Always interested to read stories of financial inclusion and this is the story of Republic of Cambodia and their financial inclusion efforts that are lead through Bakong, the next generation payment system of Cambodia.

The National Bank of Cambodia (NBC) created Bakong as the digital form of Cambodian Riel (KHR) that is backed by cash and that is implemented as a system to cater everyday citizen use as well as to fulfill large interbank transactions, overall as a step in the direction of financial inclusion among underserved citizens.

Simple Apps

While participating financial institutions (banks) are equipped with desktop application, bank customers are provided a mobile app that works on Android & iOS platforms and is developed by NBC, to use Bakong for their day to day transactions. At times, if the participating financial institution offers an app, the bank customer will be able to use that as well.

Simplified KYC for bank customers/end users

The entry point for bank customers is simple, they may signup with a Cambodian mobile operator issued phone number that can be activated through SMS based Verification for low transfer limits while registration of government issued ID at a bank branch allows the bank customer to enable high transfer limits through the mobile app.

Who manages KYC & AML Checks

KYC & AML checks are the responsibility of participating financial institutions with whom bank customers/end users maintain their account and while a reference to bank customer/end user will be stored on Bakong system, actual customer info will be stored on participating financial institution’s systems.

Using Distributed Ledger Technology (DLT)

NBC chose Hyperledger, a Distributed Ledger Technology (DLT) that works as an append only data store and that offers immutability to data that is stored in the system, to prevent data manipulation and to enable trust in between participating financial institutions and to the customer thereby, facilitating quick transactions through the system. While Hyperledger is a permissioned blockchain system, and the core implementation is maintained by NBC, few authorized organizations are allowed to maintain copies of transaction data from Hyperledger installation to ensure redundancy of data and to prevent issues like double spending of the same value and that of fraud from within, and to be able to arrive at consensus known as Byzantine fault tolerance.

A progressive payment system

Bakong preserves existing business processes, user interfaces, APIs etc… of the legacy FAST system and doing this way enabled existing participants to join the platform without re-investing in system integration.

Multiple Currency Support to bank customers/end users in Bakong

There will be two separate accounts to perform transactions in respective currencies. While bank customers/end users cannot convert the balance from one currency to another currency, financial institutions/banks are allowed to do that for bank customers/end users.

Transaction Speed & current Payment System Capacity

A transaction on this system, is allowed to happen in P2P mode as well as in P2M mode (in the scope of in-person payments) and will take 3 to 5 seconds time on average while their system is currently at the capacity of 2000 transactions per second. The transaction capacity can be increased with more users adding to the system and as Hyperledger scales in the process.

Interaction Modes & Transaction Authorization for bank customers/end users

Both QR Code (in compliance to EMV QR Code standards), Mobile Number of the recipient, Contact name from the List are supported while Pin code will be used for transaction authorization by bank customers/end users.

Transaction Validation

Validation nodes verify every initiated transaction at the time of execution and post successful verification, the transaction record will be stored in the block as it gets distributed on the network. At the same time, the balance of the sender/remitter account is debited, and the balance of the receiver account is credited immediately. All transactions that happens on Bakong are irrevocable & enforceable.

About Refunds

No refunds entertained even though if intended to be done, they can be instantly processed when a distributed ledger system is in place, as all that is required is a policy by NBC and the implementation on the system thereafter.

Financial Inclusion

With penetration of social media applications and smartphones from urban cities to rural markets, and digital payments becoming an every day need, and that expedited by the recent pandemic, Bakong presents a simple & unique opportunity before Cambodian Citizens that enables them to use digital payments using a single mobile app, with all participating financial institutions.

A brief comparison between UPI and Bakong

1. When compared to UPI that has participants in multiple levels (like RBI being the regulator, NPCI maintaining the switch, Banks in Sponsor bank & Acquirer bank roles, App Companies and Customers), Bakong has fewer participants (like NBC being the regulator & Bakong Platform maintainer, Banks/Other Financial Institutions/Payment Service Providers and Customers).
2. When it comes to mobile number verification, a SMS is sent out in case of UPI while a SMS (as OTP) will be received by the bank customer in case of Bakong.
3. While UPI supports Push & Pull methods in both P2P and P2M, Bakong is currently supporting Push method in both P2P & P2M modes at present.
4. While UPI supports Indian Rupees (INR) only, Bakong supports Cambodian Riel (KHR) as well as US Dollars (USD).
5. While Account Number, QR Code, Mobile Number, Contact name from the List kind of interaction mechanisms works for both UPI & Bakong, NFC is the recent addition to UPI, that is expected to multiply transactions with in-person payments.
6. While with UPI, transfer of money happens from one bank account to another, Bakong is more like a Wallet that holds money in a specific currency, and that allows transactions in between Bakong accounts.

An intersection opportunity for India & Cambodia

UPI & Bakong are similar in many respects be it to promote local currencies or to serve as a nation scoped payment system that compliments respective country’s financial inclusion efforts, why not both countries work together to utilize these systems for international remittances and at the same time why not Cambodia consider accepting Indian Rupees (INR) as additional currency in addition to USD in their country in long term.

Summary

Bakong is a milestone in Cambodia’s digital payments history and a sure good step taken by NBC in terms of their financial inclusion initiatives to reach underserved citizens and while using a Distributed Ledger Technology (DLT) warrants the authenticity of transaction data through it’s immutability property, and since a permissioned blockchain system is chosen for the purpose, allowing read only access to an independent external observer(s) w.r.t. anonymized transaction data contributes in terms of trust factor, in addition to periodic audits and other efforts, when preventing the potential suspicion possibility and while fostering engagement between participating financial institutions, bank customers and others who will become a valuable asset in the growing ecosystem.

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This is a comprehensive rewrite of thoughts that are shared about Bakong along with a brief comparison with UPI, in FIAKS knowledge initiative.

P.S. This article was originally posted on Linkedin Pulse on December 05, 2020. https://www.linkedin.com/pulse/how-bakong-going-serve-financial-inclusion-goals-raghu-veer-dendukuri/