1 Laos Final report G2P formatted rev Enhancing capacities on digital G2P and G2B transfers and digital international remittances in Lao PDR United Nations Economic and Social Commission for Asia and.
Diagnostic: an environment not conducive for large scale G2P/G2B transfers and under-developed cross-border remittances
What means to target and verify people most in need of cash relief?
1.1.1 Poverty targeting policies and their implementation
The Government of Laos (GoL) is dedicated to eradicating poverty through targeted public policies aimed at impoverished areas By geographically zoning these regions, the GoL effectively identifies priority districts for intervention This strategy has proven effective, particularly given Laos's landlocked geography and mountainous terrain, which hinder access to major commercial routes and limit arable land Additionally, the country faces significant inequalities, especially along the Eastern border, which experienced extensive devastation during the American war until 1974, while the Western and Northern regions remained largely unaffected.
The Government of Laos, with assistance from the World Bank, conducts annual Lao Consumption and Expenditure Surveys (LECS) to assess the evolution of poverty at both national and provincial levels and to establish the national poverty line.
The Government of Liberia (GoL) has focused its poverty reduction efforts on identifying priority districts that require special attention The criteria for poverty graduation have been established through a series of GoL decrees, emphasizing the relationship between households, villages, and districts According to GoL Decree No 348/GOL on Poverty Graduation and Development, issued on November 16, 2017, a village is deemed to have graduated from poverty when 70 percent of its households are no longer impoverished, and a district is considered free from poverty when 70 percent of its villages have achieved this status.
Poverty Graduation at the household level signifies reaching essential living standards, which encompass access to food supplying over 2,100 calories per person daily, sufficient clothing, stable housing, and the capacity to afford fundamental healthcare and education Additionally, it includes access to essential public services.
4 of The GoL Decree 348 establishes the conditions for families to graduate from poverty:
1 Have safe and strong housing
2 Have assets and equipment necessary for their livelihoods and income generation
3 Have labor, stable income or employment
4 School age family members receive lower secondary school education
5 Have access to clean water and stable sources of energy
6 Have access to primary public health services
The doctrine suggests that ensuring a minimum income for self-sustainability is not an inherent policy objective Consequently, the establishment of social cash transfers to address the disparity between actual earnings or production and the necessary consumption for a healthy life falls outside the conventional policy framework Social transfers are typically reserved for instances of natural disasters and have historically been provided in kind rather than as cash.
The primary support mechanism involves providing production equipment and assets through subsidized loans from State-Owned Banks, with Nayobay, modeled after the Viet-Nam Bank for Social Policies (VBSP), being the leading institution As illustrated in Figure 1, Nayobay ranked as the second most significant banking lender in Laos in 2014.
Figure 1: Savings and Credit market shares of banks by outreach
Source: ESCAP based on Finscope 2014
The COVID-19 crisis has left the Government of Liberia (GoL) struggling to identify those affected by the economic fallout Unlike the Vietnam Bank for Social Policies (VBSP), Nayobay lacks a nationwide presence and does not offer comprehensive poverty alleviation programs, such as student loans Furthermore, the absence of a centralized list of impoverished households indicates that poverty reduction efforts are being managed at the local authority level rather than through a cohesive national strategy.
Migrants seeking economic opportunities often slip through the gaps of the poverty zoning system due to the varied nature of their migrations These can include seasonal movements from farming communities during the dry season (November to April), sporadic relocations, or long-term migrations, both domestically and internationally, with Thailand being a common destination Such movements are frequently facilitated by connections with relatives, friends, or community members.
1.1.2 Verifying the identity of a beneficiary
Surveying vulnerable groups and providing cash relief involves a two-stage process with notable time delays It is crucial to record an official ID during the survey to ensure that payouts are directed to the correct individuals To maintain transparency, the distribution of funds should be handled by a third-party organization that has no prior knowledge of the beneficiaries.
Several official ID documents coexist, with the time validity in parentheses:
Banque pour le Commerce Exterieur Lao 41%
Bank 1% Others 4% Banque pour le Commerce
In Laos, approximately 25% of adults possess a valid national ID card issued by the Ministry of Home Affairs The predominant form of identification is the Family book, overseen by the Ministry of Public Security and the Ministry of Home Affairs This multigenerational document records essential details such as the full names, birth dates, birthplaces, and occupations of family members Additionally, it includes the family's address formatted as province/district/village/unit number/registered house number, along with the names and occupations of the heads of household.
However, the Family Book presents several shortcomings in practice:
● The information is still only hand-written
A significant portion of beneficiaries in the WB Reducing Rural Poverty & Malnutrition (RRPM) project lack proper identification, as one-quarter do not have any registration in a family book, highlighting the document's frequent obsolescence.
The family book number must be unique and is proposed by the village authority, then endorsed by the District Office of Home Affairs (DOHA) This information is subsequently reported and transferred to the Ministry of Home Affairs (MOHA) in Vientiane through its provincial office (POHA) While the family book number typically follows an incremental sequence within each village, there are instances of duplication, particularly in villages that have been regrouped or resettled.
● The ID picture in the family book is not meant to be updated
Young adults retain their parents' Family book until marriage is officially registered with local authorities For domestic migrants, presenting the original Family book may not be possible, and the ID photo it contains could be significantly outdated.
The centralization of registries for the family book and national ID card remains uncertain, as records are primarily maintained at the provincial level Additionally, the extent of digitization and the methods for registering life events at the village level are not well understood.
There are two concurrent issues:
● The lack of a unique identifier for any individual, which makes it extremely difficult to look up an individual’s data across multiple registries in an automated or semi- automated manner
The absence of an official ID can arise from situations where the information on the ID is outdated or when an individual is not registered on any official identification.
Domestic migrant workers with residences in their original family book registered to their parent’s homes.
Financial inclusion at a reasonably good level, but shallow
In 2014, Finscope reported that 47% of adults in Laos utilized at least one service from a formal financial provider, with 36% holding a bank account, positioning Laos positively among its regional counterparts In contrast, Finscope's 2015 report on Cambodia indicated that only 17% of adults accessed similar financial services.
1 The Finscope national surveys of financial inclusion cited were carried-out by Finmark Trust in collaboration with UNCDF Country reports available at https://finmark.org.za/national_surveys
4 per cent of adults with a bank account and Finscope Myanmar pegged account owners at only
In 2013, 17 percent of the population had access to banking services, a figure that increased to 25 percent by 2018 This growth is largely attributed to the significant presence of four State-Owned Banks that dominate the retail market, providing essential public services with minimal fees, including no charges for opening or maintaining a passbook savings account, as well as for withdrawals and deposits at branch counters.
Financial inclusion in Lao PDR remains limited, with only 12 percent of adults utilizing more than two types of formal financial services Compared to neighboring countries, there is a significant disparity between the extensive use of formal and informal savings accounts and the relatively low engagement with remittances Transaction services, including account deposits and withdrawals, occupy a middle ground in this financial landscape.
Figure 2: Regional comparison of the dimensions of financial inclusion
Source: ESCAP based on Finscope
In Cambodia, remittances are utilized at twice the rate compared to Laos, despite the fact that bank account ownership is only half that of Laos This disparity highlights the significant impact of agent-banking in Cambodia, led by Wing, which has established a vast network of over 8,000 agents This network facilitates convenient and secure over-the-counter (OTC) fund transfers that do not require a bank account or digital wallet for either the sender or the receiver.
