Recent survey of urban consumers conducted by FT Confidential Research showed that 46% use cash exclusively when making transactions in Vietnam, indicating the government is on track to meet a 2020 goal of reducing cash-based transactions of urban households to 50%.
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The State Bank of Vietnam (SBV) in 2014 issued rule requiring e-wallet accounts to be connected to bank accounts held by the same named owner. Without a bank account you cannot open an e-wallet account in Vietnam.
Compliance used to be patchy. However, the central bank has tightened up in the wake of a crackdown last year on an illegal online gambling ring funded by anonymous e-wallet transactions.
Requiring prospective mobile payment customers to have bank accounts works well in a country such as China, where 80% of people have accounts and where WeChat Wallet and Alipay have come to dominate payments.
In Vietnam, however, just 31% of the adult population have a bank account, meaning that the central bank's current stance will put a low ceiling on the take-up of e-wallets.
Investment is pouring into the sector and plenty of cash is being burned, as companies spend aggressively to gain market share. But the SBV will have to relax its stance if the take-up of digital payments is not to be disrupted by tighter rules on e-wallets.
The government hopes mobile payments will spur its cashless drive, helped by the growing popularity of smartphones and a young and tech-savvy population. The SBV informed that 41 banks and 23 non-bank fintech companies now provide mobile payment services.
Although they still make up less than 10% of digital transactions, mobile-based transactions have grown rapidly in Vietnam. In the first nine months of 2018, mobile banking transactions grew 126% year-on-year in value terms to VND1.03 trillion (US$44.5 billion) while transactions via e-wallets -- mobile payment services offered by fintech companies -- accelerated 161% to VND65 trillion (US$2.8 billion).
Fintech companies lead adoption
E-wallets are the relative minnow but they could have the biggest impact on the government's cashless agenda because they are designed to handle low-value, daily transactions; the average size of an e-wallet transaction is US$19 compared with US$366 per mobile banking transaction.
Fintech companies have led the adoption of mobile payments in Vietnam, especially for the purchase of low-cost daily items. These companies are developing one-stop-shop apps and spending heavily to entice new users.
Homegrown Momo was easily the most popular e-wallet in Vietnam in our survey and the most aggressive in building market share. It signed up its 10 millionth user in November, marking a tenfold increase on two years earlier. The company attracted foreign funding early on, securing US$28m from Goldman Sachs and Standard Chartered Private Equity in 2016.
ZaloPay, the second most cited e-wallet service in our survey, has quickly grown after launching in late 2017, relying on the network of 100 millionff registered users of its parent company VNG Corporation. VNG is Vietnam's first unicorn and owns online entertainment products and a social media platform, Zalo.
The local arm of Singaporean taxi-booking app company Grab used the offer of discounted journeys to persuade customers to go cashless. SoftBank-backed Grab, which bought Uber's Southeast Asian operations last year, is spending heavily trying to shape consumer habits in Vietnam, from commuting and food delivery to digital payments.
Fintech companies have been lobbying for change, and the government may be responsive. The SBV has been asked to explore the possibility of allowing direct cash top-ups for e-wallets and is expected to deliver its opinion in the third quarter. Any trade-off that unshackles e-wallets from the banking system may come with enhanced "know your customer" rules, requiring users to register details at points of sale.
But liberalization will have to go further if the government is to advance the take-up of cashless payments. As platforms proliferate, the next step will be to tackle the question of interoperability, which would permit transactions across various competing platforms.
