Credit Cards Make Headway in Myanmar, But Tourists Still Need Cash

A year ago, Myanmar had no automated teller machines and not a single hotel or restaurant able to swipe the credit cards proffered by throngs of foreigners arriving in the newly opened country, who instead had to bring crisp U.S. dollars to pay for everything in cash.

It has come a long way since: 2,500 credit- and debit-card machines, known as point-of-sale terminals, and 450 ATMs including at least three at the gates of Yangon’s Shwedagon Pagoda, according to Kanbawza Bank Ltd., known as KBZ, the country’s largest privately owned bank.

“The absolute need to carry bags of cash is declining,” said Matt Davies, the International Monetary Fund’s mission chief to Myanmar, who first traveled to the country from Washington in November before there were any such machines, and said he still can’t fully rely on plastic. “It takes time for practices to change. Myanmar remains a cash economy and will continue to be a cash economy for some time.”

Not if Visa Inc. and MasterCard Inc. have their way. MasterCard began signing up Myanmar banks starting in September 2012 and has so far licensed seven, which in turn have installed payment terminals taking MasterCard at 285 merchants including the Strand and the Governor’s Residence hotels in the financial capital Yangon, according to data provided by the Purchase, New York-based company. About 210 ATMs also accept MasterCard for cash withdrawals, with at least 130 of those in Yangon.

China’s UnionPay

Visa has licensed eight banks, which have enlisted 550 merchants including hotels, restaurants, travel agencies, airlines, retail stores and souvenir shops frequented by tourists, and more than 200 ATMs, data from the Foster City, California-based company show.

Myanmar’s remaining 1,665 payment machines accept cards from Shanghai-based UnionPay, China’s payment network that has expanded to 141 countries in the past decade to become the world’s second-largest by volume behind Visa, as well as locally issued debit cards. These payments use a local electronic network, Myanmar Payment Union, set up in September 2012 by 17 local banks and the Central Bank of Myanmar, which doesn’t yet permit the banks to issue credit cards.

About a year before the local network began, some banks led by Co-Operative Bank Ltd., a privately owned Myanmar lender known as CB Bank, set up ATMs for cash withdrawals by Myanmar nationals, said Thein Zaw, a former deputy director general at the Central Bank of Myanmar.

‘Very Low’

While the numbers may look large, they are “very low” compared with the needs of arriving tourists and business people, said Aung Thura, chief executive officer of Thura Swiss Ltd., a Yangon-based market research and consulting firm for companies entering Myanmar. Even where cards are accepted, payment terminals often don’t work and are hindered by poor Internet and telephone connectivity and power supply, he said.

“The general advice to tourists and business travelers is to bring in your clean dollar notes because you might not be able to get money from ATMs,” said Aung Thura. “Even if you have your cards, you always have to think about the backup,” he said, recalling an experience in July when he tried to use his locally issued debit card at a restaurant and the telephone line didn’t connect.

“These places where cards are accepted are places tourists frequent, but I don’t think it’s really embedded in the normal day-to-day transactions of local businesses,” said Kelly Hattel, a financial-industry specialist at Manila-based Asian Development Bank, who traveled to Myanmar for the fourth time this year in late September.

High Fees

While she was able to use her credit card at the Yangon hotel where she stayed, she had to pay in cash for her room in Naypyidaw, the country’s political capital 215 miles (350 kilometers) north of Yangon. Almost all Myanmar merchants accept U.S. dollars as long as bills are unworn. She also had to pay $500 in cash to the travel agent who arranged her domestic round-trip flight and car she hired in the capital.

“That was frustrating,” she said.

Fees to get cash locally can add up. Withdrawals are limited to 300,000 kyat ($310) per transaction, and banks charge 5,000 kyat to use an ATM on top of any fees charged by travelers’ home banks, according to San Dar Tun, a manager in the cards department at CB Bank. A maximum daily withdrawal, limited to 1 million kyat, would cost a minimum of $20.60 in ATM fees. ATMs dispense only local currency. The resulting pile of cash would be too large to fit in a wallet and would require a tote bag.

Loosening Controls

A credit card issued by HSBC Holdings Plc in Singapore used to get cash at an ATM in Myanmar, regardless of which payment network it operates on, will incur a cash-advance fee of 5 percent of the amount withdrawn, a 1.5 percent administrative charge for a foreign-currency transaction and a minimum of 2 percent per month on the amount withdrawn until it’s repaid, according to the bank’s website. Charges for overseas cash withdrawals vary by issuing bank and locale.

