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Banking & Finance

Help needed to push bank peneration

Released at: 08:40, 20/10/2019

Help needed to push bank peneration

The drive towards bank account ownership and paperless and cashless payments requires some assistance.

by Mr. Ralf Matthaes / Managing Director, Infocus Mekong

Vietnam has one of the lowest ratios of bank account ownership in ASEAN, at 31 per cent. But this does not seem to be impacting on the speed of which digital / paperless transactions are growing. 

The Vietnamese Government has set forth a plan to have only paperless payments by 2021. At first glance this seems incredibly ambitious, if not impossible. There are, however, mitigating factors, outside of legal parameters, that will drive rapid paperless transaction growth. 

Where we are today

As of mid-2019, some 46 per cent of all urban Vietnamese have made some form of paperless / electronic payment in the past six months. This trend has largely been spurred on by the ubiquitous ownership and use of internet-enabled smartphones, whose penetration rate in urban areas is already over 90 per cent of people aged 16 plus and in rural areas over 70 per cent, and is the most-used media and communications device, outstripping even TV in weekly hours used in urban areas.

Thus, the smartphone is the king of electronic transactions. Of these transactions, e-wallets and e-commerce are driving cashless behavior.

In rural areas, electronic payment usage is much lower, and will be the future battleground for cashless payments, as rural Vietnam still comprises 67 per cent of the total population. 

The key triggers for electronic payments include online transfers (28 per cent), mobile payments (24 per cent), and bank account management (19 per cent), which are all convenience-driven functional benefits. 

In contrast, key barriers holding back usage for over half the population are security - trust - privacy (a combined 52 per cent), followed by banking fees (29 per cent), and the ever-popular fear of taxation (8 per cent). Thus, to truly drive electronic payments, all stakeholders, from the government to financial institutions, need to ensure and drive home the message of trust and security to achieve these lofty goals.

Not surprisingly, the barriers blocking paperless transactions are the very same hindering Vietnamese people from opening up bank accounts, magnifying the overall lack of trust in Vietnam’s banking system. This cannot be overcome in a few years and will require education and, more importantly, a shift towards consumer-centric, benefit-driven offers for non-banking Vietnamese.

Why we bank

Most Vietnamese that have opened up bank accounts have done so for three specific reasons. First and foremost, for those working for established and compliant businesses, their salaries are paid by bank transfer, thus requiring an account. 

Another reason, though much lower than the other two, is a safe place to park your cash and use credit and debit cards for payments. This is both driven by safety and status, as a credit card seems to be a rite of passage for entrepreneurs. 

However, the driving rationale for bank accounts is access to capital in the form of loans. Last year, 52 per cent of all urban and rural consumers took out some form of loan. One would think that taking out a loan equals having a bank account. Not so fast. Of these, 50 per cent received loans from friends, family, the “Chinese Credit System”, and consumer finance companies; none of which require ownership of a bank account, further reducing the “need for a bank account in Vietnam”. The other half used banks. 

To drive growth, banks need to better develop their offers to suit consumer demand. For both the average Vietnamese citizen and small to medium-sized enterprises (SMEs), the key to customer acquisition revolves around competitive rates and convenience. 

Considering the high cost of retail space today and the inconvenience of having to physically go to a bank and line up to do your banking, moving customers to an online / mobile banking offer should be a major priority for all banks in Vietnam. By saving costs on branches, better rates can be offered and more can be done to drive security measures. Furthermore, understanding what type of loans consumers are seeking will help drive bank usage significantly. 

What the future holds

As noted, the biggest challenge to driving a paperless and cashless society and increasing bank accounts is building trust and driving growth in rural Vietnam.

The greatest potential in terms of ease of development could be e-commerce in rural Vietnam. Rural Vietnamese are using e-commerce at a very high rate, largely due to a lack of modern trade outlets near where they live, which limits choice. Banks and all other cashless payment institutions need to link to various e-commerce providers to promote the usage of credit via special offers and ensured security. 

Furthermore, reducing rates and offering loans that are in line with consumer needs via a mobile-based offer is the way to the future. This may not happen in two to three years, but by providing consumers with what they need via mobile, the money saved from traditional banking practices can be used to entice consumers to go paperless sooner rather than later. 

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