As the world enters the 21st century, it has witnessed which is arguably the greatest and most rapid changes ever since the invention of the World Wide Web nearly in 1990, not only in the way people go through their daily lives, but also in how they operate in the economy and corporate world. Never before could anyone imagine that they would conduct most of their business through the help of a small screens, nor could they predict that one day society would start to abandon their paper and coin currency in favor of buying and selling solely on electronic systems using computerized money. Yet such is the truth with today’s world: information technology and ecommerce, with its tremendous benefits and endless possibilities, has deeply immersed itself into our daytoday life and became an inseparable part of the business world. As more and more business transactions are conducted on ecommerce platform, it entices a need for systemized payment tools that enable payments to be made timelier and more costefficiently. Thus, the first epayment system was established in 1994, driven by simultaneously growing new technology, changing not only the payment landscape of the world at that time, but also the way we view traditional money forever. The undeniable benefits of epayment including convenience, time and cost saving has helped multiple epayment systems with its various form be applied all over the world. In great economies such as China, Japan and the United States, epayment are strongly competing with cash to become the main payment method in daytoday transactions. The most notable case among these is South Korea, the country can be known as the epitome of a cashless society, where epayment systems is not only popular, it is the preferred, prominent method, the one and only that springs to South Korean’s mind when it comes to paying for things. By contrast, Vietnam is a society that favors cash over epayment, and the aggregated efforts by business to encourage online payment in Vietnam encounters many difficulties because users still have concerns regarding making these types of payment. Only realizing the benefits and importance of epayment is not enough, Vietnam must take systematic approach to the establishment and organization of many epayment systems. By studying the case and experiences of pioneers of epayment like South Korea, Vietnam business can effectively utilize epayment to catch up with technology development in the world, satisfy and attract its customers base, and gain competitive advantages especially for companies who are in the middle of the integration process into global business. Acknowledging the pressing needs for such a study, I chose “Electronic payment systems in South Korea and lessons for Vietnam” as my thesis research topic.
TABLES OF CONTENT LIST OF TABLES i LIST OF FIGURES ii LIST OF ABBREVATIONS iii INTRODUCTION 1 Rationale for research Objectives of research Subject and scope of research Method of research Structure of research paper 3 CHAPTER 1: OVERVIEW AND THEORETICAL BACKGROUND OF EPAYMENT 1.1 Theoretical background of e-payment 1.1.1 Definitions of e-payment 1.1.2 Characteristics of e-payment systems6 1.1.3 Forms of e-payment systems 10 1.1.4 Conditions for e-payment systems development 1.2 19 Overview of e-payment development in the world 21 1.2.1 History of development of e-payment 21 1.2.2 Current development of e-payment in the world 24 1.3 Benefits and limitations of e-payment 27 1.3.1 Benefits of e-payment 27 1.3.2 Limitations of e-payment 29 CHAPTER 2: ANALYSIS AND EVALUATION OF E-PAYMENT SYSTEMS IN SOUTH KOREA AND VIETNAM 32 2.1 E-payment systems in South Korea 2.1.1 2.1.2 2.1.3 2.1.4 2.1.5 Development of e-commerce in South Korea 32 Current infrastructure for e-payment systems in South Korea 34 Current legal framework for e-payment systems in South Korea 37 Current forms of e-payment systems in South Korea 38 Insights into e-payment service providers in South Korea 44cu 2.2 E-payment systems in Vietnam 2.2.1 2.2.2 2.2.3 2.2.4 2.2.5 32 47 Development of e-commerce in Vietnam 47 Current infrastructure for e-payment systems in Vietnam 50 Current legal framework for e-payment systems in Vietnam Current forms of e-payment systems in Vietnam 53 Insights into one e-payment service provider in Vietnam 58 2.3 Evaluation of e-payment systems in Vietnam 52 59 2.3.1 Achievements of e-payment systems development in Vietnam 2.3.2 Obstacles to e-payment systems development in Vietnam 61 59 CHAPTER 3: LESSONS AND RECOMMENDATIONS TO IMPROVE EPAYMENT SYSTEMS IN VIETNAM 65 3.1 Trends of e-payment systems development in Vietnam 65 3.1.1 Mobile payment’s takeover of the payment landscape 65 3.1.2 Increasing collaborations between banks and non-bank companies 3.1.3 Rise of contactless payment 68 3.2 Experiences and lessons from South Korea in e-payment development 3.3 Recommendations to improve e-payment systems in Vietnam 67 69 72 3.3.1 Recommendations for the Vietnamese Government to improve e-payment systems 72 3.3.2 Recommendations for Vietnamese businesses to improve e-payment systems 76 CONCLUSION 79 REFERENCES 80 APPENDICES i ACKNOWLEDGEMENTS In the year 2017, Vietnam has witnessed the introduction of a plethora of new payment services, many of them being are electronic wallets and most of them come with an accompanying mobile application, with the promise that you users can carry around their digital money around with them in their smartphones and tablets Alternative payment methods not only