It is expected that traditional banks, financial technology companies (FinTech), telecommunication services providers, and foreign investors will be allowed to participate in Vietnam Fintech market. The draft Decree on non-cash payment replacing Decree 101 issued in 2012 is expected to be submitted to the Government by the State Bank in June 2020, thereby opening a new dimension for the Vietnam Fintech market.
Not including the foreign investor's capital contribution limit (49%) for intermediary payment activities in the draft Decree is a new move of the State Bank of Vietnam (SBV), however, this also means that this market will return to its previous trajectory when licensed payment intermediaries received capital inflows from foreign investors in excess of 49% ownership.
It can be seen that besides the goal of promoting non-cash payment in the economy, through this draft, the SBV also aims to open the door to attract more resources to develop the digital payment infrastructure.
The SBV also agreed that payment intermediaries are a new type of service based on the application of technological achievements, so foreign investment plays an important role. If this source of capital is limited, it may affect the attraction of foreign investment capital in the field of payment intermediaries in particular and financial technologies (Fintech) in general.
According to a Standard Chartered Bank report released last year, 64% of ASEAN financial institutions plan to invest in developing and modernizing their payment infrastructure in two years, in order to catch up with new trends and narrow the gap of development of digital banking infrastructure among countries in the region. Therefore, Vietnam will need a large capital source to develop modern payment infrastructure, to achieve the goal of reducing cash payments to less than 10%.
By not applying the foreign ownership ceiling in payment intermediaries, Dr. Can Van Luc, chief economist of BIDV Bank, said that this move of the SBV is consistent with Vietnam's commitments in many trade agreements, most recently the Europe - Vietnam Free Trade Agreement (EVFTA). In particular, Vietnam is committed to creating favorable conditions for foreign investors to pour capital into areas including banking and finance.
Along with that, to implement the solutions set out in the Prime Minister's Decision No. 149 / QD-TTg dated on January 22, 2020, approving the National Comprehensive Financial Strategy until 2025, towards 2030 as well as the Prime Minister's Decision No. 1726 / QD-TTg dated on September 5, 2016, approving the Scheme to improve access to banking services, one of the new policies mentioned in the draft Decree is the regulations on payment agent activities, paving the way to bring "mobile money" into practice.
Accordingly, with the agent-based model, banks are allowed to assign agents to provide part of payment services such as deposit / withdrawal of cash in / out of accounts, payment of goods and service invoices, etc. This new policy aims to support wider financial dissemination to the public by increasing the delivery of financial services to people who previously had no bank accounts and had difficulty accessing financial services, especially people in remote areas. Besides, this regulation also helps banks to reach customers without having to expand its network of branches / transaction offices, saving costs and improving business efficiency.
Thus, with the introduction of mobile money model and agent-based model, along with the removal of foreign ownership ceiling at payment intermediaries, Vietnam Fintech market will expand in size, creating competition and linkages among banks, telecommunications service providers and payment intermediaries.
When the opportunity is open to more people, the market may have to be redivided. However, to ensure fair and healthy competition, each participant needs to comply with certain rules to ensure fairness and safety in payment operations.
According to Ms. Nguyen Thuy Duong, Deputy General Director in charge of Financial Services of EY Vietnam, the current regulations on mobile money are still unclear, and to ensure fair competition, more specific provisions in the guiding circulars need to be added. For example, mobile money is essentially a form of payment service like an electronic wallet. Because it is an electronic wallet, there must be regulations on the storage of monetary value, guaranteed by the value of money deposited into the account at payment intermediaries.
In addition, according to Ms. Duong, when comparing methods of depositing money between e-wallets and mobile money, the recharge of e-wallets is very limited because it can only be recharged via bank accounts. As for mobile money, the channels are more diverse when people can top up via scratch cards, banks, or have someone else recharge via phone number.
As for e-wallets, the Know your customers (Kyc) process is done by banks. Meanwhile, the identification of customers using mobile money is done by the carriers themselves. The challenge for network operators is to build a large and accurate customer database, avoiding impersonation
Regarding competition among many parties, according to Mr. Luc, the presence of carriers in the digital payment market will create an inevitable competition for payment intermediaries or e-wallets.
"But this is a healthy competition, and participants will complement each other, because the customer segment of these two subjects is quite different" Luc said. He showed evidence that besides customers who already have a bank account and can connect to e-wallets for payment, there are still many others who do not have a bank account but have a mobile phone subscription. These people will be the target of mobile money.
According to Standard Chartered Bank, if the construction of banking infrastructure requires a large amount of capital and appropriate location, mobile money will be a perfect choice when considering cost and accessibility factors because the region's Internet penetration rate is 58%, of which more than 90% is via mobile devices.
“The ASEAN region's digital economy currently generates about USD 150 billion in annual revenue and is expected to become one of the world's leading digital economies in 2025. This trend shows the increasing competitiveness of e-wallets, and other forms of digital payment will replace traditional payment methods” this bank commented.
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