The Prime Minister has endorsed the use on a pilot basis of telecom accounts for payments of digital content services and small-scale e-commerce. This move may pave the way for Internet service providers to penetrate deeper into the Fintech business. 

However, industry experts contend that it is advisable to identify as soon as possible the payment modes to be used by service providers based on which the relevant legal framework system is built.

It is estimated that e-payment via cell phones is unavailable to 70-80% of the local population 

Since the detection of the CNC-led online gambling scandal worth trillions of dong last April, the Ministry of Information and Communications (MIC) has considerably tightened the management of scratchcards used to pay for digital content services. The strengthening has exerted marked effect on telecom companies and digital content providers with some claiming sales drops of up to 90%.

During a September 8, 2018 meeting attended by Prime Minister Nguyen Xuan Phuc and the MIC, the three biggest Internet service providers in Vietnam—Viettel, VNPT and MobiFone—petitioned the permission of the use of scratchcards for payments of digital content services. On January 15, 2019, while at an MIC meeting, the Prime Minister said the Government had agreed on a pilot basis of the use of telecom accounts for paying digital content services and goods retailing.

A boost to non-cash payment and e-commerce

According to representatives of telecoms, non-cash payment in Vietnam has made slow progress in recent years, lagging far behind the global trend. The reason is that to do so, a Vietnamese payer has to have a bank account whereas only about 30-40% of the local population has such an account. What’s more, not everyone with a bank account can have access to online payment. It is estimated that e-payment via cell phones is unavailable to 70-80% of the local population. Consequently, if every Vietnamese has a bank account, it would be much feasible to use telecom accounts as a non-cash payment instrument, especially when it comes to small-scale transactions.

Tran Trong Tuyen, chief executive officer of Sapo, a platform management and multi-channel company, maintains that e-commerce is making spectacular advances in Vietnam, posting a yearly growth rate of 25%—the highest in the region—with outstanding segments, such as online retailing and express delivery. Statistics released by the World Bank shows however that e-commerce in Vietnam has the lowest rate of non-cash payment, reaching only 4.9% versus 26.1% in China, 59.7% in Thailand and 89% in Malaysia. Currently, around 40% of the Vietnamese population owns a bank account, but 90% of daily payments are made using cash while cash accounts for 99% of payments for goods worth less than VND100,000.

A Sapo study on payments conducted at 5,000 small- and medium-scale enterprises shows that in January this year, the most popular payment method at their stores is bank transfers with over 90% of them reporting in use. However, cash remains the most frequent payment method—once or twice at least each week at each store—with 75% of the stores reporting using it regularly. Other non-cash payment methods—such as credit cards, e-wallets or QR code—account for between 17% and 40%.

It is estimated that by 2020, Vietnam’s Fintech market will gross US$7.8 billion. Currently, digital payment solutions make up 89% of the local Fintech market. Personal and corporate finance is also expected to generate growth of 31.2% and 35.9%, respectively, by 2025, according to a study by Solidiance, a consulting firm. All the above data indicate that Vietnam’s non-cash payment would face both challenges and opportunities on the way to the goal that by the end of 2020, cash would account for at least 10% of the total money supply in accordance with the “Non-cash Payment in Vietnam during 2016-2020 Project.”

Commenting on telecoms’ opportunities in the new game, the majority of owners of small enterprise and online stores argue that telecoms’ networks whose coverage is much wider than that of the bank card and other forms of non-cash payment may make a difference.

Payment modes should be identified alongside with legal framework system

Mobile money is an underlying trend globally. The endorsement of the use on a pilot basis of online payment for small transactions via telecom accounts is poised to give a big chance to the development of Internet service providers. At the same time, it is also a great opportunity for these providers to invest in financial technology. As the bulk of telecom enterprises in Vietnam are highly capable regarding science, technology, finance, infrastructure and distribution channels, they are able to make full use of their strength in developing e-payment.

Ngo Trung Linh, CEO of Vietunion Online Services Corporation (Payoo), shares the above viewpoint, saying that the permission will definitely benefit Internet service providers that are expected to gain the upper hand over other players in the field, such as banks or payment intermediaries presently operational. However, as a specialized service, e-payment requires careful scrutiny due to the fact that it must abide by a myriad of regulations on money laundering and other illegal transactions. Up to this moment, only banks and some other intermediaries (also via banks) are licensed to provide e-payment services.

Online payment is by itself a formidable challenge regarding legal framework, transaction safety and information security. As far as State management is concerned, difficulties abound, for instance unusual transactions, high tech thefts and information security for customers. In reality, Vietnamese users generally neglect protection of their cell phones.

Another issue to be solved by Internet service providers relates to the expansion of point of sale networks across Vietnam. In addition to the diversification of services, and the introduction of new technology and management of risks, the players involved will have to enhance their promotional efforts to make clients familiar to the new services.

It is expected that following the trial period, the methods of payment and legal framework will become sufficient, allowing Internet service providers to enter a new race for e-payment. Payments made through cell phones and scratchcards will force enterprises to reduce production costs as well as fees, and pay more attention to their service quality.

SGT