Technological innovators are disrupting traditional banking in EM. In 2018, mobile money (a key component of digital banking) accounts in East Asia (11% of global share) grew even faster (38% yoy) due to rising penetration in countries led by Vietnam, Indonesia and Malaysia. Here, we look at the potential for digital banking in Vietnam, and the challenges it faces.
Vietnam sits in the middle of our key growth markets and this has been further reinforced by the Vietnamese government’s effort to develop non-cash payment for 2016-2020, aimed to lower the proportion of cash in circulation (M2) to 10% by the end of 2020 (currently at 11.5%). According to data from the State Bank of Vietnam, as of end-2018, the inter-bank electronic payment system processed 137,594 transactions, worth VND73mn, equivalent to 13x GDP.
Markets with large unbanked populations and high mobile phone penetration are best placed for further expansion, which makes Vietnam an ideal market
1. In Vietnam, traditional banking penetration is still low compared with other emerging and frontier markets. At the end of June 2018, there were over 72.7mn individual bank accounts (an increase of 5% compared with end-2017). The number of people with bank accounts is close to 43.2mn, accounting for 45% of the population – a modest rate compared with other emerging and frontier countries. According to World Bank data, the number of ATMs and bank branches per 100,000 adults in Vietnam are at 24.3 and 3.4, respectively, indicating a lower level of penetration of traditional banking services compared with peers.
- 2. Vietnam’s digital infrastructure (related to internet and mobile usage) is well developed, with the number of internet and mobile phone users in 2018 reaching 55.2mn and 45.8mn, respectively – accounting for 57% and 45% of the population. In particular, the penetration rate of smartphones has increased sharply in the past five years, even reaching 84% in big cities in 2017. Internet and mobile penetration will continue to expand and is forecast to reach 60mn internet users and 55.4mn mobile phone users by 2022.
1. Most Vietnamese still use cash only. Since the beginning of the government’s cashless payment project, the ratio of cash in circulation shows little improvement. In addition, according to a FT Confidential research survey of cash payment in ASEAN, in Vietnam, more than 46% respondents use cash exclusively. This is much higher than the ratio in countries like the Philippines (34%) and the rest (20% or less).
2. Financial information security risk. According to EY Vietnam data, in 2018, there were 8,319 cyber-attacks in Vietnam banking, leading to 560,000 computers being affected by malware that could steal bank account information. Vietnam ranked 7th globally in the target list of Trojan attacks in 2018.
3. Insufficient legal regulations. In the past few years, the digital payment segment has grown rapidly with technology advances, but domestic legal regulations are lagging, making banks reluctant to apply new technologies and services. For example, Vietnam does not have a legal framework for sharing, exploiting and storing data, so banks have not been able to apply cloud computing or blockchain widely in their applications. However, in August, the government approved the promotion of a ‘sharing economy model’, which would allow new policy testing mechanism (sandbox) for the deployment and application of new technologies. This method has been successfully applied by many countries and is expected to shorten lead time in the new policy research and design.
- For more analysis from our provider Rong Viet in Vietnam, click here.