A cashless economy on the horizon

As Vietnam is going cashless, new payment services are popping up across the market to capture users Photo: Duc Thanh

The era of digital payments

It is rather surprising to find out that some 57 per cent of Vietnamese respondents in the ‘Consumer Payment Attitudes’ survey carried out by Visa last September were confident to go cashless for three consecutive days. Such percentage was the highest compared to other regional nations, where only some 42 per cent of Singaporean or 37 per cent of Thai were ready to go cashless for the same duration of time.

Indeed, there is no need to carry cash around when digital payments service in Vietnam has grown stronger than ever, evident in the marching in of foreign mobile payments services like Samsung Pay that arrived in Vietnam last September, or Apple Pay and other mobile payment platforms that are about to debut here in the months to come.

What’s more, according to E&Y’s ASEAN Fintech Census 2018 that launched in Vietnam in early April, in Asia-Pacific, social media platforms, e-commerce players and on-demand service providers like ride-hailing Grab with its GrabPay, with large captive consumer bases, have already or are starting to offer payments as a differentiated service to its consumers.

These factors, when considered as a whole, are progressively transforming the landscape of payments in Vietnam, from a nation that largely depends on cash to one where by 2021 up to 40 per cent of the population will make the most of their smartphones by paying for their everyday necessities instead of resorting to loose change, according to Statista.

The Department of Payment under the State Bank of Vietnam (SBV), meanwhile, noted that the country has what it takes to foster the mobile payment approach thanks to solid foundations that include easy availability of telecommunications services and the high rate of mobile phone usage.

Data by the World Bank shows that by the end of 2016 the country had over 128 million mobile phone subscriptions. The number of 3G subscriptions, as local data reveals, reached 54.2 million by mid-2017.

The payment authority said that with over 40 banks, both foreign and local, that currently offer mobile payment services, there were 90 million mobile payment transactions with a total value of VND423 trillion ($18.8 billion) reported by the end of September 2017, on-year rises of over 90 and 140 per cent, respectively.

Winfield Wong, head of Wholesale Banking at HSBC Vietnam, said: “In recent years, we have witnessed a boom in the development of a cashless Vietnamese society where smartphones play the role of catalyst and mobile payments make up an increasing proportion of retail transactions, taxes and other administrative and business charges are paid through online payments, banking accounts start offering biometrics recognition, and more and more fintech startups are born.”

In return, digital payments made to individuals, businesses, and the government will go beyond just the transition from physical to digital payment and provide more catalytic impacts and economic growth in the future, according to a research document conducted by Roubini ThoughtLab and commissioned by Visa Inc.

Specifically, the study estimated that relying more on electronic payments could yield a net benefit of up to $470 billion per year across the 100 cities studied–which is roughly equivalent to 3 per cent of the average GDP for these cities.

Take Hanoi for instance. The capital is seeing strong potential gains in going cashless, including an extra $600 million a year, employment rising by an extra 3.5 per cent, productivity by 0.2 per cent, and the city’s GDP growing by 36.4 basic points.

“The use of digital technology, from smartphones and wearables to artificial intelligence and driverless cars, is rapidly transforming how city dwellers shop, travel, and live,” said Lou Celi, head of Roubini ThoughtLab. “Without a firm foundation in electronic payments, cities will not be able to fully capture their digital future, according to our analysis.”

Joint efforts

A scheme for the development of cashless payments in Vietnam in 2016-2020 was approved by the prime minister, setting the objective of reducing the ratio of cash usage in total payments below 10 per cent by 2020.

With this in mind, promoting e-payment via e-commerce to go in line with the master plan for e-commerce development for the same timeline will be backed by requirements for 100 per cent of local supermarkets, shopping malls, and distribution outlets to integrate point-of-sale payment terminals, in order to allow customers to proceed with non-cash payments. In addition, 70 per cent of power, water, and telecommunications service providers are to accept non-cash bill payments, while 50 per cent of households and individuals in major cities are encouraged not to use cash for shopping and daily expenses.

Meanwhile, financial services are to be fostered in rural and remote areas through the development of new and modern means of payment, which will further help Vietnam to achieve financial inclusion, ensuring that communities in these areas gain access to payment services and at least 70 per cent of the people over 15 years of age have a bank account by 2020.

Payment service providers like Visa play a vital role in popularising electronic payments among the broader public. Visa has been focused on increasing the issuance and acceptance of its products across the nation, while at the same time bringing new and innovative payment methods into the market.

Sean Preston, Visa country manager for Vietnam, Cambodia, and Laos, shared that the firm’s contactless payments are now available at supermarket chains like Saigon Co-op and Big C, as well as electronics retailers like Nguyen Kim. Visa’s QR code payment service is another highlight that allows consumers to use their mobile phones to scan QR codes and securely transfer funds for goods or services.

“We have been working with our clients to introduce this technology and recently announced Visa’s first QR code payment service in Vietnam, Sacombank QR Pay. We see a significant opportunities for QR code payments to help grow electronic payment usage and acceptance across the country, particularly at smaller merchants and in remote areas,” noted Preston.

SBV, meanwhile, will be responsible for completing the legal framework for card payment operations with standards to be issued for contactless payment, QR code, and mobile payment, as well as legal regulations for fintech operations. Additionally, relevant authorities will look into enhancing consumer protection, cyber security and safety, and improving the management and supervision of mobile payment, preparing for a modern financial marketplace.

According to Preston, while Vietnam remains a heavily cash-oriented society, Visa is seeing very positive developments across the board from consumers, merchants, and the government alike–with attitudes toward electronic payments now “better than ever before.”

“Visa fully supports SBV’s roadmap for cashless payments by 2020 and is committed to driving the adoption of electronic payments as well as expanding acceptance to ensure that the transition to a cashless economy is both efficient and smooth,” he said.

While the transformation is still in progress, HSBC’s Winfield believes that the country has many advantages to boost financial inclusion, as its young population is more open to new technology, internet penetration is high (more than half of the country’s population has internet access), and 84 per cent of the population using mobile phones, 95 per cent of which are smartphones (2017 data).

Security that matters

There is no denial that digitalisation enjoys unprecedented growth across the financial and banking sector, and there is nothing wrong with promoting an economy with as little cash spent as possible, but cybersecurity is bound to appreciate as a concern for customers.

As such, the question arises whether the rise of advanced technologies will help enhance the security and safety features of payments or whether it will come with greater risks.

The answer, as Visa noted, is that a secure and safe payment eco-system can definitely be achieved if all financial institutions and banks follow the Payment Card Industry Data Security Standards (PCI-DSS) and other encryption requirements to protect their data. At the same time, they should stand ready to disable or reduce the value of lost data through the use of tokenisation or EMV chips that embed microprocessor chips to store and protect the data of cardholders.

In addition, payment fraud can be prevented with due attention on the organisations’ side to detect, discontinue, and verify fraudulent activities. Customers, meanwhile, can be given the power to take part in payment security themselves by warnings and digitalised control.

A pathway for the local government or the central bank to carry out in the future to enhance payment security, as Visa suggested, should include an implementation plan for the development of security in payments, application of 3D security technology, and verification based on risk analytics, and further promoting sustainable and creative solutions for payment security.