To all my readers, thank you and goodbye. This blog is now an ex-blog. Continue reading
To all my readers, thank you and goodbye. This blog is now an ex-blog. Continue reading
Myanmar is currently largely a cash economy. In this post we consider the types of mobile banking and payments solutions we predict will first gain traction in the Myanmar market: remittance services and banking the unbanked.
Outside Myanmar, the way people bank and pay has been revolutionised: from the introduction of credit cards, telephone banking and mobile banking to the launch of PayPal and Bitcoin. The global growth of e-commerce has been accompanied by an increasing demand for online and mobile payments systems.
It is possible to imagine places where the use of cash might disappear entirely in the future.Whilst the rest of the world has still not fully exploited the benefits of mobile banking and payments, Myanmar has yet to start.
Mobile banking and payment solutions
What do we mean by mobile banking and mobile payments?
Mobile banking means banking done from a mobile device. Banks provide a portal to access banking services across mobile platforms, including via its website, apps for tablet and apps for smartphones. The introduction of mobile banking usually requires banks with legacy systems to re-engineer their delivery methods (i.e. to digitise service delivery).
Mobile payments means using a mobile device for the initiation, authorisation and realisation of a payment transaction. Mobile payments systems allow payments to be made a mobile device via a proximity payment or via a mobile remote payment. Depending on the way the solution works, the parties involved can include customers, merchants, mobile payment service providers, telecoms companies and banks.
There has been rapid innovation and disruption globally. From traditional payment systems (e.g. Visa) and Internet payment systems (e.g. PayPal) to varying mobile payment systems (e.g. M-Pesa, Apple Pay) and retailer-led systems (e.g. integration of customer behavioural data and store-cards). There’s no winning ‘secret formula’ across global markets. In some countries there are constrains to potential approaches. In every market partnerships and alliances have been and are still critical to success (between e.g. telecommunication companies, technology manufacturers, traditional banks, payment companies and retailers).
The market in Myanmar and where to start
Both the telecoms and banking sectors are very underdeveloped in Myanmar.
There are a low number of access points, low customer awareness, a lack of services and a lack of infrastructure and processes. However, these are focus sectors for investment by the Myanmese government and investors, and by foreign investors.
It is tempting to imagine that Myanmar can leapfrog ahead and adopt sophisticated mobile banking and payments solutions for all because it is unencumbered by legacy IT systems and processes and can dive straight into the deep end. However, as Myanmar also lacks access points, awareness, services, infrastructure and processes, the starting point must still be basic.
One of the biggest current challenges is the lack of distribution networks for getting cash in/out. In our view, remittance services will be one of the first services to be developed.
There’s no point developing fancy mobile banking solutions and payments if people can’t get cash in/out. Providing the most basic banking services for a largely unbanked population will the next major focus followed by basic payment services.
It is common for Myanmese families to work and live apart, and as economic development and foreign investment drives urbanisation it will only increase. Domestic remittance services are need to help families to send money to each other. There are also a large number of overseas Myanmese workers and so international remittance services are needed.
The challenge for this in Myanmar is that there is a bottleneck of cash in/out points. A secondary challenge is that it is difficult to authenticate parties. Telcos have the ability to address both of these challenges, because they offer outlets and a means to authenticate users. One solution therefore is for the banks and the telcos to partner and integrate a basic remittance offering.
Banking the unbanked
Most Myanmese citizens have no bank account today. Experience from Africa shows that a move from a cash system to a banking or quasi-banking system brings widespread benefits. Again, however, the banks have the enormous challenge of building distribution (i.e. branch access), whereas the telcos are already building distribution and reach. Bank and telco partnerships are therefore a likely formula to success because the scale of the distribution network is critical.
Structuring and negotiating a successful mobile banking partnership
Banks have a clear role to play to build the banking services in Myanmar. However, they do not have the networks or the technology to succeed alone. Partnerships with telcos are most likely to offer success but what do the parties to such a partnership need to consider to make it work?
First, the parties must have a clearly defined idea of what the ‘end to end’ system will look like and which role each of the parties will play.
Second, the parties must consider the regulatory risks. Do one or both of parties need a licence and can they comply with the licence requirements?
The commercial aspects of the deal will also need to be agreed. Who is responsible for taking what actions and providing which services? Can each party fulfill their relevant obligations? What are the consequences if a party fails to meet its obligations? And what is the price or reward for each party?
Parties involved in these kinds of negotiations should never assume that the other parties know what they are doing. The mobile payments and mobile banking space can be very complex and parties who are more familiar with in the space will use often use jargon. You should not be afraid to ask simple and basic questions, especially in a new market. Finally, don’t be wowed by complex solutions. It’s definitely better to walk before you can run, so we predict the winners will be those who keep it simple and do the basics first.
