Better way to pay

Cards are slowly but surely making a dent in the preference for cash in Vietnam.

More than a few tourists in Vietnam have been shocked to find that their credit cards can’t be used everywhere. Many prefer to use their cards while abroad to pick up some points for their next trip, and bring just a few hundred dollars in cash with them. Sixty-three year old New Zealander Jordan Lloyd wasn’t aware of the situation during his first trip in 2010. “In my four trips to Vietnam I have only used my credit card once,” he told VET, adding that the only time he needed to use it the fee made him think twice.

Faults in the card market

Vietnamese customers are still to adopt the habit of paying for goods and services by debit or credit card. Card payments are generally only used for expensive items, such as consumer electronics and appliances, air tickets and hotels. Even though a policy encouraging non-cash payments for goods and services has been introduced by the government, the practice has not taken hold as yet.

The growth in Vietnam’s consumer class has been spurred on by a shift to the cities, with the number of urban dwellers expanding from 20 per cent of the population just three decades ago to 34 per cent in 2015. By 2025, half of the country’s population is expected to be living in urban areas. Most now live in Ho Chi Minh City or in the capital Hanoi.

As the shift has gathered all the opportunities for investors in big cities, commercial banks have struggled to promote electronic payments in rural and remote areas. Together with a lack of enforcement by the government, the cash-intensive characteristics of the market, undeveloped infrastructure, limited bank channels to promote the use of cards, hesitation among card users due to high fees, and undeveloped connecting utilities have resulted in a low card penetration rate nationwide.

Vietnam’s commercial banks have been rushing to issue cards for a while now, but millions of issued cards remain unused. There is no card issuance fee, so customers agree to the cards whether they plan to use them or not. The State Bank of Vietnam (SBV) estimates that only 20 per cent of Vietnam’s 93 million people have bank accounts, with each having three to five cards on average.

Withdrawing money continues to be the main reason for having a card, with ATM transactions reaching VND477.3 trillion ($20.92 billion) during the fourth quarter of last year, according to figures from the SBV. The total value of card transactions rose 7 per cent quarter-on-quarter, to VND547.5 trillion ($24 billion), but payments at points-of-sale (POS) remained low, representing 13 per cent of total sales at just VND70.2 trillion ($3.1 billion) in the quarter. As at the end of 2016, there were a total of 111 million cards in the market, with 90 per cent being debit cards.

A number of fraudulent transactions were uncovered last year, which gives consumers another reason to stick with cash. A customer of Vietcombank reported in August that VND500 million ($22,400) has been taken from her account without her knowledge. The news came as a shock to bank account owners in Vietnam, where the average annual income was around $2,100 in 2015, according to the World Bank. In May, TPBank nearly fell victim to a massive cyber-attack that involved using fraudulent SWIFT messages, saying that the attack might have used malware installed on a software application used by a third party.

One way or another, such incidents affect an economy already not growing at the pace it should be, as trust in electronic transactions could have further driven consumption. According to Moody’s, consumers have some recourse when fraudulent transactions are made. The peace of mind that merchants have with guaranteed payment now also extends to consumers, who feel more comfortable making purchases by card. This trust in the payment system eases friction, bolsters consumption and, thereby, GDP growth. Banks must not let their guard down even though Vietnam’s credit growth rose from 17 per cent of GDP in 2015 to 18.5 per cent last year.

Core players

With the incentives banks provide there are also more enterprises preferring bank transfers over cash for salary payments. Besides, “Vietnamese people have now become a lot more familiar with using cards compared to five years ago,” Director of Sacombank’s Card Center Mr. Nguyen Huu Phuc told VET. But the change brings challenges too. “Competition is extremely stiff in the bank card market, because the trend to replace cash with electronic payments is increasing and this will be the major payment method in the future,” Mr. Phuc said.

According to research from StoxPlus, Vietnam’s card market has grown exponentially over recent years, at a compound annual growth rate (CAGR) of 26.56 per cent, with debit cards being the dominant type though credit card numbers are rising healthily. From 2014 to 2016, fees on ATM withdrawals pushed many consumers to switch from paying by cash to using their debit card. Most Vietnamese consumers now prefer debit cards thanks to there being no minimum income requirement and much lower fees than for other cards. Hence, more and more consumers have been adapting to the new habit of making payments with debit cards.

