Banks continue to hold the commercial strings in Vietnam’s rapidly developing payments landscape
By Chris Kapfer
Vietnam is likely to emerge as a significant consumer-driven market, placing it in the Asian consuming class of Indonesia and the Philippines with a gross domestic product (GDP) per capita between $2,800-$3,500 by 2020, in which mass automobile ownership takes off.
- The industry is shifting from traditional payment channels to mobile point of sales (mPOS), QR code payments and e-commerce albeit at a still immaterial stage compared to more traditional payments
- Number of e-wallets expected to reach 20 million registerd accounts by 2020
- Overall, POS devices grew to 306,158 in 2017 and will likely pass 345,000 in 2018, yet cash withdrawals on ATMs are still about seven times higher than the payment volume on POS
The Asian Banker expects access to financial services in Vietnam rising from 17 million financial accounts in 2011 to an estimated 30 to 32 million formal account relationships by 2020, making up 38% of the adult working population.
Vietnam is likely to emerge as a significant consumer-driven market, placing it in the Asian consuming class of Indonesia and the Philippines with a gross domestic product (GDP) per capita between $2,800-$3,500 by 2020, in which mass automobile ownership takes off. Vietnams’ GDP per capita rose from $1,310 in 2010 to $2,300 in 2017 according to the World Bank.
This means that Vietnam will add approximately 1.8 million people to the formal banking class every year. In over a decade, from 2020-2030, it is expected to double again, from 32 million to over 60 million people having a formal account in a financial institution. In this context, banks, finance companies, card issuers and fintech are keen to tap into one of the most powerful middle-class income formation dynamics in Asia.
Vietnam’s developing financial services landscape
According to the Vietnam Card Association, online e-commerce transaction value showed reasonable growth rates but still accounted for a very modest proportion in the overall payments mix. The value of online payments was $1.15 billion (VND 26.7 trillion) in 2017, contributing only 9% to online payments value compared to 91% via point of sale (POS).
International credit cards contribute only 3% to total cards circulating as of 2018 according to the Asian Banker Research, while the number of total credit cardholders only accounted for 4.1% in Vietnamese adults, just half of Thailand and one-fifth of Malaysia as estimated by the World Bank. However this card segment grew by 50% year-on-year (YoY) from 3.2 to over 4.8 million in 2018.
In recent years, local banks have added higher-end credit cards to their portfolio, such as platinum and more recently, infinite class targeting the travel and cashback preferences of affluent and private banking customers. Banks often offer up to 10 different credit cards without focusing on differentiation and targeted segmentation. Instead of creating a clear value proposition around each of these, local banks tend to have very similar value proposition and rewards propositions across cards with the only difference in the earning rate in the rewards programmes. Citibank (in terms of card spent) and Vietcombank, Sacombank and Techcombank (in number of cards) have traditionally been the strongest banks in the international credit card market. VP Bank has climbed the ranks since 2014 from seventh in number of cards to fourth in 2017, driven partially by FE Credit, better-targeted promotions, a strong e-commerce focus and differentiated card propositions. FE Credit has issued more than 1 million cards as of June 2019. The group has been taking a more integrated approach than its peers to different products looking at total lifecycle needs instead of looking at single product lines.
Figure 2: Total number of cards, credit cards and wallets
International banks such as Standard Chartered have introduced online credit card applications since the beginning of 2018, including improved automation in data entry, bureau checking and underwriting, to make digital channels one of the key acquisition channels. Clients can apply for a credit card and submit all required documents online. Most local banks currently work on implementing a complete online application that will be processed straight-through which will entirely be launched once wet signatures are allowed by the regulator and full host-to-host connectivity with the credit bureau for instant decision making. Banks are in the process of moving into contactless/virtual card for all types of card products such as: mVISA, VISA Direct, VISA payware and MasterPass and started offering card activation through their mobile banking applications.
To date, out of more than 30 e-wallet service providers, only five have gained traction, namely MoMo, ViettelPay, VNPay, ZaloPay and Moca. Momo informed The Asian Banker that it had 10 million registered e-wallet users as of October 2018. Singapore-based ride-hailing firm Grab, which partnered with Moca in 2018, is preparing for a bigger entry into the financial market with lending. It is set to invest “several hundred million dollars” in Vietnam where the company sees its next major growth market. Meanwhile, Go-Viet, a subsidiary of Indonesia’s ride-hailing giant Go-Jek, is in the starting blocks for its upcoming Go-Pay service.
The industry is shifting from traditional payment channels to mobile POS (mPOS), QR code payments and e-commerce albeit at a still immaterial stage compared to more conventional payments. 2018 saw a steep rise in the number of QR code acceptance units, with nearly 58,000 payment points, up 600% against 2017. Vietnam had 27,500 places accepting payment via mPOS in 2018, posting a YoY increase of 99%, according to the Vietnam Banking Association. Overall, POS devices grew by 568% between 2010 and 2017 to 306,158 in 2017 and will likely pass 345,000 in 2018, yet cash withdrawals on ATMs are still about seven times higher than the payment volume on POS. Vietnam has more than 700,000 retailers. Banks are aiming to acquire more merchants payment acceptance points in all communes of Vietnam.
QR is becoming a popular payment method and the State Bank of Vietnam announced to move towards a standard for QR code. However total payment transactions via QR are still in the single-digit millions dollars as compared to more than $10 billion (VND 300 trillion) in POS transaction value in 2018. Currently, the market offers multiple units with different transaction, settlement and service management models. There is no uniform standard for backend system making the market fragmented, asynchronous and inefficient.
Larger domestic banks have signed contracts with up to 21 licensed fintech companies in e-payments providing their payments and financial services, generating an interchange fee from every payments transaction. In this fragmented payments landscape, banks continue to own the payments mandate. The regulator mandates that e-wallets should be linked with banks’ deposit accounts.
Figure 3: Total number of POS devices
With new technologies such as QR Code and near-field communication, mobile applications and e-commerce are being developed and the habit of using cash is gradually changing, but it still comes at a slow pace for it takes time for users to receive and start using new technology. New and modern payment technologies and payment methods have been applied but the speed is still slow and not synchronised across the market. The state is actively promoting digital payments. In August, Visa and the Vietnam’s Ministry of Transport signed a memorandum of understanding intending to increase digital payments and implement a secure single payments platform across all transportation networks. In addition, the move towards a standardised industry QR code will further fuel adoption rates but its implementation is still some time away. With non-bank e-wallet providers hyping up Vietnams’ digital payments market, banks have rapidly upgraded their infrastructure, having a far better comprehensive financial stack to offer to clients as they continue to own the payments mandate. In the rapidly developing retail financial services landscape, commercial banks continue to hold the payments mandate vis a vis fintech and offer more comprehensive financial services for long term sustainability. Fintechs, particularly in payments, are in for a rough ride.