The opportunity to change towards ‘Cashless Society’ in Vietnam

‘Cash Society’ in Vietnam

Undeniably, current Vietnam’s banks’ business condition is in hazardous situation of which many do not have their own bank accounts nor credit cards. According to the survey of Standard Chartered, credit care ownership in Vietnam accounts for only 4.1percent of the population, compared to 9.8 percent in Thailand. But also, 3.5 percent of Vietnamese population have a mobile money account, while 10.9 percent in Malaysia.

In the same context, 90.2 percent of online purchases are paid with cash under the circumstances that the country’s e-commerce industry has been growing at double-digit rate in recent years. The ratio is the highest among neighboring countries, compared to 47 percent in the Philippines where the bank account penetration is slightly higher than in Vietnam.

Historical Background

-Vietnam War

Background of current Vietnam’s bank situations could have been originated from their history. Current government who won ‘Vietnam war’ implemented currency reform as a one of socialism policy. However, this was a huge down fall that price soared, which have led people to panic.

-Moral Hazard in Bank Industry

In 2014, Employees in Vietnam Bank were arrested for the embezzlement of 3.6 trillion VND (200 billion KRW). Not surprisingly, Vietnam Bank was forced to pay the compensation to the customers who were affected by this incident. However, Vietnam Bank had no chance to recover from its major damage, bank was unable to pay any compensation to the customer who lost 8.7 billion VND (0.4 billion KRW) in 2017.

-Nominal Government Policy

In 2016, Vietnam government declared ‘Cashless Society’ for the achievement of less than 10% cash payment and over than 70% bank account penetration. The new policy failed due to the dominant cash payment over 90 percent and people were still borrowing money from a pawnshop instead of bank.

Inevitable war, confiscation of property by the government, embezzlement by bankers and a failed currency reform forced Vietnamese to believe in faith of ‘Money must be guarded and owned by myself.’ And this faith triggered growth of safe stores in Vietnam street.

Change in Vietnam starting from Government and Financial Industry

1. Effort of Vietnam Government

(1) Declaration of ‘Cashless Society’

Vietnam government declared ‘Cashless Society’ in 2016. As mentioned before, the main goal was to achieve ‘less than 10percent cash payment’ and ‘over than 70percent bank account penetration’. In terms of the target, the policy has failed. However, every change starts with a small move. This specific movement will relieve their peoples’ distrust toward the government. This is meaningful as a milestone of fundament change in Vietnam.

(2) Supply of Solution for Cashless Payment

In 2020, the government began to collect fine online for the violation of traffic laws. They prepared a website and other infrastructure for collecting and started trial runs for the biggest 4 cities: Hanoi, Ho Chi Minh, Haiphong, and Da Nang. These 4 cities account for more than 50 percent of fine collected nationwide. The new system can be expected to solve the bribery problem while the police are giving charges against the briberies. Additionally, this system will be expanded to other public sectors such as public postal services, electricity, water, sanitation, and telecommunication. Next, the government has supplied payment solutions for cashless payment to schools and hospitals in major cities.

For example, in Ho Chi Minh, all schools and hospital are setting infrastructures for non-cash payment. Also, the mayor recommended that bank should cooperate with the public sectors for coexisting in the future.

2. Change in Finance Industry (Mainly focused on Korean company)

(1) Card and Payment Industry

In 2018, Shinhan bank and M service launched digital finance services such as MoMo ID overseas transfer, MoMo Loan, etc. M service is an e-wallet company that has the largest network of 5,000 affiliated merchants in Vietnam. The service is for Vietnamese living in Korea to offer online transfer service with ‘Shinhan S Bank.’ They can send money to their family only with phone number and name. Additionally, their family can easily withdraw the money that they have received and pay for tax, shopping, movie, F&B within the network MoMo has created. Shinhan bank also collaborated with real estate platform ‘Muabannhadat’ for mortgage loan, messenger ‘Zalo’ for marketing. Shinhan bank also made a strategic alliance with ‘Samsung Pay’ to take a advantage that Samsung smartphone accounts for about 46.5 percent in 2017.

(2) Auto Loan Payment

Because Covid19 delayed the acquisition process, Hyundai Card was failed to take over FCCOM(Finance Company Limited for Community) at the end. However, their idea to launch ‘auto loan’ with Hyundai Motors and FCCOM was groundbreaking. Hyundai Motors is one of the most influential car makers in Vietnam accounting for 32percent of the market. FCCOM is a one of subsidiary companies of MSB which is one of the major banks in Vietnam.

Hanhwa group bought shares of Vin group to enter micro lending, investment securities and auto loan market.

Impact of ‘Cashless Society’

There will be fundamental change from the advent of concept ‘Credit’ in Vietnam

1. Impact on Individuals

People can experience better quality in overall finance services. For example, it will become easier to borrow a loan than before. They will be able to find more opportunities to get bigger profitability in producing affluence. They can easily buy things that they need in despite of no wallet and of course, no cash. In other words, the accessibility of finance will be highly improved in many aspects.

2. Impact on Industries

Now days, companies can purchase data of transactions based on the customers’ credit and use them to fulfill the needs of the customers, maximizing their valuation by relating data to their business branches. Also, they can offer products and services with an additional way of ‘Credit sales’ which used to be unpopular in the past. At the end, companies might discover new business opportunities.

3. Impact on Government

With bright future in digital banking, government can gather enormous amounts of credit-related data from their citizens. Government can also get a new opportunity and momentum to leap forward. As a result, there will be a rise in investment demand, meaning that investment capital flows in, as well as the growth of national credibility and its status.

Conclusion

Opportunities are emerging in various industries in Vietnam because of many actions that Vietnam government and companies have done for ‘Cashless Society.’

Korea companies also have been tried to utilize these opportunities. Some has failed, and the others are still struggling to get fruit. However, it is not far away from getting successful result. That is why many banks from Korea enduring ‘harsh and immature’ market in Vietnam.

At the end, there will be countless opportunities for SME that can offer KYC, alternative credit rating, anti-money laundering, electronic authentication, etc. during transactions.

Hebronstar Strategy Consultants
Seo, Hyunil / Associate Consultant