Many people believed that Mobile Money would be a formidable opponent of banks, electronic wallets. Could Mobile Money develop to that level?
Entering the market when the banking system had grown with a giant centipede bank system; major electronic wallets had also gained a foothold, Mobile Money would have to struggle to find a piece of cake for itself.
Was the rookie too slow?
Maybe within the next month, Mobile Money would be officially licensed in our country. Big tech companies, especially telecom giants joining the financial market, were no longer a new trend. Many people believed that Mobile Money would be a formidable opponent of banks, electronic wallets. In fact, could Mobile Money do it?
Talking to a reporter of the Vietnam Investment Review, Nguyen Hoa Binh, President of NextTech Group, said that global countries that had developed strongly on Mobile Money were all underdeveloped countries with underdeveloped banking networks as well as a low percentage of people with a bank account. However, in Vietnam, the banking network was growing strongly. More than 60 percent of the population had a bank account, so Mobile Money would have to struggle to compete.
Binh said timing played a critical role. Mobile Money had been developed in several countries, but they had been developing this model for decades. In Vietnam, Mobile Money had not been born yet, while the banking system had developed quite well and was continuing to expand. At this point, if the correspondent banking system were licensed, the bank’s centipede network would grow further. The introduction of Mobile Money at this time was too late, Binh said.
Meanwhile, the leader of a commercial bank also said that Mobile Money was just ‘a new bottle of old wine.’ It was not much different from an electronic wallet, and even the payment limit was lower than an electronic wallet. Thus, it was challenging to create a payment fever.
The difference of Mobile Money with e-wallets was that it was not affiliated with a bank. However, according to the draft of the Mobile Money Project, people could not top up a scratch card into their Mobile Money account. Still, they must deposit it from a bank account or at a network provider’s transaction points. Moreover, Mobile Money was only used to transfer money and pay small value bills. So, in essence, Mobile Money was not much different from e-wallets, while most carriers then had e-wallets, but could not thrive.
Along with licensing for Mobile Money, even in 2020, the State Bank of Vietnam (SBV) would also guide correspondent banking services. Accordingly, the bank was assigned to agents (could be gas stations, retail stores, even fintech companies) to provide a part of services such as payment and cash withdrawal, invoices, and so on. These agents would help banks cover the gaps in the market, bring financial assistance to people who had not previously had a bank account, especially people in remote areas.
SBV was also instructing banks to apply remote authentication (eKYC). This regulation helped the bank to reach all customers in a digital environment without being restricted by geographical barriers. Thus, the bank’s coverage was increasing. Joining this field, Mobile Money would have to face fierce competition.
Nguyen Son Hai, deputy general director of VNPT-Media Communications Corporation, acknowledged that in some African or Southeast Asian countries like Myanmar, Mobile Money service developed due to the low number of people with bank accounts. However, in Vietnam, the banking system, e-wallets had grown very well, so there was not much room for Mobile Money.
Banks, electronic wallets, Mobile Money share the market
Mobile Money was considered a formidable opponent of electronic wallets. However, the number of e-wallets in Vietnam was quite large. Many e-wallets had occupied the pretty niche market, such as MoMo, Moca, Payoo, Senpay, Airpay, Zalopay, NextPay. Even, some electronic wallets also had a more extensive customer base than large banks, such as Momo, which owned 13 million customers by the end of last year.
Besides, most large electronic wallets these days were associated with a separate ecosystem. For example, Moca e-wallet was associated with Grab’s ecosystem, Nextpay e-wallet was linked to the ecosystem of NextTech Group, Airpay, Senpay e-wallet was associated with Shopee e-commerce floor, Sendo, etc. Therefore, Mobile Money would not easily ‘rob’ customers of electronic wallets.
Those did not mean the developing chances of Mobile Money no longer existed. Nearly 40 percent of the population did not have a bank account, especially in remote areas. More than 90 percent of small transactions of less than 100,000 dong were still using cash, which was a prominent place for Mobile Money. Of course, whether Mobile Money could grow or not depended dramatically on the utility, service quality, ecosystem, as well as the safety that this model brought to customers.
In case Mobile Money succeeded in this niche market (small-value transactions, rural markets), the market share would be divided, not directly competing with other models.
Representatives of many e-wallets said that in the immediate future, Mobile Money was not a formidable competitor, the market share would be quite clearly divided and complementary. Of course, once thriving and being approved to provide some new services such as insurance, savings, small credit, the pressure of Mobile Money to compete with competitors would be higher.
According to Can Van Luc, a banking expert, Mobile Money would not affect much to electronic wallets and banks, because customer segments of these three models were different. Mobile Money customers focused on remote, rural, and small customers that banks and e-wallets did not serve.
The expert said that Mobile Money’s geographical position in Vietnam was huge, but this did not mean that the rate of payment through Mobile Money would explode. Upcoming, Mobile Money had only been piloted, not frantic. Basically, Mobile Money would be born with competition with banks and e-wallets. Still, in the spirit of both cooperation and competition, in which assistance in developing services would be more, said Can Van Luc assessed.
Pham Tien Dung, director of Payment Department (SBV), also affirmed that the license of Mobile Money did not mean that the network could automatically open Mobile Money accounts for customers. Hence it did not make sense that when Mobile Money service was deployed, after one night, the system would have millions of registered customer accounts.
Mostly, the addition of Mobile Money was essential to offset the non-cash payment gap in rural, remote, and isolated areas. Besides, Mobile Money appeared to educate the market, create a habit of non-cash payment, thereby creating a future customer class for banks, electronic wallets.
Join the payment market, would the network have to accept losses?
In the context of the slowing down of traditional revenue sources, Mobile Money opened up new prospects for carriers. That was also the reason why telecom companies were so impatient to wait for a license. However, according to many fintech, the payment field was not easy to enter.
Like e-wallets, when deploying Mobile Money, operators would benefit from collecting user transaction fees and merchants (vendors, service providers). However, the profit margin from this field was meager, only about 0.5%, while having to spend considerable promotions to create a user’s payment habit. Therefore, in the initial stage of deployment, the network was likely to lose like electronic wallets, said the general director of an electronic wallet.
The analysis group of BIDV Securities Joint Stock Companies (BSC) said that only by expanding the number of customers to a specific size, the network could profit from Mobile Money. According to a study by McKinsey, for the network to break even, the value of Mobile Money transactions each year must be up to $2 billion to $3 billion, equivalent to the total system revenue of about $20 million to $30 million (460 billion dong to 690 billion dong). The breakeven time was about three years.
With 126 million subscribers currently available, Mobile Money of Vietnam could achieve such transaction volume. However, even in the case of hundreds of billion dong revenue, the network was not able to soon be profitable.
Although the existing infrastructure system did not require much investment, the marketing costs would be huge. Because to expand the network of points of acceptance, increase user accounts, telecommunications companies would have to spend heavily on promotions and agency commissions. In fact, many e-wallets in Vietnam had to accept losses for many years but had still not been profitable.
Obviously, the early stages of Mobile Money’s launch, like other fintech, were massive. However, without Mobile Money, the opportunity to promote comprehensive finance was even more difficult. With the strong financial potential, most likely, the network operators would repeat the feat of coverage for Mobile Money, like having turned telecommunications services from expensive services, only for the rich, to one of the most popular services in Vietnam.
