INTRODUCTION
Research rationale
The rapid advancement of information and communications technology has significantly enhanced the convenience and modernity of various aspects of our lives, including the banking system, which has evolved to keep pace with these trends.
The Vietnamese economy has shifted towards market mechanisms regulated by the state to enhance goods circulation, resulting in a growing interest in non-cash payment instruments The last decade has seen rapid financial innovation driven by advanced computer technology and the deregulation of commercial banks, leading to an increased use of payment methods such as cheques, credit and debit cards, and letters of credit, moving away from cash transactions This expansion of payment options reflects a trend towards the dematerialization of money circulation, with studies indicating a positive relationship between the rise of cashless transactions and economic growth.
Vietnam has made notable strides in cashless payment systems, yet the growth has not kept pace with global advancements and still falls short of meeting citizens' needs The prevalence of paper-based transactions contributes to economic inefficiency and waste Additionally, there has been a lack of focus on understanding the critical factors that drive the development of non-cash payments within commercial banks.
The current challenges significantly hinder Vietnam's banking and finance sector from achieving market openness and international integration Additionally, both state-owned and commercial banks in Vietnam are under increasing competitive pressure from joint-venture and foreign banks across various banking services.
The author conducted this study to explore effective solutions for enhancing the non-cash payment market within Vietnamese commercial banks, reflecting a strong commitment to the development of non-cash payment systems in Vietnam The primary focus of the research is to address key questions related to this emerging financial landscape.
(1) What are commercial bank and non-cash payment?
(2) What are the core factors affecting to development of non-cash payment market?
(3) What are the efficient solutions to development of non-cash payment in Vietnamese commercial banks?
Significance of the research
The study focused on figuring out the sustainable developing orientations in system of cashless transactions in Vietnam Moreover, the results of the study will be beneficial to the followings:
Government officials The government officials will be more accessible to come up with practical solutions relating to national banking system, especially, to expand non-cash payment method in Vietnam
Commercial Banks The result of the study will help commercial banks offer satisfactory non-cash payment services to their customers This may also increase their competiveness
Customers are increasingly recognizing the significant impact of non-cash payments on their daily lives and businesses This awareness prompts a shift towards reducing reliance on paper-based payment transactions.
The study's findings will provide valuable reference material and guidance for future researchers interested in exploring non-cash payment methods or related topics.
Research objectives
The thesis focuses mostly on:
(1) Identifying the various factors that influence the non-cash payment market
(2) Raising people’s awareness of using non-cash payment services
(3) Suggesting practical ways to popularize non-cash payment transactions in Vietnam
Research methodology
The author employs various techniques and tools, including analysis, comparison, synthesis, and diagrams, to enhance the content Additionally, relevant research findings and investigations from other sources are utilized for reference and comparison, contributing to a well-rounded discussion.
Scope and Limitations
(1) Scope of study: Improvement of non-cash payment services in Vietnamese commercial bank system, and some typical types of non-cash payment method are interpreted in more detail
(2) Limitations of study: This study focuses on the non-cash payment case of the whole system of Vietnamese commercial banks during the period from 2002 to
2015 For that reason, the recommendations in this study will not applicable for any particular commercial bank.
Research structure
Regardless the Summary, Conclusion, and Reference, this thesis consists of four main chapters:
(3) Current background of non-cash payment in Vietnam
(4) Solutions improving non-cash payment in Vietnamese commercial banks
In the first chapter, the author provides information about Research rationale, Significance of the research, Research objectives, Research methodology, and Scope and Limitations
The next chapter focuses on explaining basic theories about commercial bank and non-cash payment to support readers with general knowledge about studied issues
Chapter three provides information relating to current background of non-cash payment in Vietnamese commercial banks accompanied with additional assessments of the non-cash payment in Vietnam
In the last chapter, some solutions and recommendations are given to contribute towards development of Vietnamese non-cash payment services
LITERATURE REVIEW
Definition of commercial banks
According to Law No 47/2010/QH12, enacted on June 16, 2010, a commercial bank is defined as a financial institution authorized to engage in various banking operations and profit-driven business activities These banking operations encompass key services such as accepting deposits, extending credit, and facilitating via-account payments.
Therefore, commercial bank is a major division of financial intermediary system.
Roles of commercial banks and their payment role
Commercial bank plays an important role in the process of economic development, which is clear from the following points:
Commercial banks play a vital role in promoting savings among individuals and institutions, facilitating the transfer of these funds to those seeking to invest in new projects This process not only meets the demand for liquidity but also minimizes risks and lowers transaction costs.
As intermediaries, commercial banks conduct asset transformation process including mobilizing and allocating funds; screening, transferring, and spreading risks; producing information and monitoring customers
Commercial banks are essential in facilitating foreign exchange and international trade activities, including imports and exports They significantly contribute to the economy by providing import and export financing, which in turn generates foreign exchange for the country.
2.2.2.3 Money creation function in two-tier banking system
Money creation refers to the process of increasing a country's money supply, primarily initiated by a central bank through the purchase of financial assets or by lending to financial institutions Additionally, commercial banks contribute to money creation by offering demand deposits, which amplify the overall money supply through the reserve requirement ratio, allowing lending to exceed the base money initially provided by the central bank To monitor the money supply, central banks assess monetary aggregates like M2, and the impact of monetary policy on this supply can be analyzed by comparing these measurements over time.
Reserve requirement ratio and other monetary measurements imposed by the central bank can create proper amount of money in circulation
2.2.1.4 Implementing monetary policy of Central Bank
The central bank establishes a nation's money supply by first determining the monetary base and imposing restrictions on the assets and liabilities of commercial banks The behavior of these banks, regulated by the central bank, along with consumer demand, influences the overall money stock, bank credit, and interest rates, which in turn shape the economic conditions of the country.
