really driving digital adoption.
So, if I look forward to three, four, or five, years' time, I will see most people having an e-wallet. I would hope it's a Wave e-wallet. I would see things like lending being available. I would see other more sophisticated financial services being available. I would see an array of mini apps. I would see essentially the roadmap that you guys have written about in your own newsletters around the super apps. That's the journey we're now on. And I think the super app is a much-misused term, but if I think about an app that really provides great utility to millions of people, that's what we want to do and where we want to be.
Thank you so much for your time, Brad. Thank you to everybody for tuning in for this In Conversation With, in partnership this time with Fintech Connect. We're looking forward to seeing you at the event next month, and please do stay tuned to Kapronasia's content, both the In Conversation With and our regular content that we put out on a weekly basis. Thanks again, Brad, and look forward to continuing our conversation at the event.
Great, my pleasure. Thanks very much.