This post was co-written with @matthew1hunter.
Ofcom this week published its most recent report comparing the UK’s communications (telecoms, TV, radio, web and post) market with 16 other countries, including China, India and Japan. Whilst Ofcom’s press releases have focused on the comparatively good performance of the UK (which oddly enough seems to reflect well on the UK regulator – Ofcom), the report also contains some useful insight into the three of Asia’s biggest economies: China, India and Japan.
Some of the interesting snippets of information from the report include:
Japan had the second highest spend, at £7.50 per head on mobile advertising.
I was fortunate this week to be both a speaker and a panellist at Questex Asia’s ‘BYOD and Mobile Security conference held in Singapore. It turned out I was the only lawyer in a room of 200 plus IT people, which was an interesting experience. Having made my presentation (Olswang_Asia_BYOD_presentation) my conversations with delegates brought home to me how hard it can be to effect change within an organisation.
Whilst speakers had run through the organisational benefits from BYOD, and it is clear from my experience that generation X and generation Z are increasingly demanding the ability to bring their smartphones and tablets to work, as any change requires the buy-in and collaboration between at least IT, legal HR and senior management many organisations were struggling to actually change in a structures where any stakeholder saying ‘no’ could stop implementation.
My message that the legal issues (whilst important and needing to be dealt with) shouldn’t stop BYOD deployment seemed to give comfort to some of the delegates I spoke to.
As is always the case with these things, two days after I had delivered the talk the UK Information Commissioner published their guidelines on BYOD. I was heartened to read that the guidance covers pretty the same ground as my talk, albeit (not unsurprisingly for regulatory guidance) with a somewhat more negative view.
Whilst the focus of this blog is the intersection of telecoms and technology with law and regulation, it does occasionally stray into ‘softer’ topics. With the first anniversary of our Singapore office coming up after the lunar new year, I was reflecting on what I had learnt in my time here.
Just after arrival I had blogged about the importance of face to face meetings, but with hindsight I was only scratching the surface of a much bigger issue in the high context cultures of SE Asia – that of ‘face’.
When arriving somewhere new, I try to ask those more experienced what is the most important thing they have learnt. Almost every conversation (and every conversation with those who were very successful) came back to the issue of ‘face’: building it, respecting it and, above all, making sure that your business partners do not lose face.
For individuals from low-context cultures such as Europe and the US, the whole concept can be baffling. Why on earth would you ‘waste valuable time’ on a short business trip to Asia, meeting, having dinner and talking about everything but the deal? Why don’t meetings start on time, and then briskly move through an agreed agenda in a smooth path to achieving the objective? If there is a problem, why not raise it clearly then argue out agreement through force of business logic? Surely the most efficient way to resolve things is to send an email with a numbered list of points for the other side to respond to?
The problem is that all of these things (that make sense in the context of a deal being negotiated in London, New York or Berlin) may not work as well in Asia. Success depends on building long term sincere relationships through building face for your Asian business partner and ensuring that you do not (even inadvertently) cause them to lose face. If your business partner loses face that may, sometimes entirely unexpectedly for the non-Asian party, jeopardise the deal for reasons which can appear inexplicable.
With thanks to @singarbitration, here are a few tips to make things run more smoothly:
When I opened my (electronic) Financial Times this morning, the headline ‘China slowdown hits Asian growth hopes’ seemed rather gloomy. As an expat European, I was bracing myself for bad news to follow, so was rather cheered to read the actual growth forecast for the region of 6.1%. Whilst that is a downward revision from the 6.9% forecast earlier in the year, compared to the continuing weakness across European economies it is still a very healthy rate of growth.
The article spurred me to check the underlying source – the Asian Development Bank’s Outlook 2012 Update report published today. The report’s summary contains a handy infographic summarising the importance of the services sector as a driver of Asia’s future growth:
The detailed report highlights the importance of high valued added subsectors including information, communications and technology (ICT) services, financial services and professional services as being both a growth sectors themselves and also providing spillover benefits to increase growth in other sectors.
I will be spending next week in Mumbai and Delhi (with @singarbitration), and in preparation have been contemplating the impact of the recent budget proposals on foreign investment, and in turn the implications for the Indian economy.
Before going on any trip, I like to remind myself of some basic economic facts, so my trusty EIU ‘World in 2012’ guide tells me that India has:
Whilst these statistics are impressive, India’s growth rate has persistently been a couple of percentage points lower than that of China. The reasons for this are many, but commentators seem to agree that one factor is the barriers or impediments to foreign investment in many sectors of the Indian economy, which may help to stimulate competition and growth.
