The State Bank of Vietnam (SBV) intended to bring foreign investors’ ownership to 49%, instead of floating as at present. This move was to prevent foreign investors from going through bypassing regulations to acquire 100 percent of domestic payment intermediaries.
Tighten the foreign ownership cap threshold to avoid manipulation
As of November 2019, there had 30 payment intermediaries licensed by SBV, including some prominent names such as MoMo, Moca, Payoo, SenPay, Zalopay, Airpay, VNPay, Monpay, VietelPay, 1Pay, Nganluong, VTCpay, Mpay, Wepay, etc. Worth mentioning, most of the payment intermediaries belonged to foreign investors.
Nguyen Hoa Binh, Chair of NextTech Group, which owned several payment intermediaries in the country, said that the threshold at this time was quite late compared to other countries, especially when many foreign investors had quickly acquired most of the shares of major domestic payment intermediaries.
Indeed, in recent years, along with the trend of intermediary payment, foreign capital had flooded in. Currently, 90 percent of 1Pay’s capital was held by True Money (Thailand); NTT Data Group (Japan) bought 64 percent of Payoo’s capital; The two Korean investors were Global Payment Service and UTC Investment Co., Ltd holding 65 percent of VNPT EPAY’s capital; some foreign investors such as Warburg Pincus, Goldman Sachs and Standard Chartered Private Equity owned about 64 percent of MoMo’s capital, and so on.
Not only domestic enterprises were worried, but the management agencies had also seen the risks. According to the Payment Department of SBV, the fact that foreign investors owned a large proportion of ownership in payment intermediaries led to the risk of market manipulation. This was the reason why SBV proposed to bring the foreign investor’s property in the intermediary of payment to 49 percent (instead of floating as currently) in the Draft Decree on non-cash payment.
SBV said that, first of all, the above regulation would avoid the manipulation of foreign investors in this field, ensuring security and safety for banking and financial activities.
Secondly, the regulation would also create conditions for domestic enterprises to seize opportunities.
Thirdly, most countries had set limits on foreign ownership in this sector. For example, in Indonesia, China, the ownership ratio of foreign investors in payment intermediaries did not exceed over 20 percent of equity, the rate in Malaysia was 30%.
SBV’s intention to tighten the ownership ratio of foreign investors had been responded by domestic enterprises and agreed by experts because this would help local enterprises stand a chance to compete. Besides, regulators could also control the market better, avoiding potential risks.
After lowering the foreign ownership cap threshold was tightening control
Commenting on the move of SBV, Nguyen Thuy Duong, deputy general director in charge of FinancialBanking Services Department of Ernst and Young Vietnam Limited, said that this move was understandable and suitable for global routine.
In countries, at an early stage of development, as a child, payment intermediaries were free to raise capital. However, when the market had grown to a specific size, the security and safety of the payment system might be affected, the regulator would tighten its operations.
In fact, the development of technology had made it easier than ever to transfer money through payment intermediaries, including cross-border money transfers. Experts warned that if the activities of these enterprises were not strictly controlled, especially foreign-invested payment intermediaries, the risk of tax evasion, money laundering, illegal cross-border money transfer, and so on, would be inevitable.
SBV itself acknowledged that at present, managing cross-border electronic payment transactions in Vietnam faced many difficulties since transactions were mainly conducted through international payment gateways and switched via international card organisations. This also reduced competition and created inequality among suppliers.
For organisations that provided cross-border money transfer services, such as Western Union, Money Gram, into the territory of Vietnam, there was currently no compulsory regulation such as licensing, commercial presence, so there might be some problems such as tax evasion, money laundering, illegal money transfer. The World Bank had also made recommendations on this issue, according to SBV.
Another problem related to the ownership cap threshold of foreign investors was indirect ownership. A payment intermediary had warned that if there were no specific regulations, foreign investors would circumvent the law to cover payment intermediaries in Vietnam.
For example, investors could contribute capital to businesses and investment funds in Vietnam, and then through these funds, add money to domestic payment intermediaries, which had happened in many industries. Once foreign investors dominated the market, it was challenging for local enterprises to have a living land.