The money supply's value is influenced by the money multiplier and the monetary base Central banks maintain strict control over the money supply through open market operations, discount rates, and reserve requirements.
2.2.2 Payment role of commercial banks
Commercial banks serve as intermediaries for payments related to goods and services on behalf of their customers, acting as treasurers for businesses They provide a range of payment services authorized by customers, facilitating both significant transactions such as home mortgage applications and everyday activities like depositing or withdrawing money and paying utility bills Consequently, commercial banks are often referred to as deposit money banks, as they hold and manage the funds deposited by their customers in bank accounts.
Commercial banks provide a guarantee for secure savings and facilitate quick, convenient high-value payments Acting as payment intermediaries, they engage in various activities including currency settlements, payments, exchanges, and deposit transfers This process involves transferring funds from a customer's current deposit account through credit transfer instruments like cheques.
Cashless payment services enable commercial banks to meet the growing demand for efficient payment methods driven by socio-economic development while minimizing economic circulation costs By fulfilling their payment roles, these banks can lower financial expenses and broaden their capital sources Additionally, they generate substantial fee income, thereby boosting their overall profitability.
Concept of non-cash payment
2.3.1 Definition of non-cash payment
Non-cash payment, as outlined in "Bank Accounting 1E" by Master Nguyen Minh Phuong from the Banking Academy, refers to a method of settling transactions for goods and services without the physical exchange of cash This process involves transferring funds electronically from the payer's account to the payee's account or utilizing payment service providers to facilitate the offsetting of mutual claims.
In other words, non-cash payment instrument means a method of paying for goods and services that does not involve the exchange of cash
2.3.2 Natures and characteristics of non-cash payment
2.3.2.1 Natures of non-cash payment
From an accounting point of view, the practical realization of the banking intermediary function is achieved through two form of banking activities: a Passive operations b Active operations
Passive banking operations involve the accumulation of both domestic and foreign capital within banks, while active operations focus on the utilization of this capital through attracting and lending In addition to deposit and credit activities, non-cash payment transactions also play a significant role in the banking sector.
7 intermediary However, non-cash payment belongs to both passive and active bank’s operations
In non-cash payments, banks play a crucial intermediary role by managing the accounting relationships between clients without the need for physical funds This process is essentially a service that banks provide to facilitate transactions for their customers.
In fact, non-cash payment possesses undisputed advantages compared to cash payments and it is therefore preferred by bank customers
In the non-cash payment process, both the payer and payee must have bank accounts, and funds cannot be transferred from the payer's account to the payee's without the payer's explicit orders as documented in payment instructions According to "Bank Accounting 1E" by Master Nguyen Minh Phuong from the Banking Academy, exceptions to this requirement exist only for specific payment methods, such as authorized collection orders or writs of mandamus issued by an economic court.
The primary goal of any bank is to generate financial interest, which aligns with the purpose of non-cash payments This necessitates that the income earned from banking operations exceeds the costs associated with acquiring external funds and the bank's operational expenses Additionally, the interest rate serves as a price for money, while the interest rate spread represents the difference between the rates charged by banks on loans to private sector clients and the rates paid to other banks for demand, time, or savings deposits.
Banks aim to maximize interest income from loans while minimizing interest payouts on deposits, creating a conflict with borrowers who seek low rates and depositors who desire high rates This divergence in objectives highlights the need for banks to continuously optimize interest rates To determine the most appropriate rates, commercial banks must take into account various external factors, including prevailing interest rates and market supply dynamics.
8 demand of money resources, level of profitability for the bank clients, interbank competition, and income from other operations
2.3.2.2 Characteristics of non-cash payment
The choice of the citizen is more and more in favor of non-cash money can be attributed to its characteristic
Cashless payment methods play a crucial role in tracking economic cash flow, which is essential for the effective implementation of extensive economic policies in our country Monitoring the magnitude and direction of this cash flow is vital for informed decision-making and policy adjustments.
Non-cash payments play a crucial role in maintaining the flow of non-cash assets within the financial circuit There exists a significant interdependence between cash and cashless transactions, as non-cash payments facilitate the continuous movement of money, altering the form of cash banknotes held in banks Consequently, non-cash payment transactions are integral to cash management, contributing to a unified monetary circulation within the country.
2.3.3 Principles of non-cash payment
All participants joining in payment must have opened accounts in payment service providing organizations, and they have right to determine which providers they will open accounts
Payments for goods are conducted according to the established terms of sale, with the total value of non-cash settlements determined by the commodity and service values outlined in the mutually signed commercial contract Buyers are required to maintain adequate funds in their bank accounts to fulfill obligations promptly; under specific conditions, the payer's bank may offer loans or act as a sponsor to ensure timely payments.
If purchasers make late payment, or violate payment terms, they will be fined in compliance with current mode of payment
Upon receiving the full payment from buyers, the provider is responsible for timely shipping of goods and services that match the exact value paid If suppliers fail to meet quality standards or breach the shipping agreement, they will face penalties as stipulated in the contract regulations.
Payment service providers play a crucial role in assisting customers with account setup and advising them on suitable payment methods that align with their business features and commercial contracts Additionally, customers are entitled to receive specific information throughout the payment process.
2.3.4 Factors affecting development of non-cash payment
Non-cash payment services provided by commercial banks offer convenience to customers but are significantly influenced by legal regulations governing socio-economic activities Even minor legal changes can create new opportunities or challenges for these banks If banks fail to adapt, they risk damaging their reputation, which can negatively affect their business operations While the speed and ease of non-cash payments attract clients, inflexible procedures can hinder customer transactions.