Regardless of sector, one key requirement of foreign investors in India is certainty over the rules for investment, and in that context recent attempts by India to levy retrospective tax charges are very (to put it mildly) unhelpful. I’ve blogged before on the Vodafone tax case, but since the helpful supreme court judgment rather unhelpfully the budget proposals published in March 2012 contains proposals that would change significant parts of Indian tax legislation with retrospective effect (back to 1962 in some cases) and reverse decided case law on many provisions.
There are 24 retroactive provisions in the bill designed, in the words of Revenue Secretary R S Gujral, to protect the government of India from returning taxes previously collected which it would otherwise be required to do to comply with Court decisions (in itself an extraordinary statement of disrespect for the Supreme Court of India and its position under the Indian Constitution).
Although presented as mere clarifications, the changes are clearly substantive changes in law and made as a direct reaction and in contradiction to various rulings and judgments of the courts in India. Specifically the changes are reinforced by a provision (s113) which grants the tax department wide ranging powers to demand, and collect and seize tax from taxpayers notwithstanding contrary judicial decisions. The changes go to the very heart of the constitution of India, the rule of law in India, and are likely to impact many Indian as well as international investors and businesses.
Specific international M&A aspects
The most prominent of the judgments proposed to be reversed is the January 2012 Supreme Court ruling relating to the 2007 Vodafone transaction, where it was held that an overseas share transfer cannot be taxed in India even if there is a consequent change in control of a lower tier company in India. The budget now seeks not only to overturn this ruling, which had been hailed both internationally and in India as a sign of the rule of law in India and a positive sign for investor certainty, but also to do so with retrospective effect. Numerous other companies would be affected, including AT&T, General Electric, Fosters, Sanofi-Aventis, Kraft-Cadbury, Cairns, Unilever, Accenture, Mcleod Russel and E-Trade as well as a reported 400 other transactions being investigated by the Indian tax office. As the legislation is retrospective to 1962 there may well be other transactions that can be targeted by the tax authorities which were completed decades ago.
In many of the cases, the targeted companies are purchasers who made no gain, but are being pursued for the tax on a gain realised by sellers. Doing this retrospectively is extraordinary; it is impossible to withhold retrospectively once the purchase price is paid.
In addition, other provisions included in the budget would expand the definition of ‘royalty’ retrospectively to 1 June 1976 aiming to nullify a number of recent rulings and court decisions, including cases involving Asia Satellite Telecommunications, Ericsson AB, Factset Research Systems, Infosys Technologies, Intelsat, ISRO Satellite Centre, Lucent Technologies, Motorola, TV Today Network, and Velankani Mauritius
Impact on Investors in India
The extreme nature of the retrospective changes is a significant departure from international norms and raises major concerns among investors and multinational companies in respect of their investments into India. It undermines public confidence in the judiciary and respect for the rule of law which is one of the fundamental principles of a democratic society. It further creates uncertainty on laws and unpredictability of the cost of doing business in India, and a perception that the revenue authority can act completely unchecked by the judiciary in India. If these proposals are enacted India would distance itself from other countries which are encouraging and bringing favourable reforms to encourage foreign direct investments.
The Watcher needs to make it clear that he has investors in India as clients, and this post should be read in that light.
Following recent political reforms in Myanmar and the recent electoral success of Aung San Suu Kyi‘s National League for Democracy, Myanmar is currently flavour of the month as an investment destination, and could soon see significant investment in telecoms infrastructure. However, whilst there are opportunities Myanmar is starting out on a long journey that could be derailed very easily.
Whilst after nearly half a century of economic stagnation there is certainly scope for growth, it must be remembered how poor Myanmar actually is today and where it is starting from. With a PPP GDP of c. USD 82 bn and a population of c. 60m its annual GDP per head is somewhere in the region of USD 1,300. To help understand this, that means that Myanmar’s peer group mainly consists of countries in sub-Saharan Africa such as Rwanda and Mali.
Transparency International ranks Myanmar alongside Afhanistan (above only North Korea and Somalia) as a highly corrupt country and its infrastructure is very underdeveloped.
Alongside the holding of elections, Myanmar has also undertaken or announced a number of general economic reforms including:
In addition, with the news today that the government has met with leaders of the Karen National Union, to the extent that Myanmar is able to start to peacefully resolve internal ethnic conflicts the combination of this engagement together with democratisation and economic reforms means that there is a real prospect of the lifting of economic sanctions.
In terms of opportunities across the telecoms, media and technology sectors, given the state of Myanmar’s infrastructure investment in new mobile networks is both the most necessary and the most likely. In an interview with the Wall Street Journal, Khin Maung Thet, director-general of Myanmar’s Post & Telecommunications Department said:
“A new communications law is being studied to create four new telecommunications licenses in the country, with the licenses available both to local and foreign investors. Currently, foreigners aren’t allowed to hold telecom licenses in Myanmar.
