In just a few years, the Vietnamese population could be transformed from one of the most underbanked in Southeast Asia, to one spoilt for choice, when it comes to saving and spending their money.
The Vietnamese government is in the process of approving a pilot project for local telco players to launch so-called mobile money services, defined as money linked to telco accounts. It is a pivotal moment for Vietnams’ telco providers to grab a share of cashless financial transactions that have been erstwhile the domain of fintech startups.
Local telco providers – VNPT, Viettel and MobiFone – have all indicated interest in launching mobile money services. This is unsurprising given the huge proportion of unbanked and underbanked adults their networks are able to reach.
Vietnam’s proportion of adults served by banking services was a mere 21.1 per cent, one of the lowest amongst Southeast Asian countries, based on figures in the e-Conomy SEA 2019 report.
Yet, Vietnam has the third-highest mobile penetration amongst Southeast Asia countries at 147 per 100 people, only slightly behind Singapore at 149. This means that telcos are at the cusp of serving some 79 per cent of the adult population without bank accounts.
Mobile Subscribers per 100 person
Source: World Bank, 2017 and 2018 data, Dealstreet Asia research
Note: Recent figures from Vietnam Telecommunications Authority under Ministry of Information and Communication show that the number of mobile phone subscribers in Vietnam stands at 126.9 million as of May 2020.
To be sure, the natural advantage that telco providers have lie in their already huge customer base – they already serve one-quarter to half of Vietnam’s population. “They will save on advertising, marketing and opportunity costs to enter the market. With extensive infrastructure covering cities from rural to urban, telecom businesses will have the opportunity to make a difference with mobile money,” Dang noted.
Vietnam Posts and Telecommunications (VNPT)
|100% stake owned by State. |
The Committee for Management of State Capital (CMSC) as a representative entity
|33 million (fixed subscribers 2.4 million, mobile subscribers reaching 30.6 million) as of 2019||United States, Cambodia, Myanmar, Laos, Singapore, Hong Kong
|Vietnam Mobile Telecom Services One Member Limited Liability Company (MobiFone)||100% stake owned by State. |
The Committee for Management of State Capital (CMSC) as a representative entity
26 million as of 2019
Singapore, Hong Kong, US
|Viettel Military Industry and Telecoms Group (Viettel Group)||100% stake owned by State.|
67.4 million as of 2019
Asia: Cambodia, East Timor, Myanmar, Laos, Africa: Mozambique, Cameroon, Burundi Tanzania,
Latin America: Haiti, Peru.
Dang believes that it is very difficult for other telco operators to compete effectively with Viettel in the current state for the next five years due to its huge network layer and large number of subscribers.
In most cases, the definition of an e-wallet encompasses electronic money stored with telco providers or on prepaid cards in various forms. But Vietnam has a different definition – in the country, an e-wallet is defined as electronic money that is stored in some form that is linked to a bank account, whereas mobile money refers to the form of money stored with a telco provider. Mobile money users are likely to face limitations on the amounts they can pay via the new channel, as such limits are typically put in place to prevent scams or erroneous transfers.
“The advantage of mobile money is that users do not need an account at the bank. The competition will become fierce if Mobile Money for users increases the (payment) limit in the future,” said Dang Thanh Son, Partner at Baker & McKenzie (Vietnam) Ltd Hanoi Branch, who spoke to DealStreetAsia.
Mobile money players are likely to be focusing on rural regions more than urban ones because current e-wallets and digital banks are mainly deployed in cities and towns at the moment, notes Dang. The World Bank estimates that 64 per cent of the population reside in rural regions, based on 2018 figures.
In early June, the State Bank of Vietnam announced a rise in cashless transactions, attributing the success to a combination of financial communication and education, and initiatives to avail cashless payments for government services.
The COVID-19 pandemic and movement control measures also played a part. Although domestic payments via bank cards increased by 26.2 per cent in volume and 15.7 per cent in value, growth via mobile payments was more staggering – rising by 198.8 per cent in the volume of transactions and 21.9 per cent in value over the same period of 2019, figures from the central bank revealed.
Le Xuan Phuong, deputy head of research at Cimigo, said the frequency and value of transactions carried out daily on e-wallets indicated the great need for these services and their potential in the future.
Vietnamese e-wallet users performed 1.6 to 2.2 transactions on digital platforms daily in Q4 2019 with average spending of VND500,000 ($21), according to a survey by Vietnam-based market research company Cimigo.
It is very likely that VNPT and Viettel will be the first firms to trial the provision of mobile money services.
“I think the mobile money race will probably be a two-horse race between Viettel and VNPT because both possess a superior quality digital ecosystem… With the current infrastructure, subscriber numbers and business strategy, I think the advantage is partly in favor of Viettel,” Dang said.
Viettel Group’s revenue has been increasing steadily since 2016 (see figures from Statista). The group does not provide a profit breakdown of its telco operations.