A weak legal framework can expose non-cash payment systems to fraud, enabling illicit profits for criminals Conversely, a robust legal foundation is essential to foster the growth of non-cash payments, catering to domestic consumer needs and facilitating integration into the global economy.
In addition, non-cash payment is a powerful means assisting government to control money in circulation
2.3.4.2 People’s psychological habits & level of awareness
The consumption habits and education levels of the population significantly influence the growth of non-cash payment methods in Vietnam Due to the country's origins in a small-scale manufacturing economy, many Vietnamese individuals still depend heavily on paper-based transactions Consequently, cash remains a crucial component in consumer spending.
Many individuals perceive non-cash payment methods as complicated and costly, which has hindered their widespread adoption This misconception has created barriers to understanding the efficiency and benefits of non-cash transactions To promote the use of non-cash payment services, it is essential to prioritize increasing public awareness and education about their advantages.
2.3.4.3 Level of science and technology
Roles of non-cash payment
The payment role is a key function of commercial banks, and as society and the banking system evolve, non-cash payments are becoming increasingly vital due to their effectiveness in the market economy.
Non-cash payment benefits users in the following aspects:
Convenience is a key advantage for both individual and business customers, allowing them to complete transactions—whether small or high-value—without the need for cash This eliminates the inconveniences associated with carrying cash, such as the risk of having insufficient funds in unexpected situations.
In that cases, non-cash payment ensures immediate payment in full
Opting for non-cash payment methods enhances safety by reducing the risk of losing money through theft or robbery Additionally, these methods can help mitigate financial losses caused by accidents or natural disasters.
Financial control competence is essential for account holders, as they can request a summary statement of their financial transactions from their bank for a specified period Recently, there has been a significant shift towards electronic statements, promoting a paperless approach Additionally, many commercial banks now provide the option for account holders to directly download their transaction history through accounting software, enhancing convenience and efficiency in managing finances.
2.4.2 In term of national economy
Non-cash payments play a vital role in enhancing the national economy by decreasing the volume of cash circulating in the market They also boost the share of non-cash transactions in the overall goods circulation, leading to significant savings on social costs associated with printing, maintaining, and managing physical currency.
For effective economic control, it is essential for the government to consolidate all payment transactions into a unified system This allows for better oversight of goods manufacturing and circulation, as well as regulation of money creation and credit growth These factors are crucial in enabling the government to implement monetary policies effectively.
2.4.3 In term of commercial bank
Non-cash payment services significantly contribute to the overall turnover of banks, generating substantial profits These services not only attract a growing client base but also provide commercial banks with a steady stream of fees and charges.
Moreover, bank can transfer money from one account to another account only by sending a remittance order to payee without paying in real cash This process not
12 only saves operating costs for banks, but also keeps funds within bank to invest those funds for profitability.
Types of non-cash payments
As one of the most widely used methods of non-cash payments, bank card is worth analyzing more in detail of the definitions, and classifications
A bank card is a payment instrument that enables cashless transactions for goods and services, allowing users to withdraw cash from banks and ATMs The extensive network of payment card services, including POS terminals and ATMs in various locations, facilitates both commercial and personal transactions With the ability to transfer funds instantly from the buyer's to the seller's account using a PIN code, bank cards simplify the payment process for everyone involved, making non-cash payments a common practice in daily life.
A bank card is a standard-sized plastic card (85.6 mm x 53.9 mm x 0.76 mm) made from durable materials, designed to hold the cardholder's identification details These details typically include the issuing bank's logo, the cardholder's name, account number, expiry date, and may also feature a photo, signature, or other personal information Bank cards offer two identification methods: visual identification and a scannable barcode compatible with specialized card readers Each bank card system comprises key components, including the card issuer, cardholder, acquirer bank, settlement bank, processing center, and communication centers.
Depending on the purpose and mechanism of use of funds on bank cards, they can be divided into credit cards and debit cards a Credit card
Credit cards, known for their "buy now, pay later" feature, are the most widely used payment method globally They provide cardholders with a credit limit to purchase goods and services at ATMs, POS terminals, and various merchants without needing to have funds deposited in advance However, cardholders must repay the borrowed amount within a specified timeframe; failing to do so can result in significant fees.
To obtain a credit card, customers must complete the necessary procedures, after which the issuing bank will decide whether to approve the application Credit cards have unique features that distinguish them from traditional bank loans, including the monthly statement that details the borrowing amount Cardholders are required to make at least the minimum payment by the maturity date, ensuring that their credit limit is automatically renewed In contrast, debit cards operate differently, as they draw directly from the cardholder's bank account.
A debit card enables users to access the funds in their current account, allowing them to withdraw cash or make purchases at locations that accept the card When a transaction occurs, the money is directly deducted from the cardholder's account Additionally, some debit cards are specifically designed for online use and do not have a physical counterpart.
To open debit cards, customers must have salary-paying-account or money deposited at the bank, on which the issuing bank will pay interest monthly
In today's competitive banking landscape, many banks provide an overdraft service on debit cards, allowing customers to access a loan once their deposited funds are depleted This service is designed to meet temporary spending needs To enroll in the overdraft service, customers must fulfill specific collateral requirements set by the issuing banks.
When customers utilize overdraft services, they are required to pay interest on the borrowed amount along with applicable fees At the end of the overdraft period, customers must repay the full principal plus interest to access overdraft services for another cycle.