The new law was sent to Myanmar’s attorney general last month and is awaiting his approval now. Once that is obtained the law will be sent to Myanmar’s cabinet and then on to Parliament for approval.
[Mr. Khin Maung Thet said] he wasn’t sure when the attorney general would finish reviewing the law.”
With estimates of mobile penetration between 1-5%, and internet access <1% Myanmar will need significant external investment if it is to stand any chance of hitting its objective of 50% penetration by 2015. I’ll be watching with interest the detail of the new law when it becomes available.
With the launch party of Olswang Asia happening tonight, I have been musing on the economic outlook for Asia in 2012 and beyond. At a very micro-level I have been very pleasantly surprised by the (extraordinarily high) level of interest in our launch and it looks like the party tonight will be standing room only. I wondered if my personal experience was indicative of the wider economy so have been reviewing a number of commentaries on growth prospects for the region.
In particular, I looked at reports from the Economist and Insight Bureau. Both commentators agreed that the outlook for Europe varied from bad to very bad, whilst the outlook for America was mildly positive. Whilst China’s growth rate is expected to drop into single digits, caused by a slowdown in its export markets, the consensus view is that the Indian economy remains driven by domestic demand. Whilst India’s reliance on domestic demand has resulted in lower growth than China, it also means that India is less exposed to the Euro zone slowdown than China.
So aside from India and China, what are the prospects in ASEAN? Its is sometimes easy to forget that Indonesia has an economy five times the size of Greece (to pick a random comparator). Whilst it is still less than a third of the size of the German economy, it is expected to sustainably grow at around 5-6% a year for the forseeable future, whilst Germany will be lucky to not contract. Meanwhile, its ASEAN neighbours such as Malaysia, the Philippines, Thailand, Vietnam, as well as South Korea, continue to grow strongly.
So, the upshot of my limited research is that my personal experience seems to be in line with the market (much as I’d like to convince myself that we are bucking the trend). However, I think there are others factors at play that mean that the technology, media and telecoms markets across Asia are in fact growing more rapidly than the region generally.
First, the rise of average income levels resulting from GDP growth means that the middle class (for these purposes defined as those on an above subsistence wage) is doubling every few years. Members of that rapidly growing middle class all have mobile telephones, watch TV, own computers and go to the movies.
Second, as consumers become more assertive and the market size increases they are increasingly wanting local content, services and applications. Markets with revenue growth and consumer demand are increasingly resulting in local suppliers competing, complementing or co-operating with the more established global players.
The judgement of India’s Supreme Court on 20 Jan in the Vodafone tax case, removes (at least for now) some of country-specific risk that has been holding back investment by multi-national companies in India. Reduction in perceived risk is likely to encourage more investment in India by multi-national companies, particularly as Indian growth is driven to a greater extent than many other economies by domestic demand, and so is less correlated with a Euro-zone slowdown (or, if things go really badly, Eurozone plummet).
In good lawyerly fashion I should start with a disclaimer – I am neither an Indian lawyer, nor a tax lawyer so anyone wanting to explore the finer points of Indian tax law should look elsewhere (a number of Indian law firm have produced useful detailed case notes).
At a business level the facts were very simple – the Indian tax authorities sought to levy tax on Vodafone in relation to its acquisition of an offshore company. The detailed arrangements were rather complex, and the tax authorities sought to ignore the corporate structure and to tax Vodafone as if it had directly acquired an interests in the underlying Indian telecoms business. The Indian High court supported the position of the Indian tax authorities, but this was decisively rejected by the Supreme Court.
For me, what stands out is not the finer detail of the legal analysis, but an appreciation by the Supreme Court of the requirement for legal certainty as a pre-requisite for international investment. In the concluding words of the Lord Chief Justice:
“FDI [foreign direct investment] flows towards location with a strong governance infrastructure which includes enactment of laws and how well the legal system works. Certainty is integral to rule of law. Certainty and stability form the basic foundation of any fiscal system. Tax policy certainty is crucial for taxpayers (including foreign investors) to make rational economic choices in the most efficient manner. Legal doctrines like “Limitation of Benefits” and “look through” are matters of policy. It is for the Government of the day to have them incorporated in the Treaties and in the laws so as to avoid conflicting views. Investors should know where they stand. It also helps the tax administration in enforcing the provisions of the taxing laws.”
This approach is refreshing and welcome to international investors. With India’s economic growth powered to a greater extent that other developing economies by domestic demand, I expect to see more investment.