Good penetration of online channels but digital skills of users in question
The GSMA Mobile Connectivity Index 2 offers an interesting benchmark for Laos versus its ASEAN peers, particularly when compared with Cambodia and Myanmar (together the CLM countries)
In 2018, Laos recorded an Index value of 45.7, the lowest among ASEAN countries While it excels in Consumer Readiness, it struggles with affordability and infrastructure Notably, Laos's infrastructure challenges stem from its minimal 4G penetration, resulting in slow mobile download and upload speeds, despite 94 percent of the population having access to 2G data.
Figure 3: GSMA Mobile Connectivity Index CLMV, 2019
Source: ESCAP based on GSMA www.mobileconnectivityindex.com (accessed on April 2020)
The high consumer readiness score (64.5 in 2019) is explained by a widespread mobile ownership of 74 per cent of the population and high gender equality scores
In 2020, Laos experienced significant digital growth, with Hootsuite/WeAreSocial reporting that 79% of the population had mobile phone connections and 43% engaged with social media, contributing to increased internet adoption across the country.
2 See www.mobileconnectivityindex.com Data accessed as of April 2020.
3 See https://wearesocial.com/digital-2020
Figure 4: Status of Digital of Lao PDR
Source: Hootsuite/WeAreSocial, 2020, available at https://wearesocial.com/digital-2020
Certainly, the lack of apps and content in local language limits the extension of services beyond social media, with Facebook and Whatsapp being nearly universal in the country
Figure 5: Penetration of Facebook in Lao PDR
A comparison of the most popular apps by downloads and usage in Laos, Cambodia, and Thailand reveals significant insights into mobile internet usage in these countries Thailand leads with six local apps in its top 15, while Cambodia has two and Laos has one The majority of these local apps are focused on mobile banking, with Thailand featuring five such apps, followed closely by e-commerce platforms.
Figure 6: Popularity ranking of apps Laos /Cambodia /Thailand (for iPhone)
Government systems to administer a large safety net not yet in place
1.3.1 Legislation and Government of Laos policies
There is already ample legislation granting welfare support to different categories of the Lao population:
The Labour Law enacted in December 2013 provides essential benefits for workers in the formal economy, including temporary wage continuation during sickness, maternity leave, employment injuries, and occupational diseases Additionally, it mandates severance pay that employers are responsible for, along with benefits derived from contributions to the National Social Security Fund (NSSF).
The Social Security Law, enacted in 2013 and amended in July 2018, created a mandatory contributory social security system through the National Social Security Fund (NSSF), integrating both state and private sector systems It also allows informal workers and the self-employed to participate voluntarily in social security This law outlines the benefits defined in the Labour Law and sets the foundational principles for the pension system, which is particularly significant in the context of the COVID-19 crisis.
4 Source www.similarweb.com Only iPhone apps rankings available for these 3 countries: unfortunately, not available for Myanmar and Viet-Nam, and not encompassing Android apps.
8 unemployment benefits, amounting to 60 per cent of the average insurable earnings within the last six months prior to unemployment with a duration as follows:
Duration of benefits Contributions to NSSF
12 months For 12 years and more
The Law on Persons with Disabilities provides essential benefits for impoverished, homeless, or elderly individuals with disabilities, and mandates the establishment of a welfare fund Additionally, the Prime Ministerial Decree on Social Welfare outlines social welfare as encompassing both short-term in-kind assistance and long-term cash benefits Beneficiaries include orphans, individuals with disabilities, older adults, victims of trafficking, and those affected by disasters.
The Prime Ministerial Decree on National Health Insurance (2012) establishes a legal framework for unifying various healthcare schemes into a single system, enhancing long-term healthcare services for all Additionally, the Decree on Free Maternity for All and Free Health Services for Children Under 5 seeks to broaden hospital care coverage for mothers and infants across the country.
The coverage of the Lao population under the public safety net is notably limited, with only about 5 percent of the working-age population benefiting from social protection According to the 2017 Labour Force Survey, 274,000 workers were covered by the NSSF, 16,000 by the National Health Insurance Fund, and 11,000 by private schemes Disparities exist between urban and rural areas, with coverage at 10 percent in urban regions compared to just 3 percent in rural areas Additionally, there are significant provincial differences, as Vientiane has 13 percent coverage while Huaphan and Saravane have only 1 percent Gender disparities in coverage are minimal.
In 2020, a total of 184,747 public sector employees and 117,509 private sector employees were eligible for unemployment benefits, with 127,515 contributors overall Approximately 50% of registered private sector enterprises are not currently making contributions for their workers, while the voluntary NSSF contributions for self-employed individuals only cover about 10,000 workers.
The National Social Security Fund (NSSF) reports a total of 732,535 covered members, resulting in a ratio of 2.3 covered members for every beneficiary This coverage includes dependent spouses who are not insured and children under the age of eighteen or up to twenty-three years old if they are still in school.
5 Lao Statistical Bureau and International Labor Organization (ILO), Lao PDR Labour Force Survey,
6 ILO Preliminary Financial Assessment, 2020 Cited in UN Country Team White Paper ‘DEVELOPING
A SHOCK-RESPONSIVE NATIONAL SOCIAL PROTECTION SYSTEM TO RESPOND TO THE COVID-19 CRISIS IN LAO PDR’
9 for those studying and unmarried” 7 That brings coverage under health insurance to some 11% of the Lao population as a whole
Retrieving individual records for Lao citizens under the social security contributory regime can be challenging, even for those who are NSSF contributors Each contributor receives a Social Security card featuring a unique ID number, along with the beneficiary's name and date of birth, which are essential for determining their rights to compensation.
Figure 7: Lao Social Security cards public (in yellow) & private (in blue) sectors
The various cards use different structures:
Public sector cards put the individual’s name and surname together, indicate gender and the term of employment
Private sector cards allow dependents to access services, whereas public sector cards are strictly personal In both instances, a valid official ID must be presented alongside the card for treatment at health centers.
An interview with NSSF administrative management highlighted that public and private sector health insurance schemes operate on separate management information systems (MISs) with distinct provincial databases that are not interconnected This disconnection slows down back-office processes, and since validating claims necessitates checking contribution histories, it likely increases the risk of duplicated records.
7 Article 20 (public sector) & 43 (private sector) of Social Security Law amended in July 2018
Very low level of formal incoming int’l remittances compared to peer countries
1.4.1 The CLM countries’ similar migration patterns
Lao PDR exhibits a notably low level of remittances in comparison to neighboring countries like Cambodia and Myanmar, where a significant number of overseas migrant workers, many of whom are undocumented, primarily work in Thailand This trend mirrors the situation in Laos.
Table 1: Personal remittances, received (current US$ million)
Country 2019e share of GDP in 2019 (%)
Source: ESCAP based on data from World Bank
Despite comprising approximately 12 percent of the working-age population, international migrant workers in Laos contribute modestly to formal remittances relative to GDP, although this figure has doubled in the last twenty years.