2.5.1.2.2 Classification by technical feature a Magnetic stripe card
A magnetic stripe card, often referred to as a swipe card or mag-stripe, stores data by altering the magnetism of small iron-based particles on its magnetic band These cards are typically read by swiping them past a magnetic reading head and are widely used in credit cards, identity cards, and transportation tickets Additionally, magnetic stripe cards may incorporate an RFID tag, a transponder, or a microchip, which are primarily utilized for access control in business premises or for electronic payment systems.
A smart card, similar in size and shape to a credit card, differs significantly in its internal structure Unlike a standard credit card, which is merely a piece of plastic, a smart card contains an embedded microprocessor protected by a durable gold contact pad This advanced technology makes smart cards a cost-effective option, only slightly more expensive than traditional magnetic stripe cards.
This bank card integrates both magnetic stripe and chip technology, leveraging the advantages of two payment systems—magnetic stripe cards and smart cards—while enhancing overall card security.
A cheque serves as a secure payment method, allowing the payer to transfer funds to the seller without using cash It is issued by the payer's bank, which guarantees the payment by withdrawing the specified amount from the payer's account and depositing it into the seller's account.
Figure 1: Cheque payment operation process
(Source: “Banking accounting 1E” – MA Nguyen Minh Phuong – Banking
(1) Payee submit cheque and list of submitting cheque to payment service- providing organization serving themselves in cheque’s valid period
(2) Payee’s payment service-providing organization transfer cheque and list of submitting cheque to drawer’s payment service providing organization to Debit
(3) Drawer’s payment service-providing organization examines cheque If cheque is valid, this organization will less drawer’s account, debit At the same time:
(4) Create Transfer remittance order to payee’s payment service-providing organization
(5) Payee’ payment service-providing organization receives the order, record increase in account, report, Credit to payee
2.5.2.3 Advantages and disadvantages of using cheque
Cheques simplify transactions between counterparties, making them a beneficial payment method They offer convenience for payers, streamlining the payment process and enhancing financial interactions.
Cheques offer a unique advantage by creating a delay between the submission of the cheque and the withdrawal of funds from the target account This feature allows users to extend their expenditure time, making cheques a practical payment instrument for managing cash flow.
Travelers’ cheques are specialized cheques issued in specific denominations for travel and business purposes Unlike regular cheques, they do not have designated payees and cannot be transferred to others, making them usable only by the original holder These cheques are widely accepted by banks and various retailers, including hotels and coffee shops, providing a convenient payment option for travelers.
Cheques, while commonly used, are the most expensive non-cash payment method in banking, prompting banks to favor electronic payment instruments for customer services Additionally, sellers face increased risks when accepting cheques due to potential fraud, and payees must consider the payer's creditworthiness, as the cheque amount must be supported by actual funds.
CURRENT STATUS OF NON-CASH PAYMENT
Historical and current background of non-cash payment in Vietnam
3.1.1 Non-cash payment before economic reforms (Đổi Mới)
On 6 May 1951, president Ho Chi Minh signed decree 15/SL on establishment of National Bank of Vietnam Under the subsidized, centrally planned system, the role of non-cash payment hardly brought into play because of inefficient models of administrative subsidies, small-scale production, poor technical infrastructure, and weak management
During that period, payment methods were outdated and primarily catered to state-owned enterprises Operating within a subsidized framework, banks neglected service quality, resulting in stagnant funds and sluggish capital turnover, which ultimately hindered economic growth.
Prolix payment procedures as well as long payment time and inflexible methods of payment were common characteristics of payment activities then
3.1.2 Non-cash payment after Doi Moi liberalization era until now
3.1.2.1 The development of legal framework and the appearance of new payment methods
In response to current economic challenges, the Communist Party of Vietnam and the government are implementing various strategies to enhance the overall economy and improve payment services A key approach is transitioning from a bureaucratic centralism and subsidy-based management system to a multi-component commodity economy regulated by the State.
After the appearance of two important legal normative documents namely
The "Ordinance on the State Bank of Vietnam" dated May 23, 1990, and "Decision No 101/NH-QD" dated July 30, 1991, have significantly transformed non-cash payment regulations in Vietnam, aligning them with contemporary payment mechanisms This evolution has led to the establishment of state-owned and joint-stock commercial banks, resulting in simplified and secure payment procedures.
Since 2002, advancements in technology and investments in infrastructure have significantly transformed banking payment services Between 2003 and 2006, these services experienced robust growth, leading to the introduction of modern and convenient payment instruments This expansion has effectively catered to the diverse needs of payment service users, reaching a broader audience that includes both individuals and the general population.
The implementation of salary payments through bank accounts for state budget employees is a key aspect of Vietnam's "Scheme on Development of Non-Cash Payment from 2006 to 2010 and Orientations to 2020" (Decision No 291/2006/QD-TTg) This initiative serves as a foundation for the rapid development and expansion of non-cash payment facilities and services The introduction of salary-paying accounts has significantly contributed to the country's prosperity while providing substantial benefits to commercial banks and service users alike.
On 22 November 2012, The State Bank of Vietnam promulgated Decree No 101/2012/ND-CP on non-cash payment Under the decree, non-cash payment instruments used in payment transactions include cheque, payment order, direct debit, standing order, collection order, bank card, digital wallet and others accepted by the SBV The issuance, provision and use of all other payment instruments would not be recognized and protected by law
Decree 101/2012/ND-CP serves as a foundational legal framework for advancing non-cash payment activities, particularly through innovative payment services and high-tech applications like internet and mobile banking Since its implementation, the decree has significantly transformed settlement activities in the economy, yielding numerous advantages for consumers, goods providers, and commercial banks alike.
