Although a cash economy, Vietnam is quickly developing a reputation for its financial technology. It rapidly developed in recent years to have a growing middle class, rising internet penetration and a population of almost 100 million people, most of whom are young and tech savvy. It has all needed characteristics to become digital.
The Vietnam Government recognizes that for the country to integrate into the world economy, its cash-based economy has to change. The Government wants at least 70% of Vietnamese aged 15 and older to have bank accounts. But to achieve that, Vietnam has to improve access to financial services in rural areas as majority of population still lives in the rural areas.
Buying house with gold is still very much common in Vietnam today. 95% of transactions in terms of value is paid using gold and cash. As the economy continues to expand dramatically, more transparent payment records is required in order to crack down on tax evasion and money laundering.
Regulatory efforts to increase financial inclusion and to reduce cash payments
Last year, Vietnam issued a new development strategy for the banking sector until 2025, with a vision to 2030.
The strategy aims to increase independence and accountability of its central bank, the State Bank of Vietnam (SBV) to ensure efficient management of monetary policies, inflation control, and increase support for economic stability.
It intends to control activities of credit institutions which plays a key role in monetary and financial stability.
The plan also aims to reduce cash payments. By the end of 2020, the ratio of cash to total liquidity will not be higher than 10%, and by end of 2025, this figure is expected to reduce to 8%.
14 Vietnamese banks are already listed as among Asia Pacific's strongest in 2018 Asian Banker AB500 ranking. The ranking looks at financial and business performance of the commercial banking industry in Asia Pacific.
Among Vietnamese banks, Vietcombank led at the 29th spot in the ranking, up 19 positions from 2017. There has been a huge improvement in performance for Vietnamese banks.
Fintech players are growing
Fintech companies have led adoption of mobile payments in Vietnam, especially for purchase of low-cost daily items. These companies are developing one-stop-shop apps and spending heavily to entice new users, which is the same modus operandi as in other markets.
With the presence of fintech players, mobile payment is becoming a new trend with the rise of technologies such as QR codes, contact and contactless payments, and the tokenization of card information.
QR code payments are becoming increasingly popular in Vietnam and is now implemented at 18 banks, including state-owned banks such as BIDV, Vietcombank, VietinBank, and large joint stock banks such as VP Bank, Maritime Bank, SCB and SHB, with 8 million users.
Vietnam still requires prospective mobile payment customer to have bank account held by the same named owner, which hinders the uptake of mobile payment since only 31% of Vietnamese adult has bank account. Liberalization will have to go further if the government is to advance the take-up of cashless payments.
There is a 30% foreign ownership cap in the banking sector, but the cap does not apply in the fintech sector. Therefore, there is more foreign participation in the fintech sector, resulting in more support in terms of technology, experience and capital from global major foreign financial groups for development.
Foreign investment is rising in the financial sector, due to Free Trade Agreements that Vietnam has signed or going to sign. Vietnam is viewed as a 'shelter' from the US-China Trade war.
Examples of popular fintech players in Vietnam include:
MoMo - Founded in 2007. Momo is an e-wallet and payments app that enables users to pay online and transfer money to each other digitally. At selected stores, the app can be used for cashless payments. MoMo also allows users to pay utility bills through its partnership with local banks.
Timo - Founded in 2013. It provides digital banking services through its mobile app. Users can perform their daily transactions through mobile phone and create financial goals.
Tima - Founded in 2015. Tima is a peer-to-peer lending marketplace that offers asset-backed mortgage loans and vehicle loans at a yearly interest rate of 10.95%. Tima uses algorithms to provide credit scores of borrowers by analyzing data from their social media accounts to determine their creditworthiness.
Finhay - Founded in 2017. It is a micro-investment platform which targets millennial customers. It uses both its website and mobile application to reach customers.
Growth Wealth - Founded in 2018. It is a peer-to-peer lending platform for SMEs in Vietnam which connects SMEs with individuals and institutional investors. Growth Wealth is part of FTP and Vina Capital’s initiative FinTech Lab.
Rising income and consumption fuel e-commerce sector
The continuous economic growth in the past years (higher than 6% per year in the last five years and 7.08% in 2018) with the associated increase in income has been boosting the e-commerce sector. Amazon.com Inc, Alibaba Group Holding Ltd and other global e-commerce companies have set up operations in Vietnam, but local companies still dominate e-commerce sales.
According to its trade ministry, the size of Vietnam e-commerce sector is US$ 8Bn in 2018 doubling from 2015, making it the second fastest growing e-commerce market in ASEAN. In terms of market size in ASEAN, Vietnam is still behind Indonesia and Thailand.
About a third of population shops online, but purchases are still made using cash. The World Bank revealed that Vietnam currently has the lowest number of non-cash transactions in the region at only 4.9%. The figure is much higher in Thailand at almost 60%, while in Malaysia it is close to 90%.
Only 2.1% of Vietnam's population has credit card. Vietnam has intention to increase credit access for its citizens. However, it needs to be cautious not to pivot too quickly to mass adoption of credit cards like South Korea. A credit binge in the early 2000s in South Korea led to massive household debt.
Therefore, Vietnam e-commerce sector is predicted to boom in future and more transactions will be cashless. The rapid rise and equally rapid evolution of online and mobile commerce is expected to give rise to financial technology and a wave of new payment methods.
Vietnam is starting to join the bandwagon for cashless transactions and is encouraging its citizens to use digital transactions. With a young technological savvy population, we opine that it is possible for Vietnam to be a cashless society within the next ten years. Companies need to pay attention to the technological development in the retail sector.
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Bloomberg, Vietnam's Next Revolution A Cashless Society for the Masses, https://www.bloomberg.com/news/articles/2019-05-27/vietnam-s-next-revolution-a-cashless-society-for-the-masses
Vietnam News, Vietnamese E-commerce Sector Sees Impressive Results, https://vietnamnews.vn/economy/482564/vietnamese-e-commerce-sees-impressive-results.html#70QGMHygYjHMbFCl.97
Vietnam Advisors, Top 10 Online Shopping Sites in Vietnam, http://www.vietnamadvisors.com/top-10-online-shopping-sites-in-vietnam/