8) According to a bilateral remittance flows analysis by the World Bank in 2017, two-thirds of incoming formal remittances originate in Thailand (see Figure 9)
Figure 8: International personal remittances to/from Laos
Source: ESCAP based on data from World Bank
Inbound & outbound remittances to Laos since 2005
Figure 9: Bilateral remittance flows to/from Laos 2017
Source: ESCAP based on data from World Bank
Note: this dataset is an estimated reconstruction by the World Bank Even if volumes do not match, the share of each country seems realistic to most observers
According to UNDESA, approximately 900,000 Laotians reside abroad, with Thailand being the primary destination for Lao migrants due to cultural and linguistic similarities, as well as family connections In 2019, there were at least 280,962 registered Lao migrants in Thailand, but the actual figure may be double when accounting for undocumented seasonal workers Emigration predominantly occurs from provinces bordering Thailand, particularly in the southern regions, while migration from the northern areas is less common, with most northern workers seeking domestic employment.
A 2017 survey of 450 Laotian migrant workers in Thailand revealed that 88% sent remittances to their families Notably, one-third of these remitters utilized formal channels, primarily Money Transfer Operators (MTOs) like Moneygram and Western Union, while only 3% opted for banks.
The size of remittance transfers, averaging around THB5,000 ($163), and associated fees do not significantly impact the choice of remittance channels Instead, the availability of distribution channels at the receiving end plays a more crucial role, particularly in remote agricultural areas where families have limited options for collecting funds Additionally, the administrative status of Lao workers, whether fully authorized or undocumented, has a minor influence on the channels used for remittances For example, 21% of undocumented migrants utilize money transfer operators (MTOs) rather than banks, a statistic that mirrors that of migrants with temporary documentation Even fully documented workers exhibit similar patterns in their remittance choices.
8 According to the TRIANGLE in ASEAN Quarterly Brief Note (ILO, 2020c); it cites UNDESA estimate of 900,000
9 ILO, Risks and rewards: Outcomes of labour migration in South-East Asia, 2017
12 banks still represent a minor channel with a mere 7 per cent compared to 56 per cent for brokers
Table 2: Remittance channels of Lao migrant workers in Thailand
Source: ESCAP based on data from ILO, Risks and rewards: Outcomes of labour migration in South- East Asia, 2017
1.4.2 Mass unemployment of Lao workers in Thailand to halve official remittances inflows
The effect of the COVID-19 crisis on remittance flows is assessed by examining the percentage of Lao migrant workers who have returned to Laos, as there is no official year-to-date remittance data available.
The World Bank projected a 50% decrease in formal remittances for 2020 With an average monthly remittance of 1 million kips (approximately 107.8 USD), the return of 100,000 migrant workers by May indicates a potential loss of 133 million USD over the year.
In 2019 there were at least 280,962 registered Lao migrants in Thailand 10 By the 3 rd of July
In 2020, approximately 130,532 Lao migrants returned from abroad, representing about one-fourth of all Lao migrant workers in Thailand The remaining workers faced significant income loss, as no financial relief was provided by the Thai Government for Lao migrants, although specific data on the extent of this loss is lacking The hospitality and food sector, employing 32% of Lao migrants, was the hardest hit, followed by manufacturing, which saw a year-on-year decline of 7.4% In contrast, the agriculture sector, employing 20% of Lao migrant workers, remained stable during this period.
10 ILO, TRIANGLE in ASEAN Quarterly Brief Note, 2020c Numbers vary, with UNDESA estimating the figure closer to 300,000 (cite, 2019)
The Lao National Taskforce Committee for COVID-19 Prevention and Control, under the Ministry of Health, is responsible for managing immigration checkpoints, quarantine centers, and conducting coronavirus tests for returning migrants.
12 The IOM survey of 40 returning migrants workers in August 2020 indicated that 45% of them were
The COVID-19 crisis has led to a significant number of regular migrants, specifically legal and documented individuals under a Memorandum of Understanding (MoU), returning to Laos from Thailand This trend highlights that a substantial portion of the legal Lao migrant workforce has repatriated due to the pandemic.
13 ADB, Asian Development Outlook 2020 Update: Wellness in Worrying Times, September 2020
Table 3: Sectors of employment of Lao migrant workers to Thailand (ILO, 2017)
Source: ESCAP based on data from ILO, Risks and rewards: Outcomes of labour migration in South- East Asia, 2017
2 Challenges stemming mostly from lack of a unified strategic vision and coordination, and infrastructure investments
How to develop effective digital identities while architecture is still in the design phase?
still in the design phase?
A digital identity system is essential for enabling Government-to-Person (G2P) and Government-to-Business (G2B) interactions, as it allows for the comparison of individuals' credentials across various databases and the verification of identities during cash payments A well-functioning Civil Registration & Vital Statistics (CRVS) system that registers the entire population streamlines the onboarding process for beneficiaries in social transfer programs Integrating digital identities into the CRVS significantly improves real-time authentication of individuals.
Laos faces significant challenges in its Civil Registration and Vital Statistics (CRVS) system, with only 39% of births registered in 2018 and similarly low death registration rates The civil registries are primarily paper-based and decentralized, managed by the Ministry of Public Security, which issues two types of identification: the universally recognized Family book and the National ID Card.
Reform began with the 2009 amendment to the Family Registration Law and the creation of the Ministry of Home Affairs (MOHA) in 2011, which tasked the Department of Citizen Management with the responsibility of registering births and deaths This initiative is part of the broader CRVS Strategy established in 2016.
2025 has been developed and approved
A unique identification number (UIN) assigned at birth is fundamental to the new architecture of Laos' Civil Registration and Vital Statistics (CRVS) system This UIN facilitates the integration of data from the national civil register with various management information systems across different ministries, including family books, national identity cards, district health information software (DHIS2), civil service, social registry, pensions, social security, passports, transportation or driver’s licenses, taxes, health care, and finance.
14 Source: World Bank Lao PDR Civil Registration and Vital Statistics Project (P167601) appraisal, 09 March 2020
A centralized Civil Management Information System (CMIS) has been developed to enhance education, voter rolls, and immigration management Funded by a newly established $25 million World Bank project, the CMIS will initiate the first large-scale social transfers program in Laos, known as the RRPM Additionally, the Civil Registration and Vital Statistics (CRVS) system is already in place, supporting a Government-to-Person (G2P) agenda through the 'Social Registry' under the Ministry of Agriculture and Forestry (MAF).
Figure 10: Interconnectivity of the CMIS (source WB)
Source: ESCAP based on data from World Bank
The key questions regarding the new architecture include when it will be operational at scale and how current citizens will be integrated into the existing CMIS While the systems in place address the issuance of new ID documents, there is a lack of information on the transfer of existing citizens' records to the new systems.
An interim system is therefore needed to provide this identity verification online.
Modernizing GoL systems of social protection & redistribution
The Government of Laos (GoL) is modernizing its approach to poverty reduction by extending the public safety net, as evidenced by the approval of the National Social Protection Strategy (NSPS) on April 1, 2020, through Prime Minister Decree N°224 The NSPS envisions that by 2030, all Lao citizens will have access to essential social protection services, including health insurance, social security, and social welfare, in a manner that is equitable, adequate, effective, and sustainable The overarching goal is to further develop the social protection system by 2025, which includes expanding coverage to vulnerable populations, increasing the contributory system's reach, and establishing a non-contributory social welfare system.
The Ministry of Labour & Social Welfare (MLSW) is tasked with the implementation of the NSPS
The NSPS focuses on enhancing the Health Insurance, Social Security, and Social Welfare systems, with a particular emphasis on the Social Welfare system, which has specific goals aimed at its further development and strengthening.