Decree 101/2012/ND-CP has played a significant role in enhancing the safety and sustainability of non-cash payments, particularly in bank card services This decree effectively addressed challenges in providing non-cash payment services and established favorable conditions for the management of payment operations.
The evolution of information technology has transformed non-cash payment methods in Vietnam and globally, introducing new forms such as electronic wallets alongside traditional options like checks and bank cards In Vietnam, banks, foreign bank branches, and payment intermediaries can offer digital wallet services only if they meet specific regulatory requirements, including obtaining an operational license, maintaining a dedicated Vietnam-dong account, and adhering to balance regulations The central bank aims to enhance oversight and minimize risks associated with digital wallets, ultimately safeguarding users in the growing digital payment landscape.
3.1.2.2 The development of non-cash payment in recent years
The 2003-2006 period witnessed a booming growth of Vietnamese non-cash payment services The developments in bank payment during the period were as follows:
Figure 3: The ratio of cash to the total of payment instruments from 2003 to 2006
(Source: Annual Reports of State Bank of Vietnam)
The chart illustrates a steady decline in the proportion of cash payments among total payment methods, decreasing from 23% in 2003 to 20.3% in 2004, 19% in 2005, and reaching 18.5% by March 2006 This trend indicates a significant shift away from cash transactions in recent years.
2006 to 14.2% in 2010 but remained higher than the world average
It is worth noting that personal account services of commercial banks developed relatively fast According to Payment and Settlement Department of SBV, by the
By the end of 2004, personal accounts in the banking system surged to approximately 1.3 million, a tenfold increase from 135,000 in 2000 This growth continued, with the number of personal accounts reaching 2 million by the end of 2005 and escalating to 5 million accounts in 2006, collectively holding a total balance of around VND 20 trillion.
Since the implementation of Decree 101/2012/ND-CP, new payment methods have emerged; however, these options have garnered less attention from citizens compared to traditional payment methods when it comes to settlement transactions.
(Source: Payment and Settlement Department – State Bank of Vietnam)
In 2012, non-cash payment methods like Electronic wallets and Mobile/Games represented only 8% and 9% of total transactions, while traditional methods such as Bank transfers and Payable cards dominated with 61% and 22%, respectively This disparity in payment method usage prompted collaboration between the government and commercial banks to enhance the quality of newer payment options, addressing the growing demand from citizens.
During the past three years from 2013 to 2015, services and means of non-cash payment in Vietnam has been growing in number of transactions, value of
Electronic Wallet Bank transfer Mobile/Games Card Payable Card
In recent analysis, a total of 25 transactions were recorded, showcasing a significant diversification into various payment methods such as bank cards, cheques, credit transfers, and debit cards Supporting data is provided in the accompanying table, which details the exact figures related to these transactions.
Table 1: Domestic payment transactions by non-cash payment instruments
Value of transactions (VND billion)
Value of transactions (VND billion)
Value of transactions (VND billion)
(Source: Payment and Settlement Department – State Bank of Vietnam)
Current status of typical non-cash payment methods
3.2.1 Current status of bank card
Bank card usage climbed steadily in the number of cards issued during the period between 2013 and 2015, which match with the figures shown in the following bar graph:
Officials receiving salary via account
Officials not receiving salary via account
Figure 8: Number of bank cards
(Source: Website of State Bank of Vietnam www.sbv.gov.vn)
In the fourth quarter of 2015, the State Bank of Vietnam's Payment Department reported that a total of 99.52 million cards, encompassing both domestic and foreign types, were issued nationwide This marks a significant increase of 50.3% compared to 2013 and a 23.8% rise compared to 2014.
The payment infrastructure has seen significant enhancements, highlighted by a rapid rise in ATMs and Points-of-Sale (POS) By June 2006, the banking system boasted 2,154 ATMs, a substantial increase from just 101 in 2002, while the number of card-accepting units surged to 12,000, up from 8,789 units.
2003) In 2015, the number of ATMs and POS terminal rose by 47 per cent and
300 per cent, respectively compared to 2011
Non-cash payment methods are becoming increasingly prevalent in our daily lives, with 80% of trade centers, supermarkets, restaurants, hotels, and self-service stores equipped with card payment devices by 2014 Consequently, there has been significant growth in the number of transactions conducted through ATMs and POS systems, as illustrated in the accompanying chart and table.
Figure 9: The number of ATMs and POSs from 2013 to 2015
Table 3: Transactions via ATM, POS/EFTPOS/EDC from 2013 to 2015
ATM POS ATM POS ATM POS
(Source: Website of State Bank of Vietnam www.sbv.gov.vn)
At the 2015 conference of the Card Association of State Bank of Vietnam, Mr Dao Minh Tuan, chairman of the Vietnam Bank Card, reported that despite ongoing challenges in the Vietnamese economy and banking system in 2014, bank card operations experienced steady growth The technical infrastructure for card payment services saw significant improvements, with member banks installing 16,018 ATMs and 172,036 POS/EFTPOS/EDC by the end of 2014 By January 2015, these numbers had risen to over 16,900 ATMs and 223,381 POS, reflecting increases of 10.9% and 72.3%, respectively, compared to the end of 2013.
Mr Bui Quang Tien from the Payment Department of the State Bank of Vietnam highlighted the significant growth of new payment methods in recent years, benefiting the population immensely By the end of 2014, the total number of issued payment cards reached 79.2 million, marking a 22% increase from 2013 This figure rose to 85.9 million by January 2015, a 30% increase compared to the end of 2013, with 63.5 million cards actively in circulation Additionally, card transactions in 2014 saw a 13% increase in quantity and a 16% rise in value compared to the previous year, primarily driven by payments for goods and services.
