Mobile money and impact on Vietnamese banks

DAo VIen

The benefits mobile money brings to the economy and to individuals (especially disadvantaged people) have been the subject of much recent discussion. However, the impact of this new financial service on commercial banks is still a question that needs to be addressed.

IMPACTS ON VIETNAMESE BANKS

It has been recognised that the potential for the development of the mobile money service in Vietnam is huge. According to BIDV Training and Research Institute, currently only 40 percent of Vietnamese adults (aged over 15) have a bank account, a figure much lower than in regional countries such as Indonesia (49 percent), China (80 percent), Thailand (82 percent), Malaysia (86 percent), Singapore (98 percent), and Asia Pacific (70 percent).

Vietnam’s proportion of cash to total payment means by the end of September 2020 (according to the State Bank of Vietnam) was 11.15 percent (slight change compared to 10 years ago, at 11.87 percent at end-2011), higher than the target of 10 percent by the end of 2020 according to the government’s target. In addition, developing new and modern forms of payment (including mobile money) to serve rural and remote areas and ‘unbanked’ people, and contributing to promoting financial inclusion is one of the government's focuses as outlined in the National Financial Inclusion Strategy issued in January 2020.

As with many other developing countries, mobile money services in Vietnam are aimed particularly at people in remote areas, who do not have a bank account with which to access financial services. However, for commercial banks, this presents both pressure and opportunity. The most significant pressure is increasing competition, especially in the field of domestic payment and transfer. Like e-wallets, mobile money high in convenience and efficiency can become a competitor to the payment market share of banks.

According to the Global System for Mobile Communications Association (GSMA), the cost of transferring money via mobile money is up to 50 percent cheaper than through traditional organisations (including banks). If banks do not speed up the digital transformation process, develop effective and cost-saving payment and transfer services for customers, this new method is likely to prevail, especially for market segments banks have not yet approached or where access costs are too high.

Mobile money's target customers are mainly middle and low-income people who spend and make small payments (worth under VND10 million or USD435). If banks have a good approach to the large number of this customer segment in Vietnam, revenue from transaction fees and product crossselling is not insignificant. For other traditional banking operations (such as lending and capital mobilisation), mobile money has almost no direct impact because service providers are not permitted to offer such operations.

OPPORTUNITIES AND BENEFITS

According to BIDV Training and Research Institute, mobile money brings about significant opportunities and benefits for banks, particularly in the four following areas:

First, promoting financial inclusion and raising awareness and knowledge about financial services. Mobile money is expected to contribute to increasing people's access to financial services,

removing barriers such as geographical distance, education, and income. For the underbanked in remote areas, mobile money will help educate people to use new products and services, shaping a habit of non-cash payment which lays the foundation for developing banking services in the future.

Second, helping to improve infrastructure, effectively supporting the development of non-cash payments and the banking system. The fact shows that countries with more developed mobile money services have stronger growth in the banking industry. when mobile money develops to a certain stage, it will create conditions for the banking system to develop accordingly, thereby promoting economic growth to a higher level. As with the Internet, mobile finance helps hundreds of millions of people access financial services for the first time - not just payments, but also other services such as savings, investment, insurance and loans - at much higher speed than the traditional financial model. This creates a great opportunity for building a huge infrastructure for financial development at low cost and high speed. Third, the opportunity for win-win cooperation: advanced products (payment, money transfer, withdrawal) of mobile money will still need to be linked with banks. Accordingly, payment intermediaries, e-wallets or mobile money service providers and commercial banks can cooperate in the spirit of 3Cs (cooperation, coordination, and competition). If this works well, the potential for expanding the customer bases of banks is significant.

Fourth, mobile money can bring a huge source of deposits - the source banks aim at to reduce costs. Currently, the Prime Minister’s Decision 316 requires mobile carriers to maintain a minimum bank account balance at all times equal to the balance of their customers’ mobile money accounts. It means that in essence, the source of deposits from mobile money finally flow into the banking system. Assuming that only about 20 percent of the current 130 million mobile subscribers in Vietnam use the mobile money service with the amount in each account being VND10 million (USD435) per subscriber, the size of deposits at commercial banks could increase up to VND260 trillion (USD11.3 billion) or higher.

Currently there is no evidence showing that mobile money poses risks to the stability of the financial system or other payment systems. Even in markets where mobile money flourishes, mobile money transaction value still accounts for a much smaller proportion than total financial transactions, which highlights the characteristics of “high volume, small value” of this service.