To enhance the systematic and effective delivery of social welfare services, it is essential to focus on providing support for children with special needs, as well as protecting vulnerable groups such as disabled individuals, the elderly, and impoverished workers who are unable to care for themselves.
● To provide emergency welfare to people who are affected by disasters
● And to contribute to poverty reduction, human resource development and socio- economic development
Associated activities are structured around four domains of intervention:
● Setup centers or associations at the local level
● Develop and revise relevant legislations
These 4 domains of intervention are called upon for the support to the different vulnerable groups:
● Children of up to 3 years-old in the poorest families (activity 1)
● Poor, disabled, and vulnerable people (activity 2)
A new follow-up system for vulnerable populations must be developed from scratch The only existing resource in this context is a database containing approximately 8,900 survivors of Unexploded Ordnances (UXO) across nine provinces in Lao PDR, which is managed by the national UXO Clearance Committee.
Financial operators not yet harnessing operational efficiency for universal access 15
The NSSF provided financial compensation to insured workers furloughed during the April and May lockdown, assisting 15,901 contributors by the end of August However, the process faced challenges, as many workers struggled to provide adequate identification, leading to cash payments in various instances For instance, a factory in Vientiane had to bring approximately 400 workers to the NSSF headquarters to distribute cash directly from a name list.
Section 1.2 showed that bank accounts are accessible but have not led to the widespread usage of diverse transactional services Opening up the market to non-banks harnessing Digital Financial Services offers the best hope of achieving universal financial inclusion and to encourage domestic banks to be less complacent and focus more on properly serving retail customers Digital accounts can dramatically reduce maintenance costs and offer a very cost- effective avenue of financial inclusion to large swathes of the Lao population
2.3.1 Regulation has opened payments to non-banks, but still few licensed
The National Payments System (NPS) Law (N° 32/NA), enacted by the National Assembly on November 7, 2017, serves as the foundation for the digital payments ecosystem, incorporating significant innovations developed over two to three years of preparation.
The introduction of two new licensing categories, Payments Systems Operators (PSOs) and Payments Services Providers (PSPs), is transforming the payments landscape PSOs manage payment infrastructures, while PSPs deliver retail payment services without the necessity of being banks, breaking the previous monopoly held by banks in this sector Additionally, PSPs have the flexibility to utilize their own systems rather than relying solely on PSO infrastructures.
E-money, as defined in Article 19, is a digital currency that can only be issued in exchange for cash and exists solely in pre-paid form It is exclusively permitted in the Lao kip currency and is managed by a Payment Service Provider (PSP).
● The concept of agents, which are independent entities for the distribution of the services of the PSPs
The enactment of the NPS Law led to the establishment of the Payments Systems Department (BoL/PSD) within the Bank of Liberia, tasked with developing secondary regulations, setting standards, issuing licenses for Payment Service Operators (PSOs) and Payment Service Providers (PSPs), and overseeing the payments ecosystem Notably, BoL’s Decision N°288 on March 26, 2020, introduced the PSP licensing framework, enabling non-banks to obtain operating licenses.
The article discusses the establishment of two distinct payment services: e-money and money transfers Money transfers include both account-to-account transactions, which can occur between bank accounts or e-money accounts, as well as over-the-counter (OTC) transfer services, allowing transactions where either the sender or recipient does not possess an account.
● Precise capital requirements of PSPs by type of services offered
● List of input documents in the license application
So far, there are three non-banks licensed as PSPs:
● Star Fintech Sole Company Ltd., fully owned subsidiary of mobile network operator (MNO) Unitel, operating the digital wallet U-Money
● Lao Mobile Money Company Sole Company Ltd., fully owned subsidiary of Lao Telecom, operating the digital wallet M-Money
U-Money has achieved a significant market presence, largely due to the extensive marketing efforts of Unitel While specific data on M-Money is lacking, the disparity in app downloads on Google Playstore highlights U-Money's dominance, with over 100,000 downloads compared to M-Money's mere 10,000.
2.3.2 An innovative industry but lacking capital and not yet open to regional and global players
The range of actors involved in the digital finance space is definitively narrow and can be classified basically under the following categories:
State-Owned Enterprises (SOEs) significantly influence the national economy due to the domestic political landscape In particular, those involved in electronic money and digital transfer services are primarily part of the banking and telecommunications sectors Key players in the banking sector include BCEL and Lao Development Bank, while Unitel and Lao Telecom represent the Mobile Network Operators (MNOs).
Private commercial banks with a regional presence include ACLEDA, which operates in Cambodia and Myanmar, Kasikorn Bank, active in Thailand, Vietnam, Cambodia, Indonesia, and Singapore, and Maruhan, known as Sathapana Bank in Cambodia and as an MFI in Myanmar These banks are leveraging digital wallets and agent-banking to compete against the dominant retail market position held by state-owned banks.
Owned Banks and to extend their outreach nationwide with a limited number of branches In all instances, the banks are replicating a service already marketed in a neighboring country
Local fintech companies like PayPlus, SabayPay, KiwiPay, and CoolFrog are facing challenges as they struggle to secure a Payment Service Provider (PSP) license, primarily due to insufficient capital Despite their innovative services and efforts to connect with global e-payment leaders such as Alipay and WeChatPay, none have succeeded in obtaining the necessary licensing However, KiwiPay has distinguished itself by becoming a systems integrator for domestic banks.
The digital wallet Kapao, launched by New Concept Finance (NCF), serves as an example of a failed fintech initiative Despite receiving pilot authorization from the Bank of Laos in November 2017 and attempting to penetrate Vientiane's fresh food markets, Kapao struggled to attract a significant user base Consequently, its pilot authorization was revoked in 2020.
The era of significant IT investments for digital wallets in Laos has ended, as fintech companies have integrated digital wallets into their mobile banking platforms This integration includes streamlined online onboarding for new customers, making the operational costs of implementing a digital wallet minimal compared to the capital expenditures required for mobile banking.
Nevertheless, the results as of August 2020 appear to be impressive and replicate in Lao PDR the tremendous adoption of digital wallets observed in other ASEAN countries:
All operators Unitel (Star Fintech)
Number of digital wallets opened
Number of active users 15 479,140 accounts 125,000
The Bank of Laos (BoL) has indicated that there are three million digital bank accounts across over 40 licensed commercial banks in the country This raises the question of how many active digital wallet users are unbanked, especially since most digital wallets are typically available only as a supplement to traditional bank accounts.
The current challenge is to maintain long-term mass-market initiatives that encourage the adoption of digital wallets and mobile banking among consumers who are either unbanked or only use their bank accounts for savings Mobile Network Operators (MNOs) aim to surpass traditional banks in this area, leveraging their substantial marketing investments and expertise in brand-building to enhance sales and usage MNOs primarily measure success through average revenue per user (ARPU) and face risks such as customer churn, where users switch to competing MNOs due to promotions While changing mobile numbers can help reduce churn, it is not a significant deterrent, especially with the increasing prevalence of dual SIM card phones.