Member banks are enhancing card service quality and modernizing payment methods by introducing new features, particularly for local cards Additionally, the merger of Vietnam's two largest card switching organizations, Banknet.vn and SmartLink, aims to streamline operations for banks and customers, ultimately expanding the payment acceptance network in the Vietnamese card market.
3.2.2 Current status of mobile banking
Vietnam is emerging as a promising market for mobile banking services, driven by a significant disparity between mobile users and mobile banking users As of late 2015, Vietnam boasted over 39.8 million Internet users, representing approximately 44% of the population, with 36% accessing the Internet via mobile devices The country has 128.3 million telephone subscribers, including around 33.4 million 3G users, and 40% of mobile phones are smartphones This percentage is expected to grow, especially with the availability of affordable smartphones priced as low as 990,000 VND, enhancing the potential for mobile payments and services in the future.
As of 2015, the Smartlink Card Service Company reported that the mobile banking market had surpassed 3.8 million customers, facilitating 15-16 million transactions each month, with a total transaction value reaching several thousand billion VND The average annual growth rate of this service continues to rise significantly.
32 about 20-30% per month The exact cause of this growth is that the percentage of people using smart phones is increasing and payment methods via mobile phones getting popular
Mobile Banking includes two products: Mobile App and Mobile Web Mobile App
Mobile banking services are accessible via applications installed on iOS (iPhone) and Android devices Additionally, users can utilize mobile web banking through internet browsers on any mobile device, as long as it supports internet connectivity, without the need for specific operating systems or hardware.
Mobile payment in Vietnam is currently confined to specific sectors like e-commerce, social life applications, and content services Notably, 90% of mobile payment transactions are facilitated through telecom networks, primarily focusing on digital content products.
In the next 2 to 3 years, it is anticipated that mobile banking services will be available to approximately 20% of the Vietnamese population, intensifying competition in the market This competitive landscape will not only include traditional banks but also foreign financial institutions and non-bank entities such as e-commerce companies, payment intermediaries, e-wallets, and internet banking platforms.
Saigon Commercial Joint Stock Bank (Sacombank) has partnered with Vietnam mPOS Technology JSC to launch the mPOS.vn service, enabling card payments via mobile devices This innovative service follows similar offerings from other banks like VietinBank and Military Commercial Joint Stock Bank (MB), signaling a new direction for mobile payment solutions in Vietnam.
According to 2015’s report Vietnam e-Commerce and Information Technology Agency (VECITA), users of the e-wallet payment method accounted for 6% in total non-cash payment users
By the end of 2015, there were nine non-banking operators offering trial payment intermediary services, resulting in nearly 2.4 million e-wallets issued, an impressive 84% increase since 2012 Additionally, transactions conducted through e-wallets reached 29.4 million in 2015.
As of now, the total value of transactions has reached VND 10,672 billion, with over 45 domestic commercial banks partnering with various e-wallet service providers Recently, the government has approved new payment intermediary services, including Petrolimex Bank's Fast Money Transfer, which utilizes the consignation of its subsidiaries, and a small money transfer service through the Momo e-wallet, developed in collaboration with Vietcombank and M-Service Co., Ltd.
Achievements
The growth of non-cash payment systems is driven by several key factors, including a favorable legal framework for banking payments, an expanded network of bank customer service counters, and effective interbank electronic payment systems Additionally, commercial banks have made significant investments in technical infrastructure to enhance customer payment experiences and have prioritized modern retail banking services that utilize advanced information technology They have also begun to focus on marketing and promoting their services, with some banks proactively reaching out to companies with large, stable employee bases to offer salary payment solutions through bank accounts.
Since 2002, the banking sector has experienced significant advancements in technology and infrastructure investment, leading to a rapid increase in the number of ATMs, POS devices, and units that accept bank cards, enhancing payment services.
The growing trend of collaboration among banks is enabling small commercial banks to enhance their investment in essential payment system technologies and equipment This partnership in card issuance and payment processes has significantly contributed to the recent surge in the number of issued cards.
The quality of ATM card services has significantly improved compared to previous years, offering numerous benefits such as convenient payment settlements, seamless money transfers, efficient salary deposits, easy cash withdrawals, overdraft options, and enhanced customer care.
34 services of commercial banks have advanced in order to fully meet demand of card users
In recent years, there has been a significant shift in consumer behavior as people increasingly favor non-cash payment methods for transactions, including money transfers, purchases, and saving This trend marks a notable departure from the previous reliance on cash withdrawals, reflecting a growing acceptance of digital payment solutions.
Limitations
With a population of approximately 92 million, Vietnam ranks as the third largest country in Southeast Asia A recent survey by the Boston Consulting Group highlighted that Vietnam boasts the fastest growing middle class in the region Despite this economic progress, the development of non-cash payment methods in Vietnam has not kept pace with the country's economic status or with trends observed in other nations.
3.4.1 In term of cash payments at retail
Cash remains the predominant payment method for both the public sector and everyday individuals During an online exchange hosted by the Saigon Economic Times on June 8, 2009, Dr Duong Hong Phuong, Deputy Director of the Payments Department at the State Bank of Vietnam (SBV), revealed that approximately 80% of transactions conducted at ATMs are for cash withdrawals.
According to the Neilsen Global Saving and Investment Strategy, which surveyed over 30,000 internet users across 60 countries, 82% of the Vietnamese population preferred cash as their payment method by 2014 This cash preference significantly surpassed that of other religious countries, including the Philippines at 74%, Thailand at 68%, and Malaysia at 60%.
