Innovative Technology for the poor to access