Myanmar President Thein Sein has expanded political freedom and loosened economic controls since coming to power two years ago. That prompted the easing of European Union and U.S. sanctions on the country starting last year and allowed, among other things, the transfer of funds from the U.S. or by an American to Myanmar, and the setting up of business by U.S. companies including Visa, MasterCard and American Express.

‘Virtually Zero’

For Visa, the world’s biggest payment network, the immediate goal is to increase card acceptance among merchants and ATMs to support the travel and hospitality industries for the expected influx of visitors to the 2013 Southeast Asian Games to be held in Myanmar in December, according to Bangkok- based Somboon Krobteeranon, country manager for Myanmar and Thailand. He didn’t elaborate on the company’s growth targets for the country.

Visa and MasterCard processed about $7 trillion in credit- and debit-card purchases worldwide in the 12 months ended June 30, according to company data. Visa reported $10 million in purchases and cash withdrawals since its payment network began in Myanmar in December through Oct. 9.

MasterCard doesn’t break out a number, except to call it “virtually zero,” according to Matthew Driver, MasterCard’s Southeast Asia president in Singapore. That compares with 40 percent of global retail sales settled using cards, according to a September study by the company.

Fertile Ground

Countries such as Myanmar are fertile battlegrounds for MasterCard to wage its “war on cash,” which Ajay Banga declared in September 2010 after taking over as chief executive officer. MasterCard greets travelers arriving at Yangon International Airport with advertisements encouraging them to withdraw currency from ATMs using its network.

“We’re really starting at ground zero in terms of the huge amount of cash there is in the system,” Driver said. “It’s going to be a long-haul play and may take five to 10 years until people start to be comfortable for us to really broaden out things to a significant kind of scale compared to where it is today.”

Neighboring Thailand, with a population of 68 million compared with a similar number in Myanmar, has 47,759 ATMs, and 264,236 Thai merchants have payment terminals, according to the Bank of Thailand.

Along with UnionPay, Japan’s JCB Co. has also aligned itself with the local payment network, which planned to start accepting the Japanese cards later this month, according to Zaw Lin Htut, senior general manager in charge of the international banking division at KBZ.

Three Machines

MasterCard and Visa each run networks in the country, requiring merchants to install three separate card-payment machines to be able to accept all international credit and local debit cards.

American Express Co., the biggest U.S. credit-card issuer by customer spending and operator of its own global-payment network, began working last year to find merchants to accept its cards, according to Fritz Quinn, a spokesman in Sydney for the New York-based company, who declined to disclose the number. The Governor’s Residence hotel accepts AmEx cards with a 5 percent surcharge.

Poor telephone connectivity and electricity supply are deterring faster adoption. So is a fee that some merchants pass on to card users, which a June report from management consultancy McKinsey & Co. puts at 4 percent of the purchase price on average.

Telephone Lines

Many telephone lines date from “circa 1950 or 1960” and don’t support data transmission, said Anton Corro, MasterCard’s Bangkok-based country manager for Thailand and Myanmar.

Myanmar, also known as Burma, has the lowest penetration of telecommunications infrastructure in Southeast Asia, according to the McKinsey report. Only 13 percent of the population has access to electricity, compared with 99 percent in China, Malaysia and Thailand, according to the report.

“We tell customers that we’ll swipe the card with pleasure, but we cannot guarantee the line will work,” said Cherie Aung-Khin, owner of the Green Elephant restaurant in Yangon, which is popular with foreign visitors.

The Green Elephant was the first establishment in Myanmar to accept a Visa card, in January, according to a statement by the payment processor. About $50 of the restaurant’s average daily sales of $800 is paid for via Visa, said Zayar Latt Han, the restaurant’s food and beverage officer.

“Travel agents still give tourists instructions to bring lots of cash when they come to Myanmar,” Aung-Khin said.

Cash Aboard

The Road to Mandalay, an $840-a-night cruise operated on the Irrawaddy River, also known as the Ayeyarwady, by Orient- Express Hotels Ltd. carries the equivalent of $50,000 to $100,000 worth of kyat, said Thomas Henseler, general manager of the Governor’s Residence, also operated by Orient-Express.

The large stash of cash is kept aboard the luxury boat in a safe and pays for food and supplies en route, between the ancient ruins of Bagan and the Chinese-influenced northern city of Mandalay, he said.

“Everything’s paid for in cash in Myanmar,” Henseler said, pointing to the low level of electronic payments and banking in the country. “Even gold and gems are stored in the pillow case.”

Fewer than 10 percent of Myanmar nationals have access to banking services, said Zaw Lin Htut of KBZ. Outside of Yangon, installation of ATMs and point-of-sale machines is limited mostly to Mandalay and Naypyidaw, the IMF’s Davies said.

