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The year 2022 was undoubtedly the ‘Year of Bakong’, for the country’s most-celebrated digital payment solution would show the way for other central banks across the world to emulate. It has even drawn praise from none other than Fumio Kishida, the Prime Minister of Japan, one of the most technological countries in the world. Pioneered by the National Bank of Cambodia (NBC) Governor Dr Chea Serey, Bakong was an earnest attempt to leverage new technologies to modernise the payment systems in the country. Launched in October 2020, Bakong was developed by NBC along with Japanese technology company Soramitsu using the open-source Hyperledger Iroha blockchain framework. It has seen a remarkable adoption rate, with approximately 10 million accounts created since its launch. The flexibility of using a blockchain for digital asset management allowed NBC and Soramitsu to implement fiat-backed digital representations of the Khmer riel and US dollar that would be accessible for wholesale interbank transactions as well as everyday retail payments. According to Makoto Takemiya, the Co-founder and Chief Executive Officer of Soramitsu, the core of the system is run by NBC, which delegates the running of ‘payment gateways’ to financial institutions. “End users, such as mobile app users, connect to the system via these payment gateways. All the transactions are stored as a chronological chain of records, also known as a blockchain, which is replicated across multiple servers. “Unlike most commonly used permissionless blockchains, such as Bitcoin, the Hyperledger Iroha-based Bakong system does not rely on mining for finalizing transactions, but rather uses a voting method, wherein a supermajority of servers that maintain the blockchain vote to finalise transactions that are arranged in blocks.” The NBC Bakong core system is geographically distributed and contains all transactions, but no personally identifiable information (PII). Rather, all end-users PII is stored by the financial institutions that join the system. In turn, financial institutions only receive transactions on which their users are counterparties, and do not have access to all transactional data in the system. It is this separation of data that helps to preserve the privacy of users, while still allowing for the central bank to view all transactional activity and consider these data to improve their monetary policy. Owing to the advanced inherent security features of the blockchain and the associated ledger copies, the risks of fraud, hardware failure, tampering, and, most importantly, cyberattacks are mitigated. Makoto Takemiya points out that cost reduction and user inclusivity are the most important benefits of this system. “By unifying banking processes under Bakong, the costs and fees associated with interbank transactions are reduced to a minimum and transactions by end users are currently free. As long as banks and financial services continue to carry out their due diligence through the implementation of ‘know your customer’ and other security measures, financial crimes can be avoided. “Indeed, the permanent digital record of all transactions makes payment systems like Bakong easily auditable and thus unsuitable for criminal activity.” The annual report of the apex bank shows that the amount of cash paid in riel by account holders through the Bakong system has increased 4.1 times in 2022 compared to the previous year, while that paid in US dollars through the same system has risen 3.2 times, and the transactions made through this system have surged 2.2 times to 26.1 million. The report spotlights that 0.52 million accounts were created by financial service consumers to use the Bakong system to make payments via the country’s only all-in-one mobile payment and banking application. “Bakong has 69 banks and financial institutions as members and has been launched officially by 46 of those institutions until the end of the last year.” The National Bank of Cambodia is set to expand the cross-border payment system of Bakong to more and more countries. Cambodia has connected Bakong with Malaysia, Thailand, Vietnam and Laos and is in the stage of expanding the system to China, Myanmar and India. In June 2023, the NBC and the National Bank of Rwanda held talks to explore ways to establish the Bakong online payment system in Rwanda. The move followed after Bakong hogged the limelight during the Kigali Fintech Forum held in the Rwandan capital. Towards the close of the year 2023, the NBC and Chinese financial services provider UnionPay International launched cross-border QR code payment, allowing cardholders to make payments via scanning QR Code merchants. This followed another great initiative, which allowed local vendors to use the KHQR network of the Bakong system to make payments to over 80 million Alipay merchants globally. Meanwhile, Soramitsu is set to create a cross-border payment network connecting Japan with Southeast Asia utilising the Bakong platform, Japanese media reported. Named ‘Mukumi’, the network will allow Japanese merchants to sell across Southeast Asia using QR codes linked to Bakong. Countries targeted include Malaysia, Thailand and Vietnam, all jurisdictions where Bakong is accepted, the media reports highlighted.
Read more: khmertimeskh
