E-wallet services to facilitate online payment convenience

At present, there are around 30 e-wallet providers active in Vietnam that enjoy increasing popularity

From Moca and MoMo to Payoo and others, there are over 30 e-wallet service providers in Vietnam. It is becoming a major subsector within the banking industry and deserves to be better understood.

But what exactly is an e-wallet? There are various understandings of the concept floating around. Website investopedia.com states that “a digital wallet (or e-wallet) is a software-based system that securely stores users’ payment information and passwords for numerous payment methods and websites. By using a digital wallet, users can complete purchases easily and quickly with near-field communications technology. They can also create stronger passwords without worrying about whether they will be able to remember them later.”

The definition adds that digital wallets can be used in conjunction with mobile payment systems, which allow customers to pay for purchases with their smartphones. A digital wallet can also be used to store loyalty card information and digital coupons.

That is probably the predominating idea of the concept – that it is not a place for money itself to be held, but for the passwords and other information to make transfers from other accounts for the purposes of making or receiving payments. It is like carrying around a wallet full of credit cards.

The cards themselves do not contain the money, but they give digital access to the bank accounts which do contain the money and, thus, can transfer that money pursuant to the agreement (bill, receipt) between the account holder and the provider of goods or services.

According to Vietnamese law, an e-wallet service is one providing for customers an electronic account of identifications from organisations providing intermediary payment services established via messengers (like electronic chips, mobile phone SIM cards, and computers) that allow the preservation of the value of currency, as secured by the equivalent value of money that is transferred from payment accounts of the customers at banks as a security account of the service provider, in a 1:1 ratio between the amount spent and the amount in the security account.

This definition is similar to the concept provided by Investopedia. The e-wallet in Vietnam does not itself contain the money. That money is held in a security account held with a bank. The e-wallet simply contains the information necessary to transfer money from that account to other accounts.

Furthermore, the e-wallet is located on digital devices such as phones, chips, or computers. This definition is contained in a piece of legislation issued in 2019 so, though it does not specifically list internet-based e-wallets, it is easily enough assumed by the presence of ellipses in the list.

E-wallet service providers

Before a company can become an e-wallet service provider, they must meet certain requirements. First, commercial banks and foreign bank branches may provide e-wallet services upon approval of the State Bank of Vietnam (SBV). Non-credit institutions may also provide e-wallet services if they meet the following requirements:

* Are a duly established company in Vietnam;

* Have a plan set out for technical issues, legal issues, anti-money laundering, risk control, and other compliance related matters;

* Have a minimum charter capital of VND50 billion ($2.17 million);

* Meet minimum human resource (HR) requirements for expertise by the management and operational staff of the company;

* Have an appropriate technical and IT system with an equally appropriate back up to provide payment services;

* Other transactional specific requirements relating to the access and use of multiple bank accounts and switching of account funds; and

* Possess specific management accounting software and have in place sufficient accounting mechanisms to ensure the proper reporting of financials to relevant stakeholders.

The company wishing to become a service provider of e-wallets in Vietnam must provide proof of meeting these requirements as well as a number of other financial and enterprise matters to the SBV. Once that organ approves the company in question, they will receive an operational license to provide e-wallet services for 10 years.

Mostly anyone over the age of 15 who has appropriate civil act capacity can open an e-wallet in Vietnam. The information and documentation required varies whether the applicant is an individual, Vietnamese or foreigner, or an economic entity.

Individuals must provide basic identification information while corporate owners must provide tax, registration, and representative information as well. This information is provided to the e-wallet service provider and then, as necessary, forwarded to the authorities.

In order for the owner of an e-wallet to actually transfer money, they must connect their bank account–or debit card–to the e-wallet. This allows the service provider to transfer money when the owner of the e-wallet makes or receives a payment.

One element that is tricky, especially for foreigners seeking to utilise e-wallets in Vietnam, is the foreign currency restriction. Accounts linked to e-wallets in Vietnam must be denominated in VND.

I ran into this problem when I tried to open an e-wallet with MoMo. I did not have a Vietnamese bank account at the time and it did not accept my US dollar denominated debit card. Once the owner’s bank account is connected with the e-wallet, one would think payment would be straightforward, but not so much.

Using an e-wallet in Vietnam does not mean that your money is transferred directly to Tiki.vn whenever you make a purchase using it. Rather, the law requires that the providers of e-wallet services must maintain a settlement security account to ensure the payment of all transactions conducted using e-wallets on their services.

Usage and privacy in Vietnam

It is into this account that money is transferred first when the owner of an e-wallet in Vietnam makes a purchase using his information. Simultaneously with the request of the owner of the e-wallet to make a payment, the e-wallet provider transfers money from the e-wallet owner’s bank account into this settlement security account.

Then, when the service provider receives a request to settle payment from the seller of the goods or services purchased, it transfers money from this settlement security account to settle the payment request. In this way it maintains the 1:1 ratio of cash in the account to payments outstanding required by law.

There are only three permissible uses of the e-wallet under law. First, the payment for goods or services. Second, the transfer from one e-wallet to another. Third, the transfer of funds through the e-wallet to the owner’s bank account or debit card.

In making these transactions, the amount of money allowed to travel through the e-wallet mechanism is limited to VND100 million ($4,350) a month. Service providers may further limit this amount or impose other restrictions on e-wallet owners, but the law allows for transfers up to this limit.

Other restrictions on the e-wallet include the prohibition of illegal activities such as money laundering or promoting terrorism. E-wallet service providers are prohibited to provide credit to customers or to charge interest rates on amounts transferred in the e-wallet.

Service providers of e-wallets in Vietnam must provide certain information to the SBV regarding the users of their e-wallets. They must provide totals of the numbers of accounts in their system (opened and active) and the total amount of money passing through their system at a given point in time. They must provide the account information, size, and turnover volume of their settlement security account opened at an underwriting bank.

They must publish monthly information concerning, firstly, the number of accounts opened, closed, and operating, the total amounts of payments, transfers, and settlements in the service providers e-wallet system; secondly, the total number of transactions debited and the total value of such transactions; the total number of transactions credited and the total value of such transactions; and finally, information concerning the 10 highest value e-wallets and the 10 e-wallets with the most transactions in a given month.

While e-wallet service providers are likely not considered credit institutions, they must be registered with the SBV as intermediary payment providers, an easy argument can be made for the protection of customer information as required by credit institutions.

In general, credit institutions “must ensure confidentiality of information about accounts, deposits, deposited assets and transactions of clients conducted.” This would suggest that service providers of e-wallets in Vietnam must abide by strict confidentiality rules and may only be allowed to share analytical data with third parties without the consent of customers.

This may be circumvented through contractual obligations imposed in service user agreements accepted at the time of signing up for the e-wallet service. As always, use of data and confidentiality rules are subject to the legal requests of relevant authorities.

In the near future there will assuredly be more rules. The Prime Minister has issued guidelines for a fintech sandbox to be initiated in the next few months that will take service providers who have accelerated their offerings beyond the scope of existing legislation and bring them into a regulated space.