Vietnam may be one of the world’s fastest-growing economies, yet it’s still in the dark ages when it comes to joining the global trend toward cashless transactions. To understand why, look no further than to consumers like Tran Van Nhan, who recently bought his two-bedroom home in Hanoi with gold and a sack of cash.
“We paid almost half in gold bars and the rest in cash,” Nhan, a 47-year-old shopkeeper, said of his new $138,000 condo. “We did that because we and the flat’s owner didn’t want to do a bank transfer. We are so used to buying things with cash and gold.”
Prime Minister Nguyen Xuan Phuc is trying to drag his citizens into the modern era of digital payments, reduce the amount of U.S. dollars in circulation in the country and establish the dominance of the nation’s domestic currency, the Vietnamese dong. That also means introducing Vietnamese households to credit cards, bank transfers and digital payments rather than carrying around piles of cash and bullion for purchases.
Behind the push is growing frustration among Vietnamese officialdom about the cost of printing banknotes and the need for more transparent payment records in order to crack down on tax evasion and money laundering, a growing problem as the $237-billion economy continues to expand dramatically.
Officials have their work cut out for them: Just 31% of Vietnamese adults have bank accounts and more than 95% of payments are made with cash and gold, according to the government.
“It’s embedded in the culture,” said Hanoi-based economist Nguyen Tri Hieu, senior adviser to National Citizen Bank. “It’s holding Vietnam back. The government recognizes that to integrate Vietnam into the world economy, its cash-based economy has to change.”
The government has made modernizing the nation’s payments a top priority. The prime minister is directing banks to reduce cash transactions to less than 10% by the end of 2020. E-commerce is being promoted at malls and supermarkets in major cities and the government wants at least 70% of Vietnamese aged 15 and older to have bank accounts.
An exasperated Phuc also ordered the central bank this year to convince more Vietnamese to use digital payment systems, such as QR codes. A new regulation in January mandated providers of public services -- from hospitals to schools -- to stop accepting cash by December.
South Korea, though, offers a cautionary tale of what can happen if a society pivots too quickly to mass adoption of credit cards. A credit binge in the early 2000s led to massive household debt. About one in 13 of South Korea’s 48 million people in 2004 were three months or more behind on debt payments, with two-thirds of them credit-card defaulters.
Unlike in China, home to the world’s biggest mobile payments market, most of Vietnam’s 97 million citizens rely on paper currency -- and precious metals -- to buy everything from groceries to automobiles. Shop owners make numerous trips to banks during the week, hauling sacks of Vietnam dong like Santas on motorbikes.
Vietnam would appear poised for a payment revolution. Its young population is tech savvy, with 70% using smartphones and having easy access to digital payment systems offered by local startups. Mercedes-Benz sedans tussle with Honda motorbikes on narrow streets in Hanoi and Ho Chi Minh City. Building cranes fill urban skies as luxury towers and high-rise office buildings rise up from congested streets. It has a fast-growing middle class sending children abroad for school in an economy with newly minted millionaires and billionaires.
Amazon.com Inc., Alibaba Group Holding Ltd. and other global e-commerce companies have set up operations in Vietnam, where revenue from e-commerce swelled to $8 billion in 2018, doubling from three years ago as about a third of the population shops online, according the trade ministry. Yet, most digital purchases are paid with cash.
Many Vietnamese, who remember double-digit inflation at its peak of 28.3% in Aug. 2008, still like to keep their savings in greenbacks and gold stored in home safes. Vietnamese hold an estimated 400 tons of gold, economist Hieu said. “People are still hoarding gold,” he said. “I have friends with gold at home.”
Meanwhile, just 4.1% of Vietnamese own credit cards, according to Standard Chartered Plc. “About 80% of my clients pay cash and I also feel more comfortable taking cash than credit card payments,” said Nguyen Thu Huong, 44, who operates a clothes shop in Ho Chi Minh City’s central financial district. Her credit card reader was covered in dust. “The government has been trying to get people to use more credit cards, but frankly I think it’s still a long way to go before a lot of people use them.”
Vietnam’s inability to pivot to a modern payment system is holding the economy back. It’s virtually impossible for many small- and medium-sized enterprises to get loans because financial institutions frequently have no way to verify revenue, Hieu said.
“They have cash books they show to the tax authority but there is no way for a bank to confirm if they are accurate,” he said.
The predicament reflects how the culture began its transformation to a capitalist society just a few decades ago with the doi moi reforms launched by the politburo that opened the Communist country to a market-oriented economy. The nation’s rapid growth -- the government expects gross domestic product to expand at least 6.8% this year -- is outpacing its ability to modernize the economy.
Authorities have yet to put in place the regulatory framework needed for wide use of mobile payments or the establishment of agents that can represent banks in rural areas that lack banking services, said Alwaleed Alatabani, the World Bank’s head finance specialist in Vietnam.
The central bank is expected to submit a proposal for regulating non-cash transactions as early as the third quarter to the prime minister , according to the government website.
“It’s not easy to change,” said Tran Thi Le, a 35-year-old Ho Chi Minh City secretary who keeps gold and foreign currencies in a home safe. “Keeping money in gold or strong foreign currencies, like U.S. dollars or euros, is a long-standing habit for most Vietnamese people.”
Indeed, Hanoi shop owner Nhan and his wife set aside money to buy gold bars. “I want to save gold so that we can use it in the future for our retirement,” he said. “We feel safer with gold.”
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