Cards from State-owned commercial banks make up 66 per cent of those circulating in Vietnam and those banks lead the debit card market, with combined revenue given them a 58 per cent market share. Vietinbank is the most popular card issuer, with over 19.3 million cards of all types issued as at the end of the second quarter of 2016. Credit cards is a more competitive market, where State-owned commercial banks like Vietinbank and Vietcombank and joint stock commercial banks like Sacombank, Techcombank and ACB compete fiercely. Prepaid cards, meanwhile, are yet to develop in Vietnam due to technology issues and low acceptance among users, but in terms of revenue, ACB leads the way with a market share of more than 68 per cent, according to StoxPlus.

Agribank has the widest ATM coverage, followed by Vietcombank and Vietinbank. In POS, Vietcombank and Vietinbank head the market, with a 62 per cent market share, and only Vietcombank has successfully connected with all five card operators in Vietnam. In regard to foreign banks, Standard Chartered and HSBC, with their experience in foreign markets and modern technology, focus on high-end customers who are happy to pay more for better services and credit rates. Others focus on the low and mid-range customer segment, Mr. Vo Tan Long, Director of the Digital Banking Services Division at VP Bank, told VET.

Promising times

With support from the Vietnamese Government and especially the SBV, on April 1, 2015, the two largest financial card operators, Banknetvn and Smartlink, merged into the National Corporation of Vietnam (NAPAS). The event marked a significant step in the development of cards in Vietnam, helping to improve processing times as well as reducing fees and errors during transactions. In 2016, total transactions paid via the NAPAS system reached VND320 trillion ($14.1 billion), nearly double 2015’s result, while the proportion of cash withdrawals also declined 12.5 per cent against 2015.

Under the government’s non-cash policy, cash transactions in Vietnam are to account for less than 10 per cent of all market transactions by 2020, from the current 12 per cent. All supermarkets, shopping malls and distributors will accept credit cards, and 70 per cent of water, electronics and telecommunications service providers will accept non-cash payments from households and individuals. At least 70 per cent of Vietnamese citizens over the age of 15 will have bank accounts by the end of 2020, while 50 per cent of all urban households will use electronic payments in their daily transactions.

Fees on cash payments may be increased while those on electronic payments may fall, the government’s plan states, further proposing the development of new payment methods for rural and remote areas, starting with social welfare and pensions being paid electronically. “The plan will benefit both consumers and businesses, as electronic payments will allow for cost savings and greater efficiency,” according to Dr. Le Xuan Nghia, a former member of the National Advisory Council on Finance and Monetary Policy.

Viewing cyber security as a major concern, SBV Circular No. 30 came into effect on November 28, 2016 and requires credit card service providers compensate card owners for losses when the latter is not responsible. It also instructs commercial banks to convert all magnetic cards into chip cards, to prevent fraud. In particular, all ATM cards must be EMV-standard chip cards by 2020, reducing risks in e-commerce for both buyers and sellers. The electronic platform accounted for about 7 per cent of total retail sales and consumption services revenue nationwide as at the end of 2016, according to the E-Commerce and Information Technology Agency (VECITA) under the Ministry of Industry and Trade.

Moody’s believes the impact of electronic payments remains conservative but is potentially underestimated in Vietnam. Over the 2011-2015 period, increased card penetration accounted for 0.22 per cent of growth in consumption, or a 0.14 per cent cumulative increase in Vietnam’s GDP during the period, outperforming other emerging markets and developed countries, who saw an average of 0.11 per cent and 0.8 per cent contribution to GDP growth, respectively. Vietnamese labor productivity also rose by 18 per cent thanks to increased card penetration, resulting in a total impact of around 75,000 jobs created per year, according to Moody’s.

“From both a macro-economic and banking perspective, rising wages and Vietnam’s rapid economic growth plus an improved legal system will see the financial card industry registering a stronger performance over the upcoming period,” Euromonitor wrote in its October 2016 report.

by Duy Anh / VET