15 Numbers are either based on one transaction over the last 90 or 30 days, depending on the definition used by the PSP Unitel provided data on active users within both timeframes
Lack of interoperability in the financial sector
2.4.1 Unsatisfactory interoperability of the Lao banking system
Laos has a limited interbank payment infrastructure, with ongoing changes that are progressing at an uncertain pace Although a Gross Settlement system was introduced in 2011, it only became real-time (RGTS) in 2019 when Straight-Through-Processing was implemented among major commercial banks Additionally, the Cheques Clearing House (CCH) operates manually, requiring provincial clearing meetings, which prolongs the process of interbank and interprovincial cheque clearing.
Transferring funds between interbank accounts can be frustrating due to the lack of a national bank account numbering standard, such as IBAN in Europe or ABA in the USA Additionally, the absence of checksums in account numbers makes it challenging to verify their accuracy The process is further complicated by the need to accurately input the recipient's account holder name, typically recorded in Roman script, which increases the risk of transactions being rejected due to minor misspellings or numbering errors.
The only effective interoperability infrastructure in the retail sector is the ATM switch, previously known as the Lao Automated Payments System (LAPS), which was recently operated by the Bank of Laos (BoL) This system connects the ATMs of the three dominant State-Owned Banks (SOBs) and four private commercial banks, including JCB, Lao Viet Bank, Indochina Bank, and STB In early 2020, connectivity was extended to seven additional commercial banks, with ACLEDA Bank Laos joining the network However, some banks, particularly Banque Franco-Lao (BFL) and Phongsavanh Bank, have opted out of participation, likely due to the top-down model that restricts banks from setting their own pricing schemes.
When contracting a Payment Service Provider (PSP) for distributing welfare payments, such as disaster relief or early childhood grants, the proposals are limited to their closed-loop payment systems PSPs typically distribute grants using a name list and may suggest opening accounts for beneficiaries on their platform, but they do not offer the option to transfer funds to beneficiaries with existing accounts at different banks or PSPs This lack of flexibility highlights a significant limitation in the current payment distribution approach.
21 See https://www.ascendmoney.io/ouroffer.html
23 it can provide an aggregation service at an affordable unitary transfer cost and interoperability is sorely needed
2.4.2 Public-private payments infrastructure operators lacking strategic clarity
The Bank of Lao PDR (BoL) is enhancing interoperability by investing in interbank infrastructures and transitioning them for commercial scalability Key components of the Systematic Important Payments Systems (SIPSS) include the Real Time Gross Settlement (RTGS), Automated Clearing House (ACH), and Cheques Clearing House (CCH), all integrated into the Lao Payment and Settlement System (LaPASS) launched on June 1, 2020 Retail payment services are provided by the Lao National Payment Network Company Ltd (LAPNET), a joint venture established in April 2019, involving BoL, UnionPay International, and seven domestic banks LAPNET has expanded the Lao ATM Pool Switch (LAPS) to include 14 banks and allows non-bank payment service providers (PSPs) to participate indirectly through sponsoring banks, operating as a Payment System Operator (PSO) under the NPS Law.
LAPNET aims to enhance interoperable retail services, but its progress may be hindered by unclear strategic direction regarding its target clients—whether they are the end users of banking services or the banks and payment companies it connects A key factor is the pricing strategy, which currently follows a top-down approach imposed on participants This has led to a reluctance among participating banks to promote LAPNET services to their customers.
Initially, the Bank of Laos (BoL) set interbank ATM withdrawal fees at 2,000 kip (0.22 USD) for a maximum withdrawal of 1,500,000 kip (161.55 USD), rather than allowing individual banks to determine their own pricing LAPNET staff now consider this fee too low, which may explain why some banks are still reluctant to adopt the ATM switch.
In June 2020, LAPNET introduced a groundbreaking ATM interbank transfer service that offers unmatched convenience compared to traditional methods Users can easily transfer funds by entering the recipient's 16-digit ATM card number, verifying the cardholder's name, and specifying the transfer amount.
LAPNET has established a transfer fee of only 1,000 kip, which is more cost-effective for banks compared to cash withdrawals However, the tiered pricing structure, as shown in Table 4, appears counterintuitive, as it suggests that making two transfers of 5,000,000 kip is more economical than a single transfer of 10,000,000 kip.
Table 4: Fee structure of LAPNET peer-to-peer interbank transfer
The LAPNET staff did not compare their fees with those of their bank clients, revealing that major commercial banks charge a standard fee of 1,000 kip (0.11 USD) for intrabank transfers, although this amount may vary In contrast, the minimum fee for interbank transfers is significantly higher, set at 10,000 kip (1.08 USD) for corporate internet-banking services like BCEL's i-Bank, as interbank transfers are not offered through BCEL's retail mobile or internet-banking services.
LAPNET's interbank transfer fee policy does not align with the fee structures of major commercial banks, leading to a lack of promotion for this service by these banks Additionally, LAPNET lacks data on cardholders, especially those not utilizing its services, and has no means to contact them directly With limited revenues, LAPNET cannot allocate a significant marketing budget for promotions or incentives to increase usage As a result, usage rates are likely to remain low unless participating banks and payment service providers actively promote LAPNET services to their customers.
LAPNET is set to soft launch the Lao Mobile Pool Switch (LMPS), introducing a new suite of interbank services This innovative service will be integrated into the retail mobile applications of LAPNET’s participants through a series of Application Programming Interfaces (APIs).
Figure 14: Diagram of LAPNET interbank services through ATMs (LAPS) and mobiles (LMPS)
● Mobile fund transfers in which the recipient can be either an ATM card or an account number (including those from non-bank PSPs)
● Any ID that will pair a mobile phone number with an ID card number and also an account number
In December 2020, two services are scheduled to launch across four commercial banks; however, pricing decisions are still pending, and no framework for discussing or determining pricing with LAPNET's financial institutions has been established Additionally, it is uncertain whether fees will be imposed on merchants or consumers.
Lao ATM Pool Switch (LAPS)
• Point of Sales (POS) not operational yet
Lao Mobile Pool Switch (LMPS)
• QR Code /QR Code payment 2-4 banks
• Cross-border transfer (UnionPay Int’l network)
Chinese UnionPay International (UPI), a key provider and reference shareholder, has not offered a clear strategy or pricing method for its services This lack of direction is particularly significant as UPI struggles to compete in the QR payments sector within its domestic market, where it faces tough competition from the dominant players, AliPay and WeChatPay.
The current economic equation remains unresolved, posing a risk that interbank transaction volumes will stagnate, hindering economies of scale as banks and payment service providers (PSPs) may not actively promote these services Consequently, the goal of affordable interbank transfer services may remain unattainable unless managed by a dominant market player, which could lead to an unlevel playing field and anti-competitive practices An example of this risk is Unitel's bilateral agreements to facilitate top-ups for the U-Money wallet directly from selected banks' mobile banking services, potentially sidelining LAPNET.
Formal cross-border transfer services not up to the informal sector
Table 1 showed that Lao migrant workers in Thailand are twice as likely to use informal channels than formal channels to remit money home
The formal sector faces significant challenges in competing with informal brokers in Thailand and Laos, who leverage domestic mobile-banking services to provide real-time transfer solutions These brokers effectively utilize social media for advertising and implement straightforward pricing strategies that do not require any entry fees.
Figure 15: Facebook post of informal broker Thailand to Laos, 2018
A social media post by an informal broker highlights a service for transferring money from Thailand to Laos, charging a commission of 5,000 kip for every 1,000 Thai baht sent, which equates to approximately 1.7% The process is simple: the sender deposits cash in Thai baht into the broker's bank account in Thailand without needing identification, after which the broker transfers the equivalent amount in kip to the recipient in Laos, either to a bank account or for cash pick-up at a branch.
