When cash is king, can plastic reign?

Sluggish development of card services in Vietnam is attributed to security concerns and payment habits

For Vietnamese consumers, it has certainly been difficult to kick the old habits to pay for everything in cash and switch to credit cards or ATM cards.
But Le Van Be, general director of the Military Bank, has his own way to convince members of the bank’s management board to launch the card service.
“If we look back a few years, when mobile phones were first introduced to Vietnam, many said it was not the right time. Look what’s happened since then. I think one day in the near future, Vietnamese people will flash their cash cards around like fashion accessories, in the same way they flash their mobile phones around today,” he said.
Last October, the Military Bank decided to join the card market by issuing the Active Plus card, an ATM card with accident insurance worth VND10 million, after a successful two-month trial run.
The bank’s cooperative deal with Vien Dong Insurance Joint-stock Company marks the first such alliance in Vietnam. The Active Plus card offers the standard services offered by any ATM cards like cash withdrawal, transfer of funds and payment for goods and services.
Targeting mainly government employees, businesspeople and other individuals with a stable income, the Military Bank hope to initially issue 5,000 cards and double that volume this year.
It also aims to cooperate with telephone, electricity and water providers to enable payments for such services through the card. The bank is a member of the 11-member credit card alliance led by the biggest card player, Vietcombank.
Active Plus cardholders can access not only the Military Bank’s ATMs but also those of other banks like Vietcombank and Techcombank. Cards are also accepted at 3,000 establishments that accept Vietcombank cards.

The race is on
Central authorities said they encourage the use of credit and ATM cards. The country’s strong economic growth has increased many people’s income, fuelling a need to pay for goods and services in an up-to-date way. Commercial banks, therefore, have naturally been eager to cater for this growing demand.
The Vietnam Bank for Foreign Trade (Vietcombank) doubled its number of ATMs to 400 by the end of last year.
“Cardholder numbers are increasing sharply, but few ATMs are available, making it inconvenient to use cards,” said Vietcombank’s Card Department director Nguyen Tu Anh.
She said Vietcombank was widening its ATM card acceptance point network and creating more services for card users.
What’s more, the bank also plans to let most joint-stock banks join its ATM network in the future and these banks, of course, will share ATM networks. Vietcombank, which takes the lead in the 12-player card market, holding a market share of 60 per cent, currently possesses the largest network of ATMs with more than 200 units installed nation-wide.
The bank has issued the largest amount of ATM cards with 370,000 domestic cards and 50,000 international cards. The number of international credit cards issued by the bank has grown by 30 per cent this year with 22,000 now in circulation.
Like Vietcombank, the Bank for Agriculture and Rural Development of Vietnam (Agribank) also increased its total of ATMs to 150 by the end of last year. The bank now boasts 254 ATMs that serve 85,000 cardholders.
The Bank for Investment and Development of Vietnam (BIDV) installed an extra 155 ATM machines while the Industrial and Commercial Bank (Incombank) says it added an additional 50 ATMs to its network last year, bringing its total to 138. The number of ATMs in the country has rapidly grown from only two in 1996 to more than 400 by the end of 2004, but this total is still much lower than neighbouring countries with similar sized populations, such as Thailand with 7,800 ATMs.
Only 12 banks have ATMs out of a total of 80 banks operating in Vietnam, and cards have been issued to a total of 356,000 people, just 0.4 per cent of Vietnam’s population, according to figures from the State Bank. To boost these numbers, the State Bank is preparing to increase the number of ATMs to 2,500 units. The State bank also hopes the number of payments via the internet will rise from the current level of 10,000 transactions per day to 25,000.

Plenty of potential
“We see strong potential for growth as Vietnam picks up the global trend to use plastic cards,” said Gordon Cooper, Visa’s country manager in Vietnam.
“Vietnamese consumers are increasingly choosing electronic payments over cash through use of credit cards and ATM cards, and we believe that Visa-branded debit cards will become increasingly popular in Vietnam over the coming years,” he added.
Visa came to Vietnam 10 years ago and now has 12 financial institutions as members, including four state-owned banks and some key joint-stock entities such as ACB, Sacombank and Eximbank. Over the past decade, Visa and its member banks have focused largely on recruiting merchants to serve tourists and business travellers visiting Ho Chi Minh City and Hanoi, and have over 10,000 merchants in Vietnam accept Visa as a mode of payment.
This number [of merchants] is significantly lower than that in other emerging markets in Asia such as India with 154,000 merchants, Thailand 143,000 and Indonesia 74,000. Vietnam accounts for a mere 2 per cent of the 500,000 Visa merchants in Southeast Asia.
Cooper said one of Visa’s targets is to focus on developing debit cards for the local banking population and increase the use of electronic payments to replace cash.
“Our initial target will be tourists,” he said. “We aim to facilitate tourist spending on Visa cards at local merchants or dispensing of cash at ATMs, bringing incremental tourism revenues for the country.”
“We will also work with local banks, regulators and key players in the market to expand card acceptance among merchants in Vietnam, leverage global best practices to enable Vietnam’s payment industry to leapfrog to the latest payments technology and standards,” he added.
According to Visa’s figures, spending on Visa cards by foreign visitors to Vietnam amassed more than $160 million in the one-year period since last September.
As much as 98 per cent of all the transactions were made in Hanoi and Ho Chi Minh City.
“In the long run, we’ll expand card acceptance beyond the current focus in Ho Chi Minh City and Hanoi to other popular tourist destinations such as Hue, Danang, Hoi An and Nha Trang,” he said.
Visa will also install point-of-sale machines in hotels, shopping malls, restaurants, souvenir shops and hospitals.
In terms of infrastructure, Visa plans to link VisaNet, which can accurately and quickly manage 10,000 deals per second, with a number of local networks such as BankNet.

Kings of inconvenience
Despite potential, Vietnam’s card market is still at an embryonic stage. According to insiders, there are three reasons for the slow development of card services: a developing economy, customers’ security concerns and payment habits.
Central bank figures show that more than 36,000 ATM cards have been issued to workers in Ho Chi Minh City’s industrial and export processing zones. Now, 97 of the 630 enterprises in the city’s zones pay wages directly into their employees’ accounts.
While some employees find it more practical to receive their wage via ATMs than to stand in long queues at their companies on payday, others fear that their ATM transactions are not safe because other people can observe them and that they will make mistakes repeatedly so that the machines will confiscate their cards. Many stores and supermarkets do not accept cards as payment though they have machines to swipe cards. Cashiers feel it is faster if they take cash.
“Banks will need to make it more convenient for cardholders if they want to develop the card business,” said Tran Phuong Binh, general director of Eastern Asia Bank.
He also said local banks should think of creating a general infrastructure system on which they can install ATMs and launch credit cards, debit or cash cards that are easily accepted as part of a widely connected system.
“We can say that the market has huge potential, but if banks race to develop separately, the development of the market will suffer,” he said, urging banks to link their ATMs and acceptance points or points of sale (POS) for the convenience of cardholders.
Most banks contacted by Vietnam Investment Review said their customers still found it inconvenient to use their cards for cash withdrawals or payments due to the scarcity of ATMs and POS facilities.
The banks with the biggest POS numbers are Vietcombank, Eximbank, Asia Commercial Bank (ACB), but each has only 3,000 POS, said Nguyen Thi Phuong, deputy director of ACB’s Bank Card Centre.
“If we connect to each other we’ll have 9,000 POS combined. It will be much better for card users,” she said. adding ACB will launch its first 100 ATMs early this year and will connect these to other banks’ ATMs.