The deep-rooted habit of using cash in daily life makes the public hesitant to embrace alternative payment methods Additionally, inadequate IT infrastructure significantly restricts customer access to banking services, particularly non-cash payment options Many individuals have noted that purchase transactions through POS systems are limited due to a lack of scanners for various bank card types, further hindering the adoption of digital payments.
Many ATMs installed in shops and supermarkets by a particular bank are not connected to other banks' systems, limiting the utility of ATM cards issued by Vietnamese commercial banks The effectiveness of IT applications in banking services can also be gauged by the percentage of non-cash payments Furthermore, a basic tax management system has enabled individuals and businesses to exploit tax loopholes, leading them to favor cash payments over non-cash methods to evade taxes and secure personal gains.
3.4.2 In term of payment card
In 2014, Vietnam had the lowest credit card penetration in Southeast Asia, with only 1.9% of adolescents holding a credit card, a slight increase from 1.2% in 2011 Meanwhile, 26.5% of adults reported having a debit card However, Mr Nguyen Phat Vinh Loi, head of Banknet.vn’s Hanoi office, noted that only 50% of the ATM cards in circulation are actively used, and merely 3 million of these cards are registered for online banking transactions.
Despite its large population, Vietnam has one of the lowest rates of bank account penetration at 30.8% and credit card penetration at just 1.9% among Southeast Asian countries The accompanying table and graph will further illustrate these statistics.
Table 4: Southeast Asia country comparison
Indonesia Malaysia Philippines Singapore Thailand Vietnam
Figure 10: Penetration of Payment Instrument in 2015
(Source: https://www.codapay.com)
The insecurity surrounding electronic payment systems and e-commerce has significantly impacted consumer confidence According to Mr Pham Tien Dung, chairman of Banknet.vn, the limited acceptance of various cards, including ATM cards, exacerbates this issue Furthermore, customers often face challenges in resolving payment-related problems due to a lack of accessible support.
3.4.3 In term of cheque payment
Cheque payments, despite being a long-standing method of transaction in developing countries since the 1933 World Cheque Law conventions, have seen a decline in usage in our country since their introduction in the 1960s While cheque payments offer convenience and speed—requiring only that the buyer provide a cheque and the seller present it along with identification to the bank—their usage remains low, accounting for only about 2% of total non-cash payments According to Mr Vu Huy Toan, Deputy Director of the Ho Chi Minh City branch of the State Bank of Vietnam (SBV), the lack of mandatory regulations regarding cheque payment limits contributes significantly to this trend.
Cheque payment is now merely encouraged to use Another reason is seller's fear of buyer’s account having no money, counterfeit cheque, which easily lead to risks
Credit Card Bank Account Mobile Phone Account 1.90%
The payment process for cheques can become complicated if buyers and sellers do not hold accounts at the same bank, as this requires banks to utilize clearing systems that are currently unavailable at the central bank.
RECOMMENDATIONS
Solutions for government
4.1.1 Perfecting the legal framework for non-cash payment activities of the economy
The legal framework for non-cash payments encompasses laws and regulations that govern the participants involved in these transactions It is essential for national laws to clearly outline the rights and responsibilities of each participant to mitigate legal risks and safeguard customers during disputes A strong legal guarantee is vital for instilling customer confidence in non-cash payment methods.
To foster the growth of non-cash payment services in Vietnam, it is crucial for the Government and the State Bank to ensure that laws and regulations are coordinated, consistent, and comprehensive This includes amending provisions in the Law on the State Bank and the Law on Credit Institutions related to non-cash payments and account openings at the SBV Establishing a unified legal framework will facilitate the organization and participation of payment service providers, thereby enhancing the development of modern payment solutions that leverage information technology.
The Vietnamese legal framework for non-cash payments must align with international standards and commitments, such as the Vietnam-US Bilateral Trade Agreement and WTO obligations This alignment ensures that Vietnamese non-cash payment participants gain global market access and equal rights alongside similar entities in the international market Consequently, it fosters a fair competitive environment, enhancing the integration of Vietnam's monetary and banking sectors on the global stage.
4.1.2 Developing non-cash payment in the government sector
The government should enhance budget management by utilizing non-cash payment instruments, thereby limiting cash transactions by state budget fund users This approach aims to improve the controllability and oversight of state budget expenditures, promoting greater financial accountability and efficiency.
All government expenditures, including regular spending and capital construction, should mandate the use of non-cash payments This will lead to broader implementation across ministries, ministerial-level agencies, provincial-level People’s Committees, and major localities, involving payment service providers The adoption of card-based management will enhance cost-efficiency in financial expenditure management within the government sector.
To achieve nationwide adoption of non-cash payments in the state-owned sector, it is essential to establish agreements among banks regarding the technical infrastructure and the network of card-accepting points across the country.
4.1.3 Paying salaries via accounts in state-owned enterprises
To promote financial transparency and encourage spending through official channels, salaries for cadres, public employees, and state-owned enterprise workers should be deposited directly into their bank accounts.
The State Bank must collaborate with ministries, branches, and provincial People's Committees to effectively implement salary payments through bank accounts Additionally, it should work alongside commercial banks to improve their ability to meet the needs of laborers for receiving salaries and making individual payments The goal is to ensure that salary payments via bank accounts are adopted across all 63 provinces promptly.
4.1.4 Paying social preferential treatment allowances and social allowances via accounts
This solution aims to help individuals with limited education in rural and remote areas access banking and payment services by facilitating the distribution of social preferential treatment allowances and social allowances through bank accounts.
To effectively implement this solution, a robust banking infrastructure is essential It is crucial to establish bank branches in every rural and mountainous area, ensuring that local residents can easily access banking services.
