So far, the Vietnamese Government has issued a series of guidelines and policies to promote the development of non-cash payment methods and has also encouraged the implementation of many initiatives in this field. Electronic payment is expected to become a common practice of people in urban areas and gradually develop in rural, remote and isolated areas; help reduce cash-related costs for the economy, for businesses and individuals and also promote faster economic integration with the international economic community.
Non-cash payment is a form of payment using electronic payment instruments that utilizes digital technology such as electronic wallets (E-Wallets), Mobile Banking, Internet Banking or conducts indirect payment through credit institutions instead of direct communication between buyers and sellers in the traditional manner. This article focuses on E-Wallets. E-Wallets, also known as Online Wallets is a type of payment account used for the most popular online transactions nowadays such as: Transferring – receiving money, paying electricity and water bills, tuition fees, apartment fees, buying movie tickets, topping up phones, etc. most of which are free of transaction fees. There are two forms of payment via E-Wallets: indirect payment by bank account / bank card linked to E-Wallet or transferring money to the Wallet with a credit balance. We need only a smart device connected to the internet and an account to be able to make any transactions anywhere.
Up to now, the State Bank of Vietnam (SBV) has licensed 45 E-Wallet service providers. As of the beginning of 2023, SBV statistics show that the whole market has 120 million E-Wallets, of which 47 million are activated and 29 million are currently active. The total balance in wallets is over 3,300 billion VND. The total transaction value by the end of the third quarter of 2022 is about VND 937 trillion VND.
Therefore, it can be seen that the Government’s direction and effort as well as prospect in building a favorable and encouraging environment for the development of electronic payments is evident, gradually turning electronic payment into a commonly used payment method in everyday life and business for Vietnamese businesses and people from now to 2025.
E-Wallets – Many benefits with possible risks
E-Wallets are used to meet the needs of purchasing small-valued goods and services with just one smart device connected to the Internet without using cash, reduce time from manual counting, but still ensure accuracy and convenience. Many types of E-Wallets combine the features of both debit and credit cards, meeting the consumers’ diverse needs for payment (including both immediate payment and spend-first, pay-later). Electronic payments also allow consumers to make payments conveniently across the globe; from daily expenses at supermarkets, grocery stores to tourist areas, places of entertainment, dining or entertainment, etc. on e-commerce platforms. In addition, E-Wallets run a series of promotions and encourage promotional relationship with sellers with discount codes, accumulative points, refund (cashback), etc., making E-Wallets very attractive to consumers.
In general, financial consumers highly value the E-Wallets’ security regarding customer information. The password protection and biometrics layers are capable of minimizing the acts of forgery and theft. The problem resolution or the handling of arising incidents is also quickly processed.
Along with the utilities mentioned above, financial consumers have also been warned about the potential risks of electronic payment. The first risk is information security, which can be considered as the biggest risk of E-Wallets. Service providers are trying to improve the E-Wallets' security and implement multiple layers of protection to maximize customers' security. Even so, E-Wallet users may still come across some situations such as losing the smartphone(s) or accidentally getting information stolen when using smartphone. Therefore, to ensure one's own safety, every user needs to be alert and vigilant. Besides, the risk of lost connection may occur due to system failure or user’s terminals failure. To solve these issues, it is required to ensure a stable and secure Internet connection during the transaction process, to use secure personal terminals and cause no unauthorized interference to the operating system or hardware.
Robocash Group's statistics updated in February 2023 show that the E-Wallet race is blooming with more than 40 participants, but 99% of the market share is dominated by 06 "big players" including: MoMo, Moca, ZaloPay, ShopeePay (Airpay), Viettel Pay and VNPT Pay. However, the market dominance of these E-Wallets is not proportional to their profitability. In the case of MoMo, despite accounting for half of the market share and its steadily increasing revenue in the period of 2019-2021, so far it has gained zero net profit. By the end of 2022, the company's accumulated loss was more than 3,600 billion VND. ZaloPay also recorded a net loss of up to 1,200 billion VND in 2021. Similarly, ShopeePay's 2020 debt-to-equity ratio is 2.2 times. These continous losses do not make the E-Wallets' e-payment race cool down; because their goal is to attract users by media campaigns, promotion and refund programs.