bring about convenience and efficiency, they also can open up a new era where the only money being circulated are the one stored in our little personal devices and cash, as well as cards – or any physical representation of monetary value for that matter – is completely wiped from our life Despite having such revolutionary potential, e-payment in Vietnam is still being treated as a novelty, and still not quite popular even among younger people, its intended demographic, as Vietnamese people for the greater part of history is much more acquainted with cash and believe it to be the safer, simpler choice of payment Motivated by the desire to change this misconception and contribute to the recent efforts of popularizing e-payment by governmental and business entities, I’ve chosen the topic: Electronic payment systems in South Korea and lessons for Vietnam as my thesis paper I would like to express my deepest gratitude to Dr Nguyen Van Thoan, my supervisor and mentor throughout the writing period Without your invaluable advice, guidance and suggestions, what would be known as one of most defining works of my life would never have come into existence It was a great honor to work under your supervision Last but not least, my sincere thanks and appreciation goes to my parents for their inexhaustible care, affection and encouragement, not only in the time I’m finishing this thesis, but for my whole life Despite my endless shortcomings and unpredictable behaviors patterns, especially when I just get annoyed at them for no reason, they have never given up on me Thank you, Mom and Dad LIST OF TABLES Table 2.1: Top South Korean e-commerce companies………………………………….34 Table 2.2: Transaction volume and percentage of market share of major credit card issuers in South Korea……………………………………………………………………………40 Table 2.3: Number of subscribers and accumulated transaction volume of Samsung Pay, Naver Pay and Kakao Pay……………………………………………………………… 46 Table 2.4: Operation of five Vietnam e-commerce companies in Quarter 2018……….49 LIST OF FIGURES Figure 1.1: E-payment process – Four party model….………………… ……………….6 Figure 1.2: Online credit card transaction process….……………….………………….… 12 Figure 1.3: NFC mobile payment process………….………………………… ………….18 Figure 1.4: Credit card and debit card development timeline…………………………….23 Figure 2.1: Percentage of Internet users in South Korea from 2006 to 2016 …………….35 Figure 2.2: Percentage of e-payment methods usage in South Korea…………………….39 Figure 2.3: Payment methods of online shopping in Vietnam…………………………….54 Figure 2.4: Five popular payment gateways in Vietnam…………………………………56 Figure 2.5: Online payment process of NAPAS………………………………………….58 Figure 2.6: Cash payment to total payment means ratio from 1/2012 to 1/2018………….59 Figure 2.7: Number of cards issued, ATM and POS from 2013 – 2017………………….60 LIST OF ABBREVIATIONS Abbreviation ATM B2C B2G BOK COD E-commerce EFTA EMV E-payment FMCG FSC ISP M-payment MST M-wallet NAPAS NFC NPKI PIN POS QR Code RFID SET SMS SBV Full term Automatic Teller Machine Business to consumer Business to government Bank of Korea Cash-on-delivery Electronic commerce Electronic Financial Transaction Act Europay, Mastercard and Visa Electronic payment Fast-moving Consumer Goods Financial Services Commission Internet Service Provider Mobile payment Magnetic Security Tranmission Mobile wallet National Payment Corporation of Vietnam Near-field communication National Public Key Infrastructure Personal Identification Number Point-of-sale Quick Response Code Radio-frequency identification Secure Electronic Transaction Short Message Service State Bank of Vietnam INTRODUCTION Rationale for research As the world enters the 21st century, it has witnessed which is arguably the greatest and most rapid changes ever since the invention of the World Wide Web nearly in 1990, not only in the way people go through their daily lives, but also in how they operate in the economy and corporate world Never before could anyone imagine that they would conduct most of their business through the help of a small screens, nor could they predict that one day society would start to abandon their paper and coin currency in favor of buying and selling solely on electronic systems using computerized money Yet such is the truth with today’s world: information technology and e-commerce, with its tremendous benefits and endless possibilities, has deeply immersed itself into our day-to-day life and became an inseparable part of the business world As more and more business transactions are conducted on e-commerce platform, it entices a need for systemized payment tools that enable payments to be made timelier and more cost-efficiently Thus, the first e-payment system was established in 1994, driven by simultaneously growing new technology, changing not only the payment landscape of the world at that time, but also the way we view traditional money forever The undeniable benefits of e-payment including convenience, time and cost saving has helped multiple e-payment systems with its various form be applied all over the world In great economies such as China, Japan and the United States, e-payment are strongly competing with cash to become the main payment method in day-to-day transactions The most notable case among these is South Korea, the country can be known as the epitome of a cashless society, where e-payment systems is not only popular, it is the preferred, prominent method, the one and only that springs to South Korean’s mind when it