By Lee Davies, Product Manager – RedCloud Technologies
With a high rate of mobile penetration (78% of its 92,7 Million citizens) and more than half of the country accessing the internet at least once a month, Vietnam has a significant opportunity to capitalise on its technological infrastructure and widespread connectedness.
According to data from the World Bank, only 31% of adults in Vietnam have a formal bank account. Low-income people fare worse, with a mere 18.9% currently accessing the benefits of financial inclusion. Further afield, both figures are low when compared within the ASEAN context: 50% of adults in ASEAN countries have an account with a financial institution.
Currently Vietnam has 3.8 bank branches and 24 ATMs per 10,000 adults. Plus more than 6.2 million Vietnamese can’t access financial services due to prohibitive documentation requirements, and related costs. Even though the banking sector’s penetration in Vietnam is still one of the lowest in Southeast Asia, some economic circumstances and governmental efforts indicate that the right time for financial inclusion in Vietnam is coming.
In addition to the external forces mentioned above, our clients in Vietnam tell us of the regulatory due diligence requirement to physically present the national identity card. This limits the reach of banks into remote areas. But this is where technology comes in; by using technology, banks are now able to provide financial services by creating an agent network. The concept of agent network is widely used in Africa, where banks have even rolled out agent banking for individuals using mobile technology to act as agents.
Simply put, agent banking allows humans to act as ATMs. In remote areas where people don’t have access to a bank, these agents can deliver financial services using devices such as card readers, point-of-sale (POS) terminals or mobile phones to process real-time transactions.
Each of the selected retail stores or agents receive a POS device/terminal that is connected online in real time with the back-end system of the financial institution. This terminal allows agents to offer basic financial services to their customers on behalf of the financial institution, such as opening savings accounts, deposit or withdraw money, making bill and loan payments, making domestic fund transfers, etc. These agents can offer banking services such as registering customers, taking deposits, dispensing withdrawals, funding transfers, processing payments (e.g. utility bills) and providing mobile phone airtime top-ups.
Vietnam is able to close the financial exclusion gap at a faster pace than many other countries. The advantage for Vietnam lies in Mobile penetration.
For financial institutions, mobile penetration and agent banking allows them to provide basic financial services to customers in remote areas in a cost-effective manner. The benefits to customers are clear: it reducing customers’ travelling time to the nearest financial service access point. Agent banking represents a significantly lower-cost alternative to traditional bank branches and automatic teller machines (ATMs), and has a much bigger reach.
For appointed agent banks, this mechanism enables them to get additional income from the commissions they earn for the financial transactions conducted on behalf of the financial institutions. Moreover they attract more customers to their premises and thus generate higher sales or revenues for their core business activity. As a retail banking option, this model is flexible and can meet local needs.
The agent banking model has proved to be an effective vehicle to advance financial inclusion. Malaysia is undoubtedly a good role model. In 2011, before the agent banking initiative was operational, only 46 % of the sub-districts in Malaysia had access to financial services. In 2015, three years after it was implemented, 97% of the country’s sub-districts had access to basic financial services thanks to agent banks.
We have spent a good amount of time with partners and customers in Vietnam over the past few weeks. We think it’s the right time for Vietnam to eradicate financial exclusion.
What do you think? Is it the right time for Vietnam to go digital?
Find out more about how RedCloud’s technology is helping clients provide digital financial services here.
You can also read more about Agent Banking here.