The Lao bank's mobile-banking service allows users to easily access their ID number and transfer funds, while traditional methods enable pickups at a broker's relative in Lao PDR This raises the question of how the formal sector can compete with such convenience, speed, and low transaction fees.
2.5.1 Official foreign exchange regime favoring informal remittance channels
The 22 December 2014 Law on Foreign Exchange Management gives the BoL authority to issue licenses and supervise foreign exchange bureaus and to control the foreign exchange activity of commercial banks It is important to note that both residents and non-residents are allowed to receive incomes in foreign currencies deposited at a Lao commercial bank (holding offshore accounts is prohibited unless living abroad)
The de jure arrangement is a managed float, with the following main characteristics: 24
The Government of Laos (GoL) aims to stabilize the USD/LAK exchange rate, targeting fluctuations within ±5% annually The Bank of Laos (BOL) establishes a daily official reference rate for USD/LAK, which is determined by the weighted average of the previous day's rates, domestic USD demand estimates, and forecasts of the USD's international market performance.
Commercial banks and foreign exchange bureaus are required to maintain their buying and selling USD/LAK rates within ±0.25% of this daily reference rate
The bid-ask spread, i.e the gap between the buying and selling rates, is capped at 0.25% for USD/LAK
Commercial banks and foreign exchange bureaus have the flexibility to determine the exchange rates for various currencies The bid-ask spread is limited to 0.75% for THB/LAK and EUR/LAK, while it is set at 2% for all other currencies.
Enforcement appears to be quite different between commercial banks and foreign exchange bureaus:
Commercial banks generally align their exchange rates with the official rates set by the Bank of Laos (BoL) for most currencies However, the Thai baht (THB) stands out as an exception, being approximately 8-9% more expensive than the official rate as of the end of September.
Figure 16: commercial banks published rates vs BoL reference rate
Note: BoL reference rate on the right Data for 25 September 2020.
24 IMF, Laos 2019 article IV Staff Report, August 2019, p.3
25 Target set in current and next National Socio-Economic Development Plans (NSEDP):
8th (2016-2020): “Sustain stable exchange rates and contain them within ±5 percent” under Outcome
1, Output 2: Macroeconomic Stability 9th (2021-2025, draft version 5): “the exchange rate against the
USD should be stable within the defined area of ±5%” under Output 1: Robust and sustainable macro- economic
The exchange rate for the Lao kip in Thailand is influenced by the Bank of Laos (BoL) rate, often resulting in a significant markup due to low transaction volumes This creates notable discrepancies between the Thai and Lao sides of the same regional banking group For instance, transferring funds from Thailand is more economical when selling THB in Laos at 318.05 LAK, compared to buying LAK in Thailand at 273.22 THB/LAK, highlighting a staggering 14% difference.
Figure 17: Compared THB/LAK exchange rate of
Kasikorn Laos (top) vs Kasikorn Thailand (bottom)
Foreign exchange bureaus in Laos exhibit significant discrepancies in FX rates compared to the Bank of Laos (BoL) reference rate for the USD, despite being theoretically governed by the same foreign exchange regulations as commercial banks.
Figure 18: sample Money changers published rates (25 September 2020)
The Bank of Laos (BoL) has intensified its crackdown on unlicensed money changers and individuals involved in direct currency exchanges with commercial banks, aiming to address the growing concerns over declining exchange rates between the USD/LAK and THB/LAK.
The COVID-19 crisis has significantly impacted Laos' economy, leading to a semi-liberalized foreign exchange policy under pressure due to dire macroeconomic conditions The cessation of international tourism and a slowdown in Foreign Direct Investment (FDI) have destabilized the country's balance of payments, critically lowering the Bank of Laos' foreign reserves and raising concerns about sovereign debt default Consequently, the gap between the official USD/LAK exchange rate and the 'grey market' rate has widened to approximately 9%, compared to a pre-COVID range of 4-5% Additionally, despite an 8-9% deviation between the THB/LAK exchange rates of commercial banks and the Bank of Laos, customers at a Thai bank's Vientiane branch still prefer to withdraw THB in cash and exchange it for LAK at money changers.
2.5.2 Difficult cooperation for efficient and cost-effective transfers Thailand to
Commercial banks in Laos typically do not engage in bilateral cooperation for cross-border transfers, instead depending on commercial wholesalers like SWIFT for messaging services and settlement procedures, unless they act as agents for money transfer operators such as Moneygram or Western Union.
Bilateral cooperation among regional players has been established; however, the lack of active follow-up on agreements has led to under-utilized services in Laos In 2012, Malaysian CIMB Bank made significant efforts to introduce the SpeedSend cross-border real-time transfer service.
26 Vientiane Times, 26 July 2020 and Xinhua news agency, 24 July 2020
27 Nikkei Asian Review, Laos credit downgrade signals 'real' default risk as China looms - Fitch's rare cut to 'CCC' raises possibility of relief from Beijing, 24 September 2020
BCEL, the partner bank in Lao PDR, has not effectively promoted or fully integrated its remittance services, resulting in SpeedSend transfers to Laos being unable to credit BCEL accounts and requiring cash-out at BCEL branches Additionally, the Memorandum of Understanding (MoU) signed with Korean KEB Hana Bank in July 2017 aimed at enhancing cross-border remittances for Lao migrant workers to Korea has yet to yield an operational service.
At least two Thai banks have stated ambitions to develop cross-border payments services with Lao PDR in their scope, although they have not explicitly elaborated their business motives
Krung Sri (Bank of Ayudhya Public Company Ltd) ranks as Thailand's sixth largest bank by balance sheet size and is actively involved in vehicle leasing and microfinance in Lao PDR Over the past four years, the lending volume of its Lao leasing subsidiary has significantly increased, necessitating a balance of outflows in USD and THB, with lease repayments primarily in LAK The bank has integrated Laos into its blockchain cross-border service, initially catering to its Lao leasing subsidiary and now targeting supply chain corporate actors and financial institutions Since October 2020, Krung Sri has partnered with LDB to enable real-time account-to-account cross-border transfers in USD or THB through an API Both entities aim to market this service to Lao migrant workers in Thailand, although they have yet to simplify the marketing terms to match the ease of informal brokers, as fees apply at both ends of the transaction, and the service's requirements and steps remain unclear While the technical cooperation is established, marketing efforts are still in development.
Figure 19: Krung Sri and LDB ads for real-time transfer Laos↔Thailand
● Kasikorn Bank is the second largest Thai bank Cross-border settlement (multi- currency and THB Direct) is a key tool of its regional growth strategy to develop
Progressively operationalize interoperability with private sector
The Bank of Lithuania (BoL) has effectively initiated the separation of interbank payment services into independent entities, specifically LAPASS for wholesale and LAPNET for retail It is crucial for businesses to understand their role as service providers to banks and Payment Service Providers (PSPs) in order to deliver diverse and universal payment solutions to customers For LAPNET to realize its goal of providing universal payment services, collaboration and adherence from partner banks and PSPs are essential This collaboration necessitates that businesses align with the pricing strategies proposed by PSPs and banks within the payment ecosystem.
