Without dominant ownership, foreign capital investment in e-wallets will decline

31-Oct-2018 Intellasia | Bao Dau tu | 6:00 AM Print This Post

In the recent time, foreign capital has been massively poured into payment intermediary businesses. In this situation, the State Bank of Vietnam (SBV) is considering setting a limit on the shareholding of foreign investors in this field. Nguyen Thuy Duong, deputy general director in charge of Financial Services at Ernst & Young Vietnam Company Limited has talked to Bao Dau tu on this issue.

Many foreign investors are acquiring shares of domestic payment intermediary firms and the shareholding may reach up to 90 percent. This is the reason why the SBV is studying to introduce a regulation to limit foreign ownership room in this field. Sharing about this, Duong said that anything has two sides. In the recent time, non-banking organisations wishing to provide payment services in Vietnam had to be licensed by the SBV. However, the ownership rate of foreign investors in those payment intermediaries has not been specified by the SBV, and is still implemented in accordance with the Law on Enterprises and Law on Investment.

The SBV’s recent move (considering the application of ownership room for foreign investors in the draft circular amending Decree 101/2012/ND-CP on non-cash payment) is partly because the operator finds it difficult to control if the trading and transfer of shares of payment intermediaries are free, while payment intermediary field is closely related to the banking sector (the sector with limited participation of foreign investors).

In addition, the SBV’s aim may be to protect Vietnamese fintechs with small capital size and to create fairer competition among domestic and foreign businesses.

The capital capacity of Vietnam’s payment intermediaries is very modest while the market development requires large capital source. This is the reason why Vietnamese fintechs like to establish joint venture with foreign investors. However, payment is also a sensitive area which poses potential risks of losing monetary security if it is out of control. According to Duong, in the context of the 4.0 technology era, technology often grows faster than policies, not only in Vietnam but also in regional countries and other countries in the world. In the early stage of development, payment intermediaries mostly fintech startups only have ideas and technology and really need investment for development and expansion. Therefore, the governments of other countries often allow these companies not to be restricted from selling shares and foreign investors are free to pour capital.

Those foreign investors would bring in capital, technology, management skills and experiences, helping the market develop. When the market is at the early stage, consumer may not see the benefits of payment intermediaries. Meanwhile, as foreign investors have experiences and saw great benefits in this market, they have quickly invested capital into domestic payment intermediaries.

In Vietnam, the positive side of foreign investors’ participation in payment intermediary market in the recent time has helped the market develop, giving the banking system an extended arm to access and provide new payment services to customers.

Nevertheless, when the payment intermediary market has developed at a certain scale which may affect the security and safety in payment sector as well as banking operations, the management agency sees the need to have an appropriate legal framework, including the issue of setting an ownership room for foreign investors in order to better management the market. It can be seen that the decision to consider applying a foreign ownership room of the SBV is a timely decision in the current context, said Duong.

At present, as 70 percent of people have no access to banking services, payment intermediaries and electronic wallets (e-wallets) are expected to fill this gap. However, talking about whether the foreign ownership limit would affect the development of this market, Duong said that according to the current regulations in Vietnam, all e-wallet accounts are required to be linked to a bank account. The top-up and withdrawal from the e-wallet must be done through the customer’s account. Therefore, it is unreasonable to say that the purpose of developing e-wallets to target customers who are unbanked.

Moreover, to encourage people to use e-wallets, there should be involvement of both parties: spenders and capital receivers. In Vietnam, there are currently 20 companies licensed by the SBV to provide e-wallet services but users of e-wallets are not smoothly connected and there is not yet a common ecosystem for e-wallets and there is no dominating e-wallet in the market (such as Alipay or WechatPay in China). They are may be the main reasons hindering the strong development of the market.

Thus, to expand e-wallet operation to unbanked people, there is a need for support of state management agencies as well as the investment in expanding the utility and acceptance points of e-wallets to rural and mountainous areas.

Back to the role of foreign investors in the development of payment intermediary market in Vietnam, Duong said that the problem is to trade off, and the SBV should consider which side is more profitable in order to make appropriate decisions. If foreign investors are not allowed to buy dominant shares, the risks of monetary security and sovereignty of digital space may be lower, but foreign investors will be more hesitant in joining the Vietnamese market. Accordingly, the capital inflows will be less, the attractiveness to customers and ability to expand market of payment intermediary companies will be significantly affected. That would lead to negative impacts on the objective to develop non-cash payment as well as to promote financial education of Vietnam.


Category: Finance, Vietnam

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