Vietnam is aiming to become around 90% cashless by 2020, a feat that would catapult them to stand amongst the very short list of digital payment first countries worldwide including Belgium, France and Canada. Indeed, as of December 2016 only one Asian country, South Korea, makes the list of top 10 cashless countries.
No mean feat then, especially given Vietnam’s large (95 million), rural (63.5%) and relatively impoverished population ($6,400 GDP PPP). Nevertheless, it is clear that the drive towards becoming a cashless society is not just empty rhetoric from the Vietnamese government, but instead a clear-eyed policy aimed at meeting and solving specific economic needs.
In this post we’re going to take a look at how Vietnam is driving towards becoming a cashless society, some of the technology solutions that are allowing it to happen, and to assess how customers and merchants alike are being persuaded to abandon notes and coins in favour of bits and bytes.
Value to the Economy
With cash currently being used, according to some analysts, in up to 90% of all transactions in Vietnam, it is easy to see how much of a logistical nightmare hard currency can become. This is amplified further by the sheer volume of cash in circulation due to the Dong being the world’s cheapest currency (currently sitting around ₫23,000 to $1).
Cash is naturally problematic. It is expensive to move, dirty to handle, liable to theft and can easily foster corruption in a way non-cash payments simply cannot. With Vietnam sitting in 113th place in a ranking of least to most corrupt nations, it is understandable why the government would see it as prudent to try and wean their population away from cash and onto a more transparent platform for payments.
One of the other key problems with cash is that it cannot on its own help to develop further wealth. By putting money under the mattress instead of in a bank or non-bank institution, inflation means that year on year millions lose out. A key pillar of financial inclusion is therefore the attempt to deploy as much cash as possible using financial tools in a way that can help the poorest out of poverty.
Finally, in a country which is striving to redefine its social welfare system in the face of an aging population, digital platforms are an ideal method for effective G2P disbursement whilst through analytics also ensuring that the money is being spent in the right way.
With all this in mind, the Vietnamese government has announced the Master Scheme on E-commerce Development. In order to realise the goal of up to 90% non-cash transactions, innovative means of payments will be developed in rural and areas, financial inclusion will become a key priority and a minimum of 70 % of those over the age of 15 will have bank accounts by 2020.
Whilst many are claiming that the plans are, at best, unrealistic, Vietnam has had quite a successful last 7 years when it has come to increasing the penetration of bank accounts in the country. In 2010 only 16.8 million had their own bank account. That number now sits at around 67.4 million. What’s more, with 254,000 digital points of sale (POS) already deployed across the country and with 38.3% of the adult population in possession of a smartphone device, much of the necessary infrastructure for non-cash payments is already being rapidly adopted.
The explosion of interest in fintech across the region has provided a range of options available to those looking to make the move away from cash.
At the forefront of this movement is the rapid growth in mobile wallets, the penetration of which increased in Vietnam by 50% in just one quarter in 2016. Mobile wallets, whether provided by banks, telcos, device manufacturers or even retailers, provide a user friendly way to pay friends, bills and merchants, plus in some cases also access to other financial products including insurance, loans and savings.
There are two obvious benefits that basic mobile wallets and payments have over more traditional bank account ownership.
Firstly, as most wallets are pre-paid, there is no need for the extensive KYC regulation needed in order to join a bank. This allows for a far greater degree of financial inclusion amongst those without stable incomes.
Secondly, mobile devices are quickly becoming ubiquitous and, furthermore, the penetration of smartphone devices is increasing exponentially. With an influx of cheap devices from manufacturers in China and elsewhere, many are now able to make full use of the advanced features of smartphone devices to provide user friendly payment experiences.
Nevertheless, there do remain many obvious and significant hurdles that need to be crossed for the 2020 milestone to be reached. The most significant of these is how to encourage adoption amongst a population that is very much wedded to paying with cash. In transactions of all types, whether it be business-to-business, customer-to-business or even business-to-government, cash remains the preferred transaction method.
A great example of this challenge is the introduction of online payment for utility bills, a function that has been live now for several years. Despite its ease of use and clear benefits versus more manual payment processes, only 4.5 million (or 18.47% of users) have opted to take up the option.
Similarly, whist 90% of urban-dwelling adults possess at least one payment card, only 15% of them use cards to make payments in retail environments.
Ultimately this problem comes down to a perceived lack of trust in currency that isn’t physical. Despite the inherent risks of carrying cash, many still see it as a safer alternative to what they perceive as putting trust in merchants to be honest with the digital transaction they process. Whilst certain security initiatives, such as biometrics for mobile payments, do go some way to allay these fears, it is going to take a serious change in perspective for trust not to be a significant hurdle.
Other roadblocks, perceived or real, to the adoption of non-cash alternatives include merchant acceptance, limited additional benefits, lack of convenience and assumed costs related to new solutions.
If the government is able to help address these key roadblocks, a process which is a combination of public education, merchant incentives, bank collaboration, infrastructure investment and more, then they will put themselves in the very best position to reach their 2020 goals.