Vietnam’s Cross-Border Payments Infrastructure and ASEAN

Vietnam’s central bank has signed an MoU to develop its cross-border payments service system together with five other ASEAN member countries. We discuss the benefits for Vietnam’s payments ecosystem and prospects for the financial services sector.

Vietnam is striving to improve its regional payment connectivity and facilitate the development of more transparent, affordable, trackable, and faster cross-border transactions. This has seen the emerging Southeast Asian nation sign on to an MoU with other ASEAN states to work together on a mutually beneficial cross-border payments system.

In this article, we explore Vietnam’s payment infrastructure now and moving forward, as well as the opportunities and challenges in the financial services sector, providing valuable insights for foreign businesses and investors.

Usage scenario

In 2021, there were nearly 24.7 million mobile wallet users in Vietnam, according to Statista. That number is expected to increase almost threefold by 2026, reaching around 67.6 million users.

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In this vein, a Decision Lab survey in 2021, found that in over three months, 70 percent of respondents said they had used internet banking to make a payment, followed by cash (63 percent of the respondents), and 61 percent had used an ATM card or made a bank transfer.

As per Robocash research, the Vietnamese FinTech market is anticipated to reach US$18 billion by 2024. This presents a significant shift in Vietnam’s financial services sector, where faster and cheaper payment innovations are overtaking traditional payment methods.

And now Vietnamese consumers and businesses are demanding a more robust payment infrastructure to facilitate cross-border transactions that can support payments in multiple currencies.

What’s in the MoU on cross-border payments?

Under the MoU, the Vietnamese government has committed to developing cross-border payment connectivity for retail transactions, including quick response (QR) codes, instant payments, and other emerging payment models.

Vietnam’s participation in this agreement will help the country to launch cross-border payment systems, which will contribute to the development of regional trade, investment, tourism, e-commerce, and many other economic sectors.

Policy and regulations

Vietnam has established several policies for the financial services sector to assist its digital transformation.

For example, Decree 101/2012/ND-CP, dated November 2012, provides guidelines and requirements for non-cash payments in Vietnam. It covers setting up and using accounts, non-cash payment services, payment intermediary services, and organizing and managing payment systems.

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There is also Decision No. 2545/QD-TTg, dated December 2016, which sets out key objectives and solutions to promote non-cash payments. It targets the changing payment habits of Vietnamese citizens, creating risk management mechanisms, and improving the transparency of payment systems. This highlights Vietnam’s ambition to become a cashless society and to transform its payment systems.

Furthermore, Decision No. 316/QD-TTg, approved by the Prime Minister in 2021, enables Vietnamese mobile phone users to use their mobile phone accounts to pay for low-value commodities and services. This policy authorizing ‘mobile money’ was dubbed a tipping point in favor of non-cash payment in Vietnam, by Pham Trung Kien, the CEO of Viettel Digital.

Indeed, Vietnamese regulators are striving to create an open and equal environment for non-cash payments for both banks and non-bank operators; however, there has yet to be a specific legal framework in Vietnam for managing cross-border payments.

Regional initiatives

There have been a number of initiatives regarding cross-border payment systems proposed and implemented in the ASEAN region. Outstanding examples are ASEAN’s Regional Payment Connectivity (RPC) and the ASEAN Payments Policy Framework (APPF).

In 2019, ASEAN adopted the APPF to provide specific guiding principles and payment frameworks for the implementation of cross-border, real-time retail payments within the region. This policy framework will help ASEAN member states enhance their financial integration and regional connectivity.

Specifically in November 2022, central banks of five ASEAN member states signed a memorandum of understanding (MoU) on cooperation in RPC to develop cross-border payments. The RPC initiative is in line with the G20’s Roadmap for Enhancing Cross-Border Payments, underscoring the advancements in payment integration in the ASEAN region.

In light of this cooperation, ASEAN countries are aiming to enhance economic growth, advance the interoperability of QR code payments, and facilitate real-time payment systems. Several programs have already been launched between ASEAN members to create instant and low-cost transfers. For instance, Indonesia and Malaysia announced the implementation of cross-border QR code payment linkages in May 2023.

Implications for relevant stakeholders

With Vietnam’s ascension to the agreement for cross-border transactions, stakeholders in its payments ecosystem, including non-bank payment service providers (PSPs), domestic and foreign banks, and financial market infrastructure (FMIs) companies, can move forward with expanding their products and services knowing there is a roadmap in place.

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According to global consultancy EY, the global cross-border payment flows in 2022 are estimated to amount to US$156 trillion. This number presents a significant opportunity for disruptive innovation to take place, especially in emerging markets like Vietnam.

Historically, banks have dominated the cross-border payments market. But the landscape is changing, as banks are having difficulties in both safeguarding their existing business and pursuing new opportunities.

The transactions made by banks are routed through the correspondent banking system, adding time and fees along the way. Therefore, both businesses and consumers are suffering from a number of problems, such as high costs, insufficient transparency, long settlement periods, and limited accessibility. Acknowledging these pain points, many new non-bank fintech players are joining the fertile cross-border payments market and gaining ground in the Southeast Asia region. The competition has even intensified as cross-border e-commerce, trade, investment, and the regional economy grow at an accelerating pace.

In this light, the cross-border payments landscape has become fragmented and highly competitive. New entrants are focusing on underserved segments and targeting B2B, B2C, and C2C transactions as their key growth drivers.

Cross-border payments in Vietnam moving forward

With Vietnam having the fastest-growing digital economy in Southeast Asia in 2022, it provides a fertile foundation for fintech firms and cross-border PSPs to achieve scale. For payment providers, it is advisable to identify new growth areas, develop unique value propositions, and create innovative business models that will help them cement their position in regional cross-border payments.

For support with cross-border trade in the ASEAN region contact the trade experts at Dezan Shira and Associates.

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