comes to paying for things By contrast, Vietnam is a society that favors cash over e-payment, and the aggregated efforts by business to encourage online payment in Vietnam encounters many difficulties because users still have concerns regarding making these types of payment Only realizing the benefits and importance of e-payment is not enough, Vietnam must take systematic approach to the establishment and organization of many e-payment systems By studying the case and experiences of pioneers of e-payment like South Korea, Vietnam business can effectively utilize e-payment to catch up with technology development in the world, satisfy and attract its customers base, and gain competitive advantages especially for companies who are in the middle of the integration process into global business Acknowledging the pressing needs for such a study, I chose “Electronic payment systems in South Korea and lessons for Vietnam” as my thesis research topic Objectives of research On studying the current e-payment scene in South Korea, this research aims to obtaining the following objectives Provide a general understanding on the basics of e-payment by presenting the definitions, features and requirements regarding the subject Analyze the current situation of e-payment application, infrastructure, legal framework and other factors that contribute to the success of e-commerce and epayment in South Korea List and analyze the current e-payment systems in South Korea and Vietnam Provide brief reviews and insight on several e-payment service providers and systems operators in South Korea and Vietnam Draw practical lessons from South Korea’s experience and expertise in e-commerce and e-payment Evaluate Vietnam’s potential for the development of successful e-payment systems and recommend solutions to improve on the current status and facilitate future development of e-payment in Vietnam Subject and scope of research This study focuses on existing e-payment systems, including its various forms, purposes and characteristics as the main subject It also discussed external factors influencing the application of such systems: infrastructure and legal framework, in addition to operations of current e-payment service providers and systems operators should aim to provide a diverse selection of tools Not only should online payment gateway of mainstream providers like NAPAS be available, but also alternative methods of m-wallet, QR code scan to appeal to divergent customer groups, especially younger people who are the main target of e-commerce models When such means are readily offers, consumers are undoubtedly more likely to opt for electronic methods, thereby enhance the presence of e-payment in retailing and other forms of commerce 3.3.2.2 Provide value-added service to customers for using e-payment Novel products such as e-payment tools often take users through a period of trials and success to get used to For the more conservative customers, they may not be willing to try out the new tools at all and instead stay loyal to traditional methods of cash and COD In cases like this, incentives are important For e-payment to be capable of overpowering cash options, businesses need to prove to customers that using electronic methods outweigh the other method in terms of benefits and service offered The sensible, centered approach of businesses to this would be to extend discounts, vouchers, reward points system and other extra benefits to purchases made with electronic methods In reality, this model has been applied by multiple e-commerce businesses in Vietnam with great results For instances, Delivery Now, an online food order service encourages users to pay with its partner AirPay by providing large discounts and free shipping M-wallet users of Momo regularly receive vouchers from the brand for movie tickets, bills payment and other services These are all examples of great loyalty programs that other businesses can adopt to improve customers engagement and loyalty in conjunction with promoting the use of e-payment 3.3.2.3 Utilize e-payment as a marketing and engagement tool All the above methods suggest way for e-payment to appeal to customers However, as advocates of alternative payment means, businesses and service providers should not perceive e-payment as problems that needs solving or weaknesses that they have to make up for Instead, start seeing these wonderful tools as strengths worthy of 75 endorsement Thus, this becomes a process of business branding, where enterprises advertise their adoption and acceptance of e-payment tools as an added benefit and a way to better serve and engage their customers Not only would it automatically prompt consumers to view e-payment in a more positive light, the business also attains an open-minded, innovative and technology-conscious image, thereby enhancing their ability to appeal to a wider range of customers, particularly young, tech-savvy people This can be achieved by merchants dedicating a whole page on their website to introduce the payment options available, as well as advertising their connection with payment partners including banks and intermediary services Regardless of the method, the one and only focus should be on making very clear that the business in question accepts innovative forms of payment that are greatly beneficial to the ones using it When customers have seamless experiences with their E-payment then become a tool for businesses to further engage with customers and set themselves apart from