Laos’ Fintech Revolution is Still Bank-Led, For Now

In Lao PDR, digital financial services are at a very nascent stage of development, but recent partnerships are seeking to change that by introducing new and innovative fintech solutions.

Most of these initiatives are being spearheaded by banking incumbents and financial institutions as they prepare for the adoption of digital financial services.

In September 2022, Agriculture Promotion Bank (AP Bank), a development bank that primarily provides financing to the forestry and agriculture sectors, inked a partnership with Hi Sun Fintech Global Limited (HSG) to modernize its core banking system.

The project, which is set to take 9.5 months, will see HSG upgrade the bank’s anti-money laundering systems, reporting systems, and several of the bank’s other business systems. The upgrade will lay the necessary groundwork for AP Bank “to transition more seamlessly into a digital bank in future,” HSG said in a statement.

Prior to its collaboration with AP Bank, HSG had worked with other incumbents including Banque Pour Le Commerce Exterieur Lao Public (BCEL) and BIC Bank on similar projects, focusing on modernizing their core banking infrastructure to enable new business models, support advanced technologies and enhance customer experiences.

BCEL went live with HSG’s new banking system in April 2022. The new infrastructure aims to allow for fast product deployment as well as greater flexibility, adaptability, and scalability.

Fintech initiatives by the public sector

In the public sector, Bank of Lao PDR has been working on laying the foundation for digital payments, tying up with financial regulators from across the Asia-Pacific (APAC) region to upgrade its payment infrastructure, tap efficiency gains and access new capabilities.

In November 2022, a Memorandum of Understanding (MoU) was signed between the Lao PDR central bank and the National Bank of Cambodia (NBC) to facilitate cross-border transactions between the two jurisdictions.

As part of project, Cambodian bank Acleda Bank was commissioned for the development of new systems connecting Cambodia’s digital currency infrastructure Bakong to Lao DPR’s national payment network Lapnet.

Bakong counts about 40 banking and financial institutions as members, while Lapnet has about 30 members.

Separately, Bank of Lao PDR is also exploring the feasibility of a central bank digital currency (CBDC), enlisting Japanese fintech firm Soramitsu to conduct the study. Soramitsu was previously involved in the development of the Cambodian Bakong infrastructure.

These developments follow the launch of the Lao Payment and Settlement System (LaPASS) in June 2020, and the introduction of Lao QR Code earlier that year. These two developments were amongst the biggest milestones in the Lao PDR digital payment landscape at the time. LaPASS is a real-time gross settlement system designed for institutional use, while the Lao QR Code aims to set industry standards in QR payments in the country.

But perhaps most notably, a collaboration between Lao DPR and Malaysia was unveiled in early 2021 to develop the so-called Lao Digital Park, a new special economic zone, as well as the Fintech Valley in Vientiane. Initiatives under the partnership include setting up a fintech regulatory sandbox, developing digital government applications, as well as creating new fintech solutions.

An underdeveloped fintech startup scene

In Lao PDR, the overall fintech startup ecosystem remain in the very early stages of development, with deposit services dominating and a few mobile add-on services facilitating card payments.

A 2019 report by Asian think tank, the Asian Development Bank Institute, named inadequate access to the Internet and low financial literacy as the main barriers to fintech development. Other challenges identified by industry observers include the lack of resources, skill gaps and a lagging regulatory framework.

Lao PDR’s fintech sector is falling behind those in neighboring countries including Vietnam and Cambodia, despite providing fertile ground for fintech adoption. Bank account ownership in Lao PDR is low at 26.8%. Additionally, cash remains the dominant means of payment with only 0.6% of those aged 15 and older having a credit card and 12.7%, a debit card.

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