SCHEME ON NON-CASH PAYMENT IN THE 2006-2010 PERIOD AND ORIENTATIONS TO 2020
(Promulgated together with the Prime Minister’s Decision No. 291/2006/TTg of December 29, 2006)
I. ASSESSMENT OF THE PRESENT NON-CASH PAYMENT IN VIETNAM
1. Achievements recorded in the renewal and development of non-cash payment in the 2001-2005 period
In the 2001-2005 period bank payment activities saw vigorous developments. Many new, modern and convenient payment instruments and services came into existence, meeting various needs of payment service users with a widened scope covering individuals and the population at large. Recent developments in bank payment are as follows:
- The proportion of cash to total payment instruments tends to decrease: 32.2% in 1997; 23.7% in 2001; 20.3% in 2004; 19% in 2005; and 18.5% in March 2006;
- The mode of entirely manual payment (all payment transactions were paper-based) was gradually switched to the mode of semi-automatic processing based on electronic documents. Electronically processed payment transactions now account for a relative large proportion. The time for completing a transaction is reduced from weeks to several minutes (for payments made between two different systems or localities), several seconds or instantly (for payments made within a system or locality);
- Personal account services of commercial banks develop relatively fast. By the end of 2004, the number of personal accounts in the whole banking system was nearly 10 times higher than that in 2000 (from 135,000 accounts to 1,297,000 accounts). The number of personal accounts was 2 million by the end of 2004 and reached 5 million accounts in 2005 with a total balance of around VND 20 trillion. The average annual growth rate is 150% in terms of the number of accounts and is 120% in terms of balance. These results are attributable to various factors, such as a more appropriate legal environment for banking payment, expanded networks of customer service counters of banks, effective interbank electronic payment, etc. But there are some major direct reasons for the increasing number of personal accounts in the past time, namely: Commercial banks have spared no efforts to develop technical infrastructure to facilitate customer payment; have attached importance to developing diversified modern banking services, especially retail banking services involving advanced information technology applications; have paid initial attention to marketing, advertising and sales promotion of their services provided on the market. Some banks have taken the initiative in contacting enterprises with large numbers of employees having stable incomes to provide the service of paying salaries via bank accounts;
- Payment service providers are no longer limited to banks and state treasuries. They now include non-bank organizations such as the post saving service company. The payment service market becomes more competitive, not only among banks but also between banks and non-bank organizations engaged in providing payment services. Since each organizational model has its own characteristics, advantages and customer strategies, various needs of each type of customer have been met;
- Application of technology and investment in infrastructure facilities and equipment in service of banking payment services has seen vigorous developments since 2002. The numbers of ATMs, POS devices and bank card-accepting units have quickly increased. By June 2006, the number of ATMs in the banking system was 2,154 (compared with 101 machines in 2002) and the number of card-accepting units rose to 12,000 (against 8,789 units in 2003);
- The trend of association and partnership has been formed among banks, helping many small commercial banks overcome their limitations in investments in technologies and equipment required for the payment systems. Association and partnership in card issuance and payment has become an important factor contributing to the increasing number of cards recently issued.
2. Limitations in non-cash payment in Vietnam and causes
a/ Limitations:
- Generally, cash payments remain very popular in the economy. Cash is still a payment instrument largely used in the enterprise sector and mostly used in payment transactions in the population. This assessment is based on a 2003 survey of the actual situation of payments. The survey findings showed that out of 750 surveyed Vietnamese enterprises across all the northern, central and southern regions, private enterprises employing more than 500 workers conducted 63% of their transactions through the banking system; for enterprises employing under 25 workers, this percentage was 47%. State enterprises conducted just more than 80% of their transactions through banks. Most state and private enterprises paid wages in cash. 86.2% of business households paid cash for their goods. 75% of business households paid cash for services, and 72% of private business households paid taxes in cash;
- Most banking service users are big enterprises, laborers in the foreign investment sector, and office employees who have high and stable incomes. The overwhelming majority of the population, public employees and servants in the government sector and laborers in small- and medium-sized enterprises have not yet accessed payment instruments and services;
- Technical infrastructure and facilities used for payment activities remain poor and ineffective. 2,154 ATMs are mostly distributed in big cities and industrial parks. With the population of over 80 million, an average of 45,000 people have an ATM. This ratio is too low compared with our neighboring countries (China: 19,00 people/ATM; Singapore: 2,638 people/ATM). Moreover, ATMs can only serve a small group of banks. At present in many countries ATMs can serve many banks. This has limited the service functions of ATMs. POS devices have the same problem. It is common that at a card-accepting unit exist many POSs of different banks to serve card transactions. This has significantly narrowed the scope of use of non-cash payment instruments compared with many regional countries at present, even when the density of equipment is similar to that in these countries;
- The quality, benefits and diversity of non-cash payment services are not yet abundant. The capability to meet the needs of different categories of service users remains limited, Non-cash payment instruments have not yet brought about benefits and reached the scope of payment with which they can replace cash. The mode of transaction is mostly direct and face-to-face contact. In order to receive a service product of a bank, service users need to come to its transaction counter. Off-site transactions based on modern information technologies such as transactions via the Internet, mobile phones, home banking, etc., have not yet developed or have just been conducted on a small scale.
