Stricter controls over e-payment businesses in Vietnam

By Phat Nguyen
Banking Vietnam

In brief 5 min read

In response to the rapid growth of the e-payment market in Vietnam, the State Bank of Vietnam (the SBV) has reviewed the legal framework regulating the sector and proposed some important changes. In this Insight, we set out the key amendments the SBV has already issued – as well as those in the pipeline – and their potential impact on the intermediary payment services market.

Key takeaways

  • The SBV has conducted a review of the legal framework regulating the e-payment market, and proposed some significant changes.
  • Foreign ownership limits: Under the draft decree that will replace Decree 101/2012/ND-CP of the Government on Non-Cash Payment (the Draft Decree), the SBV has proposed a cap of 49% on direct and indirect foreign ownership in the charter capital of intermediary payment services (IPS) companies. Besides limiting future foreign investment in this sector, this may also impact liquidity for existing investors. The Draft Decree is expected to be officially issued after the amended Law on Investment, which is now expected in mid-2020.
  • New operational requirements: Under the recently issued Circular No. 23/2019/TT-NHNN of the SBV (Circular 23) amending regulations on IPS, effective from 7 January 2020, certain new stricter operational requirements for IPS companies have been introduced, such as know-your-customer (KYC) requirements and additional reporting obligations.

Key changes proposed under the Draft Decree

Foreign ownership limit

Vietnam has not currently committed to open the IPS sector to foreign investors under eg its World Trade Organization commitments. However, in practice more than one-third of licensed IPS companies in Vietnam are foreign-invested and many have majority foreign ownership.

The SBV is now proposing to cap foreign ownership (both direct and indirect) in IPS companies that engage in financial switch, electronic clearing, e-wallet and mobile money services, at 49% of their charter capital. Existing IPS companies exceeding such a foreign ownership limit would be allowed to maintain their current ratios until the earlier of a change of foreign shareholders; or the expiry of the IPS company's 10-year licence term, at which time they must reduce foreign ownership to 49% or less.

Accordingly, if the Draft Decree is passed and an IPS company already has more than 49% foreign ownership, its shareholders would only be able to transfer their stakes (ie in excess of 49%) to domestic investors. It is unclear whether existing foreign shareholders can still subscribe for new shares in an IPS company on a pro-rata basis (hence not changing their ratios) without triggering the requirement to comply with the 49% cap.

The IPS licence is no longer required for certain IPS

At present, the provision of any IPS requires an IPS licence granted by the SBV. However, the Draft Decree proposes to exempt IPS companies providing payment gateway services, supporting services for collection and payment, and supporting services for electronic fund transfers, from obtaining an IPS licence. Instead, these companies only need to cooperate with banks and notify the SBV before providing the services. However, the IPS licence requirement will still apply to the provision of financial switch, electronic clearing, e-wallet and mobile money services.

Mobile money

The Draft Decree would, for the first time, provide a legal framework for mobile money businesses run by mobile network operators. However, it remains unclear how mobile money businesses will be differentiated from the traditional e-wallet services provided by IPS companies, although it is expected that customers without bank accounts may still be allowed to use mobile money (which is not the case for e-wallets).

Notification to the SBV of certain changes in IPS companies

Although it is not specifically required, in practice the SBV requires IPS companies to report on certain operational changes, such as changes to charter capital, their shareholding ratio and legal representative, on an ad hoc basis. The Draft Decree would make this a formal requirement and such changes must be notified to the SBV within 30 days from the date of the relevant change.

Key changes effected under Circular 23

Bank account linkage

For the purpose of e-wallet account registration, e-wallet users must link their e-wallet accounts with their bank accounts opened at banks connected with the IPS company. Therefore, to expand its user-base, IPS companies will need to expand their network of connected banks. Currently, they typically do so by entering direct connection agreements with each individual bank. However, Circular 23 provides that an IPS company can also connect to banks via the National Payment Corporation of Vietnam (NAPAS), and its users can link their e-wallets with any bank account they have opened at a bank that has an e-wallet connection with the NAPAS network.

Operational requirements

Circular 23 imposes more stringent controls on the operation of e-wallet companies. Eg e-wallet companies must carry out KYC on its own customers, instead of relying on the processes conducted by a connected bank, and must also establish a tool for the SBV to access the e-wallet platform and supervise the provision of e-wallet services. Moreover, the SBV now requires more detailed quarterly/annual reports and additional ad hoc reports from IPS companies.

Next steps

If you'd like to discuss these developments, please contact any of the people below.