In 1995, the first Visa transaction was accepted in Vietnam—the same year that relations between the United States and Vietnam were normalized.
In 2006—the year before Vietnam joined the World Trade Organization (WTO)—Visa had 150,000 branded cards in Vietnam. Today, Visa has five million branded cards in Vietnam and transaction numbers grew 34% in the last twelve months before June 2016.
According to the State Bank of Vietnam (SBV), by 2014, 76 million cards had been issued by 50 banks and credit institutes in Vietnam—but credit cards accounted for only 4 percent or approximately three million cards. By 2015, according to the General Statistics Office of Vietnam, the number of issued cards reached 86 million—but there were reports that a significant portion of these cards remained unused.
Not all the news around card adoption in Vietnam has been positive: since 2010, there have been hundreds of officially reported financial crimes each year, leading to the arrest of almost 1,000 people. In 2015, the SBV even warned all banks about an increase in card fraud. Vietnam has also been the target of foreign scammers, who employ tactics such as card skimmers and coordinated groups to obtain and falsify card information in order to withdraw local currency.
In one case that made headlines in 2016, a Vietnamese woman lost $25,000 to hackers while sleeping due to a security loophole regarding the One-Time Pass (OTP) model. Vietcombank, where the woman held accounts in her name, returned $15,000, but $10,000 was withdrawn by criminals in Malaysia before the bank could intervene.
Even worse, Vietnam acts as a clearing house for stolen credit card information. In 2016, a 20-person ring in Ho Chi Minh City was indicted for credit card fraud overseas. Furthermore, a Vietnamese hacker made almost $2 million by stealing and reselling personal data, according to U.S. authorities. The hacker was only caught when he joined a meeting in Guam, a U.S. territory.
And then there are the regulatiosn, which sometimes seems to be at odds with other public sector efforts to foster entrepreneurship and incentivize new enterprise creation. The next regulation that will significantly impact e-commerce and Fintech in Vietnam will be “Circular 19” on “Bank Card Operations” which was issued by the State Bank of Vietnam (SBV) in June 2016.
The circular took effect on August 15, 2016, with the exception of Article 24, which is slated to take effect on January 1, 2018. Article 24 allows for the SBV to appoint an intermediary in the digital payment process, most likely the National Payment Corporation of Vietnam (NAPAS), founded in 2004.
According to the NAPAS website:
“NAPAS is the first and unique intermediary payment service provider being granted license by the State Bank of Vietnam (SBV) of providing switching and electronic clearing and settlement services in Vietnam. NAPAS’s majority shareholders include SBV and 15 great commercial banks in Vietnam.”
Thus, NAPAS would be the sole point of contact for all transactions to pass through, or in other words, a bottleneck to limit the progress of Fintech and e-commerce innovation in Vietnam. The implications of the removal of direct connections between International Card Associations (ICA) and the banks are profound: in 2016, an anonymously-produced document outlined the risks to innovation, online security, the consumer experience, and targeted promotions; it was circulated among members of Vietnam’s startup communities across the country.
The document concluded:
“Article 24 of Circular 19 is a cause for concern because it will restrict competition, constrain innovation and weaken security in the payments space. Not only will players directly involved in the processing of
electronic payments be affected, other players in the FinTech, e-commerce and other new economy sectors that depend on digital payments will be negatively impacted as well.“
While the SBV did set up a Fintech Steering Committee in early 2017—with representatives from NAPAS—to address present and future issues around Fintech proliferation in Vietnam, these emerging technologies are new for developed and developing markets alike, so there is no “final playbook” to reference or clear path to follow. However, what is also not known is whether these efforts, and market conditions, will hinder the growth of Vietnam’s digital economy—or will they accelerate financial innovation in the private sector to bypass such obstacles? Only time will tell.
*A note from author Andrew Rowan: please support by pre-ordering Startup Vietnam today.*
Featured image via pixabay