- Competition on the service market remains rudimentary and develops below potential. Competition based on trademarks and service quality is unpopular. Payment service-providing organizations, instead of creating new products or added value on products of the same kind on the market, merely rely on price factors to compete with their rivals. This has not only reduced their profits from payment services but also adversely affected the close connection between banks and customers. Once customers cannot recognize differences between products of different banks, they are easy to change from a service product bearing a trademark to another product bearing another trademark;
- Non-cash payment services have been developed mostly in big cities, industrial parks and export processing zones. There are insufficient payment service-providing organizations that operate professionally to serve certain service users, sectors or deep-lying, remote and rural areas and localities where economic activities are underdeveloped;
- Payment service charges remain rather high and hardly acceptable for average payment transactions, especially interbank and inter-provincial transactions. In addition, some payment instruments require extra charge, which make their use more expensive than the use of cash;
- The payment system, with the interbank payment system of the State Bank as the core, though having been much improved after completion of phase I of the project on modernization of the payment system, still fails to meet increasing needs for payments made between banks. According to the initial design, the interbank payment system can process 4,500 transactions a day. But since its commencement of operation, the system has always been overloaded with the average number of up to 10,000 transactions a day;
- Professional personnel engaged in payment activities fail to meet requirements on professional qualifications, service manners and professional ethics.
b/ Causes of the limitations:
- Habit and perception: After the renewal of the banking sector, all previous cash control; requirements have been abolished. Cash has become a payment instrument without any limitations on users and the scope of use. Most costs related to cash in circulation such as printing, distribution, withdrawal and destruction, transport, preservation and security costs are social expenses incurred by the State. Individual payers have to bear just a small cost (checking, counting and transportation). Meanwhile, cash has a superior advantage of prompt and anonymous payment with simple procedures. Therefore, cash has become a very favorite payment instrument and cash payment has been for long a hard-to-change habit of consumers and many enterprises. The existing habit of using cash in payments is a big impediment to development of non-cash payment;
- Lack of adequately strong economic motive to encourage non-cash payment: To many transaction parties, non-cash payment instruments and services fail to prove their superior economic benefits over cash. On the contrary, non-cash payment is liable to bank charges or even higher prices (as applied by some card-accepting units), and is not welcome at payment counters…
- A developed informal economy: This is an economy characterized by small-scale production and consumption. For this form of economy, it is very difficult to accept non-cash payment instruments. Besides, a very large part of the informal economy is under-the-counter economic activities related to smuggling, tax evasion, trade frauds, corruption, etc.; the cash flow in service of these activities can be very big. Participants in these transactions do not opt for non-cash payment instruments though these instruments are convenient because they need to conceal the origin of transactions and their identity;
- The legal setting for payment activities remains inadequate. Though it has been much improved over the past time, the legal setting is still assessed as incomplete and inconsistent, especially when it comes to issues related to e-payment and e-commerce. For example, in e-transactions, there are insufficient grounds for banks to organize the operation of e-transaction channels as they lack a general mechanism regulating e-commercial activities in the banking sector and a coordinated acceptance of e-transactions and e-documents by related state management agencies (such as the General Department of Taxation, the General Department of Customs, etc.). On November 19, 2005, the Law on E-Transactions was passed by the National Assembly, marking a breakthrough in the application of information technologies to socio-economic development in Vietnam. It has created a legal foundation for modern banking operations and services and offered favorable conditions for banks to deeply and widely participate in e-commercial activities and provide payment services for participants in on-line business nationwide. However, it requires great efforts of the banking sector and the society as a whole to translate this Law into practice. The system of legal documents on payment still reveals many points to be revised or replaced in order to comply with international practice and to meet users’ needs. Some documents contain problematic provisions inappropriate to the development of a market economy. In addition, given the vigorous development of information technologies and the coming into existence of a series of new banking service products, the legal foundation should be urgently improved to regulate also various forms of non-bank organizations engaged in providing payment services, information technology institutions providing support products and services for banks and payment service organizations, such as companies supplying technological solutions via the Internet, card service companies, organizations specialized in clearing services, etc.
