Introduction to Vietnam's payment system: from cash to e-wallet

Introduction: the evolution of payment methods in Vietnam

Vietnam, one of the fastest-growing economies in Southeast Asia, has seen its payment system undergo radical changes over the past decade. The gradual evolution from a traditional society that relied heavily on cash transactions to a digital economy where electronic payments have flourished reflects not only technological advances, but also profound changes in consumer habits and government policies.

In this paper, we will provide a comprehensive analysis of the current status and trends in Vietnam's payment system, focusing on the transition process from traditional cash payments to modern e-wallets. We will explore the key factors driving this change, the current market landscape of the dominant payment methods, and possible future directions.

Part I: The dominance of traditional cash payments in Vietnam

1.1 Historical background and cultural factors

Cash has long been the dominant medium of exchange in Vietnam. This preference stems from multiple factors:

• cultural habit: The tradition of "seeing is believing" trade in the Vietnamese South
• Inadequate financial infrastructure: Low coverage of bank branches in rural areas
• Adaptability to small transactions: Suitable for daily market shopping and hawker trading
• The need for privacy protection: Some people are reluctant to leave records of digital transactions

According to 2020 statistics, despite the rapid growth of non-cash payments, nearly 80% of daily transactions are still done in cash.

1.2 Government-driven demonetisation policy

In recent years, the Vietnamese Government has actively promoted the reduction of the use of banknotes:

• Approval of the National Development Plan for Non-Cash Payments in 2017
• Target set for 2020 to increase non-cash ratio to 50%
• Tax incentives encourage businesses to accept electronic payments
• Digitisation of utility paymentsAcceleration (utilities, tuition, etc.)

These policy measures have significantly accelerated the pace of building a cashless society.

Part II: Transitional stage of bank cards and bank transfers

2.1 ATM network and debit card penetration

Started in the early 2000s:

Part II: Transitional stage of bank cards and bank transfers

2.1 ATM network and debit card penetration

In the early 2000s, the Vietnamese banking sector began to roll out ATM networks on a large scale to promote the use of debit cards. The development of the payment system at this stage was characterised by the following:

• Increased bank account penetration:: The Government encourages the population to open bank accounts and supports the direct recording of salary payments, social benefits, etc.
• POS terminal promotion: Modern retail channels such as supermarkets and shopping malls take the lead in accepting card payments
• Cross-border transaction facilitation: Establishment of the National Clearing Centre of Vietnam (NAPAS) for interconnection between different banks

However, the popularity of credit cards has been relatively slow. Due to strict credit checks and high processing fees, credit cards are mainly used by middle- and high-income groups. As of 2023, Vietnam will have about 0.8 debit cards per capita and only about 0.15 credit cards.

2.2 The rise of online banking

With the increase in internet coverage (more than 75% by 2023), online banking has become one of the key payment tools for urban residents:

• Mobile Banking App Functionality ImprovementSupport for transferring funds, paying bills, investing and managing money, etc.
• Pilot rollout of QR code payment: Some commercial banks launch code payment function
• Digitisation of cross-border remittances : e.g. MoMo partners with Western Union to offer international money transfers

Nevertheless, bank cards and internet banking have yet to fully replace cash transactions - especially in small purchases, where the "top up first, spend later" model has yet to take hold. This has created a window of opportunity for the rise of e-wallets.

Part III:Revolutionary growth of e-wallets

3.1 Key drivers of market explosion
Demand for mobile payments will be fuelled by smartphone penetration (over 70% by 2023) and a young demographic (under 35 years old accounts for 60%), with key drivers including.

• policy dividend -Central bank eases third-party payment licence restrictions in 2016
• Entry of foreign tech giants-GrabPay/AirPay fast customer acquisition with the help of a super app ecosystem
• Local business innovation-ZaloPay combines social scenarios, VNPT Pay relies on telecom operators' strengths

According to Fitch Solutions data, in 2022, Vietnam's e-wallet users exceeded 40 million, the transaction value of 36% year-on-year growth, the growth rate of Southeast Asia's leading.

Do we need to move on to product-specific analyses (e.g. MoMO's share of the 48% market)? Or do you want to move on to the impact of the regulatory framework on the industry? Please specify where you would like to go deeper so that I can maintain consistency.