The bottom-up approach to interoperability faces challenges due to differing agendas among banks and PSPs However, LAPNET can rely on support from some of its partner banks and PSPs to help realize its vision.
The issue of whether to support or discourage domestic PSPs and banks from forming bilateral peering agreements is complex, as these agreements can enhance the value of their closed-loop systems through limited interoperability However, such arrangements may not necessarily compromise the interoperability of shared payment infrastructures It is essential to evaluate this proposition from a perspective of fair competition, ensuring that any anti-competitive practices that could result in oligopolies are strictly regulated.
No-frills accounts for all, with diverse offerings
3.2.1 Transactional accounts without maintenance costs
The LAPNET case highlights that ATM cards remain the primary tool for transactions, with a retail monthly fee of at least 5,000 kip (0.54 USD), a situation likely to persist until QR codes and digital wallets gain widespread adoption The integration of e-money, digital wallets, and agent-banking technologies offers cost-effective solutions for establishing and maintaining transactional accounts in remote areas with limited banking infrastructure, contingent upon a basic telecoms framework This is facilitated by various stakeholders, including Payment Service Providers (PSPs) delivering services, small shop owners acting as physical touchpoints, and Mobile Network Operators (MNOs) supplying the necessary communication infrastructure.
This straightforward account is designed for storing value and liquid savings, enabling users to make and receive payments Additionally, it has the potential to serve as a central hub for further financial activities.
The article discusses 32 financial services, including long-term savings, life insurance, damage insurance, and potential lines of credit It highlights the role of these services as a foundation for additional offerings like household budget planning and online micro-enterprise accounting A key focus is the security of customer deposits in no-frills accounts, which the Bank of Lithuania (BoL) aims to enhance with forthcoming e-money guidelines, particularly concerning trust accounts at commercial banks that reflect the e-money float in circulation.
The services can be quite varied to offer a response to poor people in different situations:
Young people who are comfortable using smartphones and digital applications, including social media, can benefit from convenient self-service management in areas with reliable 3G, 4G, or 5G coverage The online onboarding process allows for easy registration from home, ensuring that all necessary documents are readily available.
A tailored service for basic feature phones is designed for individuals in regions with GSM coverage who lack data access or prefer not to invest in a smartphone This service is particularly beneficial for older adults who may not be familiar with the internet.
This service operates independently of mobile phones, utilizing an ATM card for transactions It is designed for accessibility, allowing individuals without phone access to engage in occasional transactions through agents or at ATMs located in urban areas.
Technological innovation has revolutionized Point-of-Sales (POS) devices, shifting from costly payment card terminals to multifunctional machines and smartphone-integrated solutions Prices have significantly decreased, with some Lao private banks even offering terminals to merchants at no cost and without minimum processing volume requirements.
Price-sensitive customers often prefer pay-as-you-go options without maintenance fees, as they may struggle to identify the best overall value for their needs The BCOME success story illustrates that consumers are willing to pay an additional fee for transactions at agents instead of branches, as this cost is outweighed by savings on transportation and time lost during bank hours, which can include long wait times To minimize transaction fees, consumers should be encouraged to utilize self-service channels, although this requires access to a mobile phone or proximity to an ATM.
Inclusivity should encompass individuals who choose not to maintain a bank account and prefer to keep their savings in cash It is essential to offer them the necessary transaction services through an agent, ensuring they have access to occasional financial transactions when needed.
GoL to generate use cases for Digital Financial Services (DFS)
To stimulate growth in the digital finance sector, it is crucial to establish initial use cases that can create a ripple effect Government payments, particularly through welfare programs, play a vital role in facilitating retail mass-market digital financial services (DFS) and supporting micro, small, and medium enterprises (MSMEs) by enabling tax payments.
A notable counterexample is the pricing of ATM cards at state-owned banks (SOBs), where the basic version is charged at 5,000 kip per month In contrast, withdrawing funds from a passbook savings account at a branch teller remains free, despite the higher operational costs incurred by the bank.
The digitization of all financial flows is essential for achieving transparency in the Government of Liberia's (GoL) Public Finance Management (PFM) reform, which aims to centralize and enhance the efficiency of the Treasury While these initiatives began prior to the COVID-19 pandemic, the crisis has accelerated their implementation.
3.3.1 Tax collection broadened and accelerated
The involvement of State-Owned Banks, particularly BCEL, has streamlined the payment of business taxes due to its technological capabilities and significant market share in savings and transactional accounts Efforts are also being made to raise awareness among small and informal businesses about various tax and government service payments, with detailed information available on the BCEL One mobile banking app, where nearly 25% of the icons are dedicated to tax-related services.
Figure 21: Retail mobile-banking app BCEL One home screen
Digital Financial Services play a crucial role in expanding the tax base and targeting the unbanked population BCEL was the pioneer bank to sign a Memorandum of Understanding (MoU) with the Ministry of Finance (MoF) for tax collection initiatives.
Road tax is an annual fee applicable to all vehicles, including motorbikes, cars, and trucks, with immediate results on collection BCEL has developed an app that enables GoL officials to monitor road tax payment levels in their provinces This achievement was prominently highlighted in the 2017 IMF Laos Article IV report.
The BCOME network significantly enhanced tax payment processes in rural regions, making Road Tax the most profitable service offered by BCOME, as illustrated in Figure 12 This service exhibits extreme seasonality, particularly due to penalties that are enforced after the Ministry of Finance's deadline.
The land tax process involves complex documentation for the initial payment through banks; however, subsequent annual payments can be easily made via mobile banking apps and bank agents.
3.3.2 Use of digital financial services for transparent and timely GoL payments
In 2016, the Ministry of Finance (MoF) chose the Lao Development Bank to implement the SMART CASH project, a cash management solution designed to facilitate the efficient management and distribution of funds to ministries and other relevant entities through banking channels.
In April 2020, the MOF signed a contract with Unitel to pay civil servants in 12 unbanked districts:
● Payroll management for 20,000 staff between day 25 and
30 of each month: 20 billion kips /month (~2.2 million USD);
● All staff receive salaries on a U-Money account
30 IMF, Laos 2017 Article IV report, Box 2 ‘Fintech Comes Through the Budget’, p.10
Figure 21: Retail mobile-banking app BCEL One home screen
Alternative repository of digital identities and tiered KYC to accommodate the large
accommodate the large share of the population without digital IDs
Vulnerable and marginalized groups face significant challenges in accessing affordable formal financial services due to the requirement of a valid photo ID The Know Your Customer (KYC) policy under the Anti-Money Laundering/Counter Financing of Terrorism (AML-CFT) regime mandates positive identification for all formal financial transactions As highlighted in § 2.1, a comprehensive digital ID system for Lao PDR's entire population is unlikely to be established for at least a decade Therefore, it is essential to develop alternative solutions to address the issue of missing IDs, particularly for welfare payments, while aligning with the risk-based supervision approach that the Bank of Lao (BoL) is adopting.
In particular, the BoL should mainstream the tiered KYC regime that it has authorized with PSPs such as U-Money:
A first-level KYC, which is self-declaratory, allows access to a no-frills account with restrictions that comply with the AML/CFT regime This includes a cap on account balances and transaction volumes to deter criminal activity, supported by stringent PSP monitoring to prevent the accumulation of multiple accounts by criminals Additionally, crediting the account is limited to disbursing entities of social protection initiatives or employers of inadequately documented domestic migrant workers, meaning account holders cannot deposit cash or receive P2P transfers on these specialized accounts.