- Lack and ineffective use of investment capital: From the perspective of commercial banks, limited investment capital is the biggest problem in the development of payment activities. Huge investment capital amounts and a long period of capital recovery are needed. Therefore, only big banks with strong financial potential, now mostly state-owned commercial banks, can concentrate large investments in facilities and equipment for payment activities. Most small banks select to share networks with big banks. However, the sharing of networks and other technical infrastructure facilities among banks remains limited due to a lack of their agreement on connection to share technical infrastructure facilities;
- The structure of payment service charges is irrational even in payment transactions via the State Bank and within credit institutions;
- The qualifications of staffs engaged in payment activities are very limited, mainly due to unsatisfactory basic as well as specialized training in payment services. This problem is common in commercial banks and is also seen in the State Bank, a body responsible for state management of payment;
- Information and propaganda work has been incorrectly directed. It has not yet received due attention. Strategic goals, orientations and major policies for developing payment activities have not yet been fully publicized. Therefore, not only the people but also many enterprises have little or vague understanding of non-cash payment services and instruments. Besides, the mass media sometimes carry biased and one-sided, even incorrect, information on specific weaknesses, technical failures or negative factors, affecting consumers’ confidence on a certain payment instrument right at the beginning of its development.
- Concerned ministries and branches and local administration at all levels lack coordination in creating a favorable economic and social environment for the development of non-cash payment.
II. OBJECTIVES AND ORIENTATIONS FOR DEVELOPMENT OF NON-CASH PAYMENT IN VIETNAM TILL 2020
1. Overall objectives:
The Scheme has been formulated on the basis of the Government’s 2006-2010 5-year socio-economic development plan and in line with the Scheme on development of the banking sector until 2010 and orientations to 2020, aiming to generate strong qualitative and quantitative developments in non-cash payment to achieve the following objectives: Meeting the economy’s payment needs with safe, effective and convenient non-cash payment instruments capable of incrementally substituting cash in circulation; enhancing competitiveness of payment service-providing organizations on the market; contributing to effectively implementing national monetary policy; raising the oversight effectiveness of state management agencies and transparency of the economy, actively contributing to preventing and combating corruption and waste; accelerating foreign direct investment in Vietnam; and meeting the requirements of international economic integration. To strive to have a modern, safe, effective and legally sound payment environment in Vietnam by 2020.
2. Some targets for payment activities by 2020
- By the end of 2010, to have 15 million cards issued, 70% of trade centers, supermarkets, restaurants, hotels, self-service stores, etc., having card payment-accepting devices. To strive to increase these figures to 30 million and 95% respectively.
- By 2010, the ratio of cash to total payment instruments will not exceed 18%. To strive to reduce this ratio to around 15% by 2020.
- To achieve 20 million personal accounts by the end of 2010; 70% of employees salaried from the state budget and 50% of workers in the enterprise and private sectors having salaries or wages paid via accounts. By 2020, to strive for 45 million personal accounts (an average of 0.5 account per person, compared to more than 1 account per person in some developed countries); and 95% of state employees salaried from the state budget and 80% of workers in the enterprise and private sectors having salaries or wages paid via accounts.
- To reach 80% of payments among enterprises to be made via bank accounts by the end of 2010 and 95% by 2020.
3. Orientations for non-payment development in Vietnam to 2020
a/ Non-cash payment development must be commensurate with economic development level, technical and technological infrastructure and payment systems. Measures set out in the Scheme must not be administrative and arbitrary, causing negative impacts that hold back socio-economic development;
b/ Non-cash payment development must balance public interests with interests of payment service users and service-providing organizations; the State’s support measures shall only be short-term ones to help make an initial breakthrough in non-cash payment development;
c/ Solutions to non-cash payment development shall be directed at the use of economic measures as major ones to mobilize the private sector’s resources for investment in non-cash payment development. State resources shall be used only when private resources are inadequate or for long-term strategic projects that form a foundation for accelerating overall development of payment activities in the economy.
III. SPECIFIC SOLUTIONS TO DEVELOP NON-CASH PAYMENT IN THE 2006-2010 PERIOD
1. Perfection of the legal framework for payment activities of the economy (the State Bank of Vietnam shall assume the prime responsibility for, and coordinate with concerned ministries and branches in, implementing this scheme from 2006 to 2010):
- To perfect the legal framework, including laws and regulations governing payment participants in the economy as a whole and to via-bank non-cash payment activities. The orientations for perfecting the legal framework are: To clearly define the powers and responsibilities of non-cash payment participants, on this basis to control legal risks in an appropriate manner; to ensure compliance with international standards and practice recommended by international financial and monetary institutions or commonly applied in many other countries; to create a fair competitive environment, ensuring market and service accessibility for parties with similar functions; to form effective mechanisms for protecting customers and ensure effective and objective procedures for settling disputes; to restrict cash payments made by state budget fund users in order to increase controllability of the use of budget sources.