Online payment of E-commerce in Vietnam and what the future holds for the domestic market

The fast growing rate of Internet users is one of the most notable aspects of Vietnam economy with up to 40 per cent of its people using Internet. According to statistics from the industry and trade ministry’s E-commerce and Information Technology Agency (VECITA), Internet and mobile play an important role in consumers’ trading with nearly 60% of online users conducting online purchases.

Eighty per cent of businesses will order or receive orders through e-commerce applications on the Internet or on mobile platforms.

The ground for e-commerce has been developed in terms of financial infrastructure which is expected to complete by 2020, keeping up with the development of various e-commerce models and activities in society.

Over the last five years, the strong growth of e-commerce has stimulated the e- payment services sector. In 2010, there were 84,500 e-wallet accounts opened with 17 banks providing services and 119 merchants accepting online payment.

Since then, the online payment network has been developing with POS network growing faster than ATM due to high cost of investment and operation of ATM machines. The payment market in Vietnam is still in early stage and very fragmented with only 11 companies being granted the trial license, but the number of competitors is much larger. The e-payment market in Vietnam currently focuses on different areas like banking transfer (OnePay, SmartLink, VNBC), e-commerce (Soha, Nganluong, Baokim), whole seller and retail, etc.

Though banked sector was large and grew rapidly, cash payment was still the main payment vehicle with cash on delivery (COD) method accounting for 64% of e-commerce transactions since the benefits of e-payment are not clear yet. Also the complex of 3D security incorporated into credit cards and the fact that customers can return products upon delivery have persuaded them to stick to their traditional payment method – COD.

According to statistics from VECITA, around 97% of businesses have transfer option for consumers and the rate has been increasing steadily in the past few years. Meanwhile, e-wallet and internet banking do not show any clear trends, despite the e-commerce transactions increasing by more than 30% annually.

The online payment platforms in Vietnam have not kept up with the development of e-commerce, which could be attributed to consumers’ unfamiliarity with e-payment, inherent risks associated with online financial services providers and led to the dominance of COD method.

As for the online vehicles, debit transaction still accounts for a large proportion of e-payment with banks trying to grow credit cards number to increase payment through their system. Underdeveloped credit rating system slows down the development of credit card and the domination of debit account puts the security on hand of consumers, which further limit the use of online payment tools.

Banks have put substantial efforts to upgrade banking technology in order to manage online transactions and have become the leader in successfully applying non-cash payment. However noncash payments were still the exception rather than the rule. The legal system, and the habits of authorities, companies and the general public perpetuated the use of cash.

The government has encouraged the use of electronic payment systems and to eliminate cash payment by building an online payment platform for e-commerce from 2016 to 2020. The government also encourages the development of e-commerce across borders along with export and import activities, taking up 15 per cent of B2C e-commerce sales by 2020 which would foster epayment to reduce transaction cost.

The recent merger between Banknetvn and Smartlink in Dec 2014 has proved the governmental support for e-payment market. The government has agreed to waive tax for the post-merger consolidated firm for up to five years, subject to both parties committed to ensuring high quality for customer usage. The transaction is also a signal of improved e-payment facilities to keep up with other markets through reduced controlling cost and better customer services.

It is expected that one hundred per cent of supermarkets, shopping malls and distribution chains will cooperate point of sale (POS) system, reaching the target of 250,000 POS at the end of 2015 and allowing non-cash payment when purchasing.

However it may question those parties as to whether the limitations of e-payment vehicles in Vietnam actually hinder the development of e-commerce market. In the summer 2014, $3bn poured into India’s e-commerce sector, where more than 200 digital commerce startups flush with private investment and venture capital funds and most of these online vendors largely operate on cash on delivery basis. Despite the heavy dependence on cash of India and some other countries including Indonesia and Colombia, digital marketplaces are innovating at a remarkable pace. But in the near future, nimble e-commerce players are simply working with and around the persistence of cash.

The South East Asian region comprising of Singapore, Malaysia, Thailand, Indonesia is experiencing an up surge in e-commerce thanks to well-established infrastructure, and resolving online payment was amongst the first issues to be taken care of. The development of e-payment platform in those countries has confirmed the unavoidable market trend toward online payment for e-commerce in Vietnam, especially when the online trading businesses are trying to expand abroad. However how long it would take for to reach the oversea standard is still a puzzle for Vietnamese e-commerce market.

From J&J (Trung Anh Nguyen and Phuong Do, IDG Vietnam)