competitors who fail to innovate and adapt 76 CONCLUSION In the latest decade, along with the development of information technology, telecommunications and e-commerce, payment activities in Vietnam have increasingly gravitated towards diversification, efficiency and cost effectivity However, e-payment is still a novel concept to the people’s daily lives and have yet to gain favors from consumers in the market Recognizing the problem, this thesis has clarified the roles and importance of e-payment, in addition to tremendous benefits of e-payment adoption including: convenience, safety, time and cost saving and competitive edge The thesis has provided intensive research work on the real situation in South Korea, one of the countries in the world where e-payment forms are booming and thriving Through the analysis and examination of the country’s physical and organizational infrastructure, legal framework, forms of payment and their usage and payment service provider, the thesis has been identifying and pointing out the reasons for the immense success of e-payment in South Korea, thereby drawing lessons for Vietnam Government and businesses to improve the systems in our own country Additionally, the thesis provided an equally in-depth analysis on the real situation in Vietnam By putting the two countries side by side, deductions can be made on the strengths as well as weaknesses of payment developments, which includes: lack of consistent infrastructure throughout the country, lack of unified legal document governing e-payment activities and consumer’s attitude, perception and payment habits In retrospect of South Korea and its strategy to develop e-payment, the thesis has also suggested several solutions to ameliorate the setbacks, as well as strengthen the progress our country has made so far, with the goal in mind of making electronic payment in Vietnam safe and effective, able to meet the increasing and diversified demands from people and enterprises and in line with developments taking place all over the world All in all, the responsibility of improving and popularizing e-payment lies on the shoulder of not only government and businesses, but also the people 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key=201703070100011500000747&lcode=00 [accessed 12/04/2018] 84 APPENDICES APPENDIX A: RETAIL PAYMENT SYSTEMS OF SOUTH KOREA System Functions Cheque Clearing System Provides cheque clearing service Bank Giro System Enables companies and public Cash Management Service system corporation to make large value funds transfer Interbank Funds Transfer Network system ATM Network system BANKLINE system Enable individuals and corporate customers to electronic make fund transfers and payments Electronic Banking system Electronic Funds Transfer at the POS system K-cash system B2B E-commerce payment system B2C E-commerce payment system Settles debit card payments Settles electronic money payments Support online transactions and fund transfers between business and business Support online transactions and fund transfers between business and individuals Source: Bank for International Settlements, 2011, p.231 APPENDIX B: LEGISLATIONS FOR E-PAYMENT SYSTEMS IN SOUTH KOREA Object Law Issuance date Oversight of payment and Bank of Korea Act Dec 31st, 1997 settlement system Electronic Financial Transaction Act Apr 28th, 2016 Electronic Signature Act Feb 5th, 1999 Framework Act on Electronic Electronic Payment transactions Electronic Transactions instrument s Commerce Act on Consumer Protection in Electronic Financial Transaction Act Electronic Issuance and Distribution of Electronic bills Cards Bills Act Specialized Credit Financial Business payment Act Jan 19th, 2002 Mar 30th, 2002 Apr 28th, 2016 Mar 22nd, 2004 Aug 28th, 1997 Source: Bank for International Settlements, 2011, p.212 APPENDIX C: LEGISLATIONS FOR E-PAYMENT SYSTEMS IN VIETNAM Issuance date Legislations Law on Electronic Transaction November 29th 2005 Law on the State Bank of Vietnam December 12th 1997 Law on Credit Institutions June 16th 2010 Decree No.27/2007/ND-CP on electronic transactions in Feb 23rd 2007 financial activities Decree No.35/2007/ND-CP on electronic transactions in March 8th 2007 banking activities Decree No 101/2012/ND-CP on non-cash payments November 22nd 2012 Circular December 28th 2012 No.36/2012/TT-NHNN on the installation, management, operation and security of Automated Teller Machine Circular 23/2014/TT-NHNN guiding the opening and use of August 19th 2014 payment accounts at payment service suppliers Circular No.39/2014/TT-NHNN guiding the intermediary November 12th 2014 payment services Circular No.19/2016/TT-NHNN on bank card operations June 30th 2016 Source: State Bank of Vietnam, 2017, Non-cash payment performance gained significant improvement https://www.sbv.gov.vn/webcenter/portal/en/home/sbv/news/news_chitiet?dDocName=SBV284675 ... e-payment systems in South Korea 34 Current legal framework for e-payment systems in South Korea 37 Current forms of e-payment systems in South Korea 38 Insights into e-payment service providers in South. .. e-commerce and epayment in South Korea List and analyze the current e-payment systems in South Korea and Vietnam Provide brief reviews and insight on several e-payment service providers and systems. .. ANALYSIS AND EVALUATION OF E-PAYMENT SYSTEMS IN SOUTH KOREA AND VIETNAM 32 2.1 E-payment systems in South Korea 2.1.1 2.1.2 2.1.3 2.1.4 2.1.5 Development of e-commerce in South Korea 32 Current infrastructure