“All these systems will ultimately be used by the people of Myanmar when they are allowed to use” credit cards and more of them have access to banks, Davies said.

Banking Crisis

Myanmar’s central bank doesn’t allow local banks to issue credit cards because it constitutes unsecured lending and had threatened the “stability of the economy” in 2003, said Win Htein Min, deputy director of financial-institutions supervision at the Central Bank of Myanmar.

Asia Wealth Bank and Myanmar Mayflower Bank, the two largest in the country at the time, collapsed that year, following a bank run, he said. Starting on Feb. 6, 2003, people rushed to withdraw their money after the failure of several non- banking financial companies that accepted deposits at rates higher than those offered by lenders to finance investments in real estate, construction, trading and manufacturing. Myanmar allowed privately owned banks in 1992 and had 20 of them with 350 branches in early 2003.

“A few of the private banks that operated in 2003 were faced with a liquidity shortfall, and they could not collect their money from cardholders,” Win Htein Min said.

ATM Shutdown

Locally issued credit cards were barred and ATMs that existed then were shut down, said Thein Zaw, formerly of the central bank and now vice chairman of Myanmar’s newly licensed Construction and Housing Development Bank Ltd.

Recently, the central bank allowed the issuance of prepaid debit cards for Myanmar residents traveling overseas. On Oct. 8, MasterCard partnered with CB Bank to introduce the first such cards, which can be reloaded.

In February, the U.S. authorized transactions involving Myanmar’s privately owned Asia Green Development Bank Ltd. and Ayeyarwady Bank Ltd., and state-owned Myanma Economic Bank and Myanma Investment & Commercial Bank, which were previously on a U.S. blacklist barring U.S.-linked companies from doing business with them. Several Myanmar banks remain on the list.

Plastic Bags

ATM use is slow to catch on. CB Bank, the country’s third- largest private lender by assets with more than 100 ATMs, sees only 0.2 percent of the 20 billion kyat withdrawn from its branches daily via ATMs, said Pe Myint, a Yangon-based managing director of the bank. Used to banking in person, customers prefer taking out cash from deposit windows and carrying it in plastic bags, he said in an interview in his second-floor office just above the bank’s primary branch, which is strewn with bundles of kyat notes on the floor as workers put them through the 20 counting machines.

Card acceptance has helped improve business at shops that cater to tourists. Nandawun Souvenir Shop & Myanmar Book Centre, a Yangon store which sells items including gems, jewelry, lacquer ware, traditional clothing and paintings, installed machines that accept MasterCard and Visa in February, said owner Thant Thaw Kaung.

Electronic payments have contributed to 50 percent of the store’s increase in sales in the first eight months of this year compared with a year earlier, as customers are no longer hindered by not having enough cash, he said.

Easier Payment

“Especially when buying high-value products such as gems and jewelry, tourists consider it a lot easier to pay with a card,” he said.

When Hattel of ADB visited Yangon’s Scott Market, 300 meters (330 yards) from Shangri-La Asia Ltd.’s Traders Hotel, where she stayed on her most-recent visit, she said she was surprised to see “little tiny shops, little jewelry counters” accepting MasterCard and Visa.

“I would suspect that not a lot of people would know that,” she said. “Most people probably still think they need to carry cash.”

Traders Hotel, where a U.S. Embassy travel alert said an American tourist was injured about midnight Oct. 15 by one of several bombs that exploded around Myanmar, still doesn’t have a machine that allows credit-card payments. Customers who pay with plastic authorize electronic payment by signing a form that bears the card number and amount, which gets sent by e-mail to Singapore and processed by a third party.

Client Service

“We started this in April last year as a service to our clients, many of whom did not know that Myanmar didn’t accept credit cards,” said Phillip Couvaras, general manager of the hotel owned by Malaysian billionaire Robert Kuok.

Though engaged in talks with six banks on the installation of a payment terminal for about three months, Couvaras says no bank was able to show him a single machine that handles both Visa and MasterCard, which has delayed the process.

Couvaras may have found his answer in CB Bank, which has just enabled a single machine to process both Visa and MasterCard, according to the bank’s San Dar Tun.

Such incremental changes are being made every day, said the IMF’s Davies.

“It’s very impressive, what the country has been able to do in such a short period of time,” he said.

With assistance from Kyaw Thu in Yangon. Editors: Sheridan Prasso, Robert Friedman, Peter Eichenbaum.

To contact the reporter on this story: Sanat Vallikappen in Singapore at [email protected]. To contact the editor responsible for this story: Chitra Somayaji at [email protected].