● A fully compliant KYC that generally requires a face-to-face meeting between the customer and the PSP/bank staff, and in principle requires a proof of address
An intermediary level may be established to facilitate online onboarding, where customers capture a selfie alongside their ID document for subsequent validation by the payment service provider's back-office Additionally, Know Your Customer (KYC) processes could be delegated to agents for enhanced efficiency.
This domain is crucial for accessibility and has historical significance, as domestic banks previously introduced 'cash card' accounts These accounts were designed to facilitate comprehensive payroll services for factory workers, especially migrant workers, who could only provide a photocopy of their family book from their home village.
The Financial Inclusion Roadmap 2018–2025 (FIR) emphasizes 'Customer Empowerment' as its second priority, advocating for the introduction of tiered know your customer (KYC) regulations To enhance effectiveness, the Medium-Term timeframe should be expedited, leveraging current authorized e-money schemes that already implement tiered KYC.
To enhance security and compliance, the Ministry of Post & Telecoms (MPT) is implementing a KYC policy for SIM cards, requiring all Mobile Network Operators (MNOs) to verify customer identities with official ID cards by the end of 2020 Failure to comply will result in progressive termination of services Applying this KYC standard to e-money usage would allow MNOs to integrate digital financial services more effectively.
Banks like LDB are collaborating with Lab 856, a technology provider for SIM card KYC, to facilitate the opening of digital wallets linked to any SIM card in circulation This initiative should be supported as it enhances accessibility and security in digital transactions.
Ubiquitous coverage of physical touch points for e-money
The successful adoption of e-money relies heavily on the ease of converting it to cash and back, making it crucial to establish a wide network of physical touchpoints This is especially important for ensuring extensive coverage in rural areas, reaching even the most remote locations.
The FIR envisages the following Medium-Term activities under its Priority #4 ‘Improving the payments ecosystem through mobile money, digital financial services, and improved payments infrastructure’:
● Ensure that agent networks function effectively, providing adequate liquidity for cash- out demands and mobile money agents have convenient facilities for rebalancing cash and e-value (4.3)
● Ensure that agent networks penetrate areas beyond the current reach of banks (4.3)
● Consider the case for offering grants/subsidies to agents in more remote areas in the early stages of mobile money development (4.3).
This is a domain that requires sensitive and frequent fine-tuning, but would certainly benefit from gradual institutionalization, for example of a tiered KYC regime of PSP agents:
● Master agents with large transactional capabilities requiring commensurate liquidity obligations These master agents would need to be adequately trained on AML/CFT risks and mitigation processes
Sub-agents with restricted functionalities and transaction volumes face limited liquidity and compliance requirements The goal is to create a substantial network of rural businesses and shops that can qualify to provide extensive coverage for Payment Service Providers (PSPs).
Reflecting on the four years of agent banking in Laos, it is crucial for Payment Service Providers (PSPs) and regulators to collaboratively address liquidity, consumer protection, and AML/CFT risks The NPS Law and PSP licensing framework align with international standards, holding PSPs accountable for their agents' conduct To comply, PSPs must establish the necessary infrastructure to effectively manage and monitor their agents, which includes creating a dedicated team for recruitment, training, and motivation, as well as implementing systematic processes to oversee agent activities and address noncompliance, ultimately leading to the decommissioning of persistently noncompliant agents.
31 Unitel is already using the SIM card KYC campaign as an opportunity to systematically cross-sell the U-Money wallet
Coordinated policy to shift the Thailand-to-Laos remittances to the formal system 36
3.6.1 Encourage private sector alternatives to traditional MTOs
To ensure Laos fully capitalizes on foreign investment and that Lao migrant workers in Thailand optimize their earnings from secure formal remittances, it is essential to establish reasonable transfer prices, aiming for an overall transfer cost of approximately 3% for transfers valued at around THB 5,000.
Bilateral cross-border real-time transfers, such as the Krung Sri – LDB service, offer a cost-effective solution for account-to-account transactions However, Lao migrant workers are considered a secondary target, with micro, small, and medium enterprises (MSMEs) prioritized for higher volumes and commissions Additionally, 'soft' technical assistance is essential for enhancing bilateral cross-border transactions.
BCOME experience revealing a host of issues on agents’ policy
The BCOME4-year track record provides already plenty of food for thought regarding agents’ management, below are a few considerations from observations of agents’ activity and their feedback:
Risk of agents’ impersonification and informal agents
BCOME agents have expressed ongoing concerns about unfair competition from individuals who utilize personal bank accounts and mobile banking services to offer similar transactional services for a fee This practice, which predates BCOME, has emerged out of necessity in regions that are distant from BCEL branches, allowing these individuals to retain 100% of the profits.
BCOME commission as opposed to ⅔ for the official BCOME agents and are not subject to any compliance and consumer protection processes
BCEL has no other option but to allocate IT staff to parse retail mobile-banking transactions for evidence of illicit commercial use
BCOME's initial pilot authorization allowed for 200 agents, effectively doubling its branch network but still falling short of nationwide coverage across 8,447 villages BCEL established clear recruitment criteria, requiring agents to possess a business license and maintain proper premises at the licensed address, ensuring precise identification of BCOME service availability.
Early on one MFI, which signed-up as BCOME agent, proposed that its staff visiting villages on a weekly basis could offer BCOME service on the occasion of their visit
The BCOME service gained popularity among small businesses for payment services in areas where BCEL branches were inaccessible In response to local authorities urging the establishment of a branch in a district with a limited customer base, BCEL recognized the potential of BCOME agents Consequently, BCEL advocated for the Bank of Laos to raise the initial transaction limit from 10 million kip to 20 million kip This led to the proposal of a two-tier BCOME network, where agents would serve as proxies for absent branches in districts, capable of processing small corporate transactions, while regular agents would primarily assist individuals and micro-entrepreneurs.
The Bank of Laos (BoL) has set a transaction limit of 5 million for peer-to-peer transfers, whether to an account or for cash pickup, while increasing the deposit ceiling for BCEL accounts, whether personal or third-party, to 30 million.
37 real time partnerships can improve the necessary coordination between the two partners and provide market information that is sufficiently decisive to trigger promotional activities
In October, a tripartite meeting was organized by the consultant involving LDB, Krung Sri, and the International Organization for Migration (IOM) to explore the necessary steps for providing transfer services to Lao migrant workers in Thailand Krung Sri representatives highlighted that the absence of essential information regarding industrial parks, where Thai employers hire large numbers of Lao workers, hinders commercial opportunities However, this critical information is accessible through Lao recruitment agencies employed by these Thai companies, and a UN agency like the IOM or ILO could serve as a reliable facilitator.
3.6.2 Financial Inclusion module to migrant workers under MOU
To enhance remittance processes for Lao migrant workers, the Government of Laos (GoL) should require recruitment agencies to facilitate the opening of bank accounts for workers and their families in Laos as part of pre-departure procedures Additionally, these agencies must collaborate with Thai employers to incorporate remittance options into payroll services or explore formal remittance solutions near cash-paying factories.
Lao recruitment agencies facilitate the preparation of formalities for cross-border account-to-account transfers, ensuring that necessary training for migrant workers on the setup and usage of this system is conducted effectively.