The fact that E-Wallets currently withstanding large losses to maintain promotions and discounts to attract users should not be considered a competitive advantage of this service; especially in the context of high interest rates, making capital mobilization in the venture capital market more difficult. The E-Wallet market in Vietnam is still in the exploration stage, with a high level of competition with the purpose of attracting customers and changing customers' consumption habit, which easily leads to disturbances in the market.
In the worst case, when an E-Wallet service provider becomes insolvent or goes bankrupt then the users will not be able to access their credit balances in the E-Wallets. Accordingly, the form of money transfer to the E-Wallet may create potential risks when their money is likely to be on the account(s) of payment intermediaries who provide E-Wallet services; and consumers' money at E-Wallets are not insured by the deposit insurer under the Law on Deposit Insurance. As such, E-Wallet users themselves may have their liquidity affected when such circumstance occurs.
In fact, the SBV has regulations on liquidity assurance for payment intermediaries, specifically: E-Wallet service providers must open a secured account for payment (SAP) to ensure the provision of the mentioned service. The SAP used for the E-Wallet service cannot be used in conjunction with the SAP for the collection and payment service (if any) and must be separate from other payment accounts at the collaborating bank.
E-Wallet service providers have obligations to maintain the total balance on all SAPs for the E-Wallet service opened at collaborating banks which is not less than the total balance of all customers' E-Wallets at the same time. However, if the collaborating banks encounter liquidity difficulties, it will badly affect the E-Wallet service providers' solvency and their consumers. Meanwhile, under the current regulations, E-Wallet balances are not covered with deposit insurance. This differs from “payment deposits” credited on bank accounts which are paid on-demand and used mainly for making payment transactions via the bank and have the advantage of being insured with deposit insurance (according to Article 18, Law on Deposit Insurance).
Enhancing the experience using E-Wallets and protecting financial consumers
One of the main notable benefits of E-Wallets is promoting the process of non-cash payments in line with the nation's policy as well as promoting financial inclusion. Financial consumers have more products and services to choose, while at the same time they are also more vulnerable and susceptible to risk. To solve this problem, the Government needs to further promote communication activities and popularization of financial education and financial inclusion programs, information about E-Wallets and forms of fraud using E-Wallets, etc. via mass media. At the same time, regulatory agencies also need to conduct research and establish a legal framework to protect consumers in the financial sector in order to limit the risks that customers might face up when using E-Wallet services; perform regular inspections, review and give accurate and timely risk warnings to consumers using these products. For banking and financial supervision agencies, there is a need to establish a mechanism which requires non-banking financial intermediary service providers to develop and practice response scenarios as well as a contingency plan for liquidity risks. It is also necessary to review, research and develop a legal framework for inclusion of financial intermediary service providers in deposit insurance system similar to traditional credit institutions with regard to consumer payment deposits.
Banking and financial institutions in general including traditional credit institutions; payment intermediaries and companies providing electronic payment solutions should conduct research and develop a liquidity risk management process; invest in a system of payment instrument that can be shared at an eligible point of payment. This requires connection, coordination and sharing payment infrastructure among organizations; avoiding asymmetry, wastage, lack of linking, and the situation when each wallet uses a different QR Code, etc.; continuing to conduct rigorous research in technology development trends from financial institutions around the world in order to learn knowledge and provide development solutions suitable to the organizations' capabilities, resources and application conditions in Vietnam. E-wallet services need to ensure simplicity, ease of use, security, and accessibility, facilitate the entry for those who have not yet had access to electronic payment services, who will have more opportunities to access digital services. For customers' part, when using E-Wallets in particular and non-cash payment tools in general, users should realize the need to carefully understand the risks related to the use of E-Wallets, including liquidity risks; proactively acquire basic knowledge related to information security, customer's utility, information related to new products and services; thereby develop awareness to minimize risks and unnecessary losses.
E-wallets nowadays bring a lot of benefits to customers and are currently the main payment trend. In addition, there are certain risks as described above associated with the use of this payment service and measures to manage and minimize losses which have already been proposed. Customers' funds at E-Wallets are currently not subject to be covered with deposit insurance. Therefore, in the development phase of electronic payment products and services, there is a necessity to consider conducting researches and making proposals to expand the type of insured deposits, including new payment products and services such as E-Wallets to better protect the rights and interests of financial consumers.