Source: Statista, Viettel Group annual reports
Viettel’s prowess in telecom infrastructure is undeniable. The company has announced that it will launch its commercial 5G mobile services from June this year. It is also reportedly the sixth company in the world to produce 5G network equipment, after Ericsson, Nokia, Huawei, Samsung Electronics and ZTE.
“Viettel’s experience over the past 20 years in Vietnam and nearly 15 years of business experience in foreign markets has helped them gain valuable lessons to improve infrastructure quality, service quality and exchange,” he said.
The smallest among the three contenders, MobiFone, however, is not to be dismissed. It can always take a leaf out of its African peers, who have successfully rolled out financial services through partnerships with utility providers, major retailers, or smaller financial institutions lacking capabilities to build a digital bank or powerful app from scratch.
Still, telcos must compete with other potential contenders, which could dish up financial services just as quickly through existing businesses and networks. For example, Grab and Gojek, who are already in the country, can tap on driver-partners to feed communities into its sprawling ecosystem of accessible rides, food-delivery, and e-commerce services.
However, their speed of execution appears to be slowed by regulatory road bumps and retaining local talent: Gojek’s Vietnam affiliate, GoViet lost its second CEO within a year, DealStreetAsia reported.
Banks are also gearing up to take a slice of cashless transactions. The pandemic has nudged traditional banks in the country such as Agribank to launch their own mobile apps.
For e-wallets who have begun operations for some years, their user base remains a small fraction of the telco players’ subscribers (see table below). Nevertheless, they can put up a good fight by retaining existing users and drawing in new ones through tapping on the growth of e-commerce transactions in the region.
|E-wallet||Major Shareholders||Registered users||As of||Unique Proposition
|MoMo||Warburg Pincus, Standard Chartered, Goldman Sachs||15+ million||End of 2019||Linked to 24 banks|
|AirPay||SEA||Unavailable||Unavailable||Linked to Sea group’s ecosystem|
|eMonkey||Ant Financial||10,000+||2019||Linked to Lazada ecosystem
|TrueMoney||MOG Vietnam, Ascend money||100,000+||2020||Linked to 7-Eleven stores
|ZaloPay||ZION (60%)||2m+||2018||Linked to OTT Zalo, 23 banks
Vietnam’s E-Commerce Gross Merchandise Value (GMV) is likely to grow five-fold between 2019 and 2025 to reach $23 billion, enjoying one of the highest growth rates versus other Southeast Asian countries in the region, based on projections from Google Temasek e-Conomy SEA 2019 report.
E-commerce GMV in Vietnam to surpass Thailand soon
Thus far, around 95 per cent of total transaction value in the market had been made through Payoo, MoMo, Senpay, Airpay and Zalopay as of August 2019, according to data from the State Bank of Vietnam’s (SBV) Department of Payments (DoP).
Although the development space for the telcos is quite large with 64 per cent of the population in rural regions, mobile money operators need to face head-on competition from banks and e-wallets which have successfully educated the market, according to experts.
“I think the launch of mobile money at this time is too late,” said Nguyen Hoa Binh, Chairman of NextTech Group which owns the payment firm NextPay. “Mobile Money has been widely used in underdeveloped countries, with a low proportion of people with bank accounts. However, in Vietnam, the banking network has grown quite well, more than 60 per cent of the population has a bank account.”
Furthermore, the State Bank will provide guidance on correspondent bank services that will offer services such as payment, cash deposit and withdrawal, and bill payment this year. Agents of such banks will help the cover market gaps by bringing financial services to people who do not have a bank account, especially people in remote areas. These are the exact same people targeted by mobile money operators.
Changing user behaviour is also a major task to tackle, given that mobile money is a new product. Plus, the majority of Vietnamese people still prefer cash despite government efforts to promote cashless payments in recent years. Some 80 per cent of Vietnamese adults prefer to use cash in daily transactions, according to figures from the Ministry of Industry and Trade.
E-wallets and banking systems have taken a fairly long time to educate the market. As the telcos roll out education programmes alongside marketing campaigns, state-owned firms, already known to be slow in execution, may fall behind privately-run competitors.
In the initial phase, Binh stressed that telecom businesses is likely to spend large sums of money on market education and changing user habits. “In the near future, mobile money will not compete directly with electronic wallets,” he added, explaining that they could end up being different products.
Mobile money providers would also need to live up to best practices in cash management, experts say. If 30 per cent of the 127 million mobile subscribers nationwide use Mobile Money and spend VND10 million per month (the maximum limit expected), there will be a huge amount of float for telcos to manage.
Economist Nguyen Tri Hieu told local media that mobile money operators still need to manage this float and available cash flows, to ensure that they are not using these for investment or other business purposes. At the same time, there should be monitoring mechanisms to prevent money from flowing into criminal-linked activities and money laundering.