To ensure individuals become proficient in withdrawing and transferring money, as well as paying bills such as telephone and electricity, a comprehensive training and instruction process is essential This training creates optimal conditions for skill development in financial transactions.
For commercial banks
water, …) and purchasing goods Moreover, for old and weak people who are with travel difficulties, the payment service providing organizations should pay them cash at their homes
Specially, no charge will be collected from these people when implementing this payment mode
4.1.5 Enhancing people’s level of awareness
Authorities should enhance public awareness of the benefits of non-cash payment services through dedicated propaganda initiatives Mass media should disseminate valuable information highlighting the advantages of card-based payment systems to boost consumer confidence It is essential to publicize strategic goals and policies aimed at developing payment activities, ensuring both the general population and businesses have a clear understanding of non-cash payment services Furthermore, the government must foster collaboration among relevant agencies to achieve the shared objectives of decreasing cash circulation and promoting non-cash payment methods.
4.1.6 Implementing tightly the tax policy
Governments can promote non-cash payment methods by implementing value-added tax (VAT) and income tax policies For instance, under the income tax policy, businesses must provide evidence of non-cash payments for purchases of goods or services valued at VND 20 million or more (inclusive of VAT) to qualify these expenses as deductible Failure to do so will result in these expenses being classified as non-deductible, impacting the calculation of taxable income for enterprises.
Tight government regulation of non-cash payment methods in income tax and VAT calculations will likely lead to a decrease in cash payments by businesses, as they fear higher tax liabilities and significant penalties.
4.2.1 Increasing human resources for developing non-cash payment
Because human element plays a key role in processing services in general and non- cash payment services in particular, commercial banks should pay more attention
To enhance the professionalism and expertise of staff involved in payment activities, it is essential to implement basic training programs domestically and facilitate specialized training abroad These training initiatives should focus on equipping bank employees with soft skills to effectively address customer inquiries and complaints By doing so, banks can foster greater customer satisfaction and confidence in their services and products.
Banks prioritize training personnel involved in payment activities by focusing on information technology and specific payment technologies This is achieved through collaboration with international organizations and expert-led training sessions To keep staff informed, commercial banks should regularly host programs and conferences that cover the latest financial and monetary policies from the State Bank of Vietnam.
4.2.2 Investing in infrastructure and technology
Commercial banks must prioritize the expansion and enhancement of their non-cash payment infrastructure by adopting modern technologies that align with the current development status of the country Additionally, banks should focus on diversifying and improving the quantity of payment services and products, incorporating new payment methods, advancing electronic and online payment solutions, and emphasizing innovative sectors to foster growth in the non-cash payment landscape.
4.2.3 Seeking for assistance to serve development of non-cash payment
Commercial banks must collaborate with the Ministry of Finance and the Ministry of Planning and Investment to effectively mobilize domestic capital alongside ODA funds and international commercial loans for the enhancement of payment systems and non-cash payment activities Additionally, banks should leverage the State's preferential development investment credits to invest in advanced machines, technologies, and equipment essential for their non-cash payment systems Furthermore, it is crucial for commercial banks to engage with international financial and monetary institutions to obtain technical support, consultancy, and valuable insights into the development of non-cash payment methods, enabling them to secure funding for development projects.
4.2.4 Promoting marketing and advertising activities
Commercial banks should implement a comprehensive campaign to educate customers about non-cash payment services Utilizing mass media platforms, including social networks, television, and newspapers, will enhance the awareness of these services It is advisable for banks to choose suitable programs and time slots on radio and television to reach a wider audience effectively Given the rapid increase in Internet users in urban areas of Vietnam, online dissemination is crucial; therefore, banks should ensure that essential information is prominently featured on the most visited websites to maximize reach.
Furthermore, commercial banks may offer customers specific discounts, or gifts to attract clients to using banks’ non-cash payment services and products
4.2.5 Paying attention to internal controlling
To ensure compliance with non-cash payment regulations and maintain a secure payment system, commercial banks must enhance their internal control mechanisms It is essential for banks to employ qualified and knowledgeable personnel in departments responsible for developing policies and strategies related to payment activities.
4.3 SOLUTIONS FOR INDIVIDUALS AND BUSINESS
To support the initiatives of authorities and payment service providers, both the public and businesses are urged to adopt non-cash payment methods Citizens and enterprises are encouraged to transition from cash transactions to card-based payments in their daily activities and commercial dealings.
Citizens are encouraged to actively seek information on non-cash payment options available through local commercial banks It is essential for each household to maintain at least one bank account to facilitate card-based transactions for their family.
For students who study far from their hometown, they and their parents should be opened bank accounts to receive and sending financial support conveniently and timely
Vietnamese enterprises are encouraged to adopt salary payments through bank accounts for their employees Additionally, companies should conduct training sessions to educate their workforce on utilizing non-cash methods for receiving salaries and managing everyday expenses through their bank accounts.
As a business sector advisor, the author strongly recommends expanding the online shopping market Customers can conveniently order goods and services online and make payments through popular e-wallets such as Nganluong.vn or Paypal.vn To promote the use of cashless transactions, these payment methods should incur lower fees compared to traditional purchases.
Non-cash payment methods have become essential to the economy, significantly enhancing efficiency and security in financial transactions A banking system that offers fast, precise, and secure payment services fosters favorable conditions for economic growth Consequently, the innovation of service systems by commercial banks is crucial for driving economic reform in Vietnam.
In recent years, Vietnam's non-cash payment market has made significant strides in enhancing service quality and developing infrastructure Despite these advancements, cash payments continue to dominate the business sector and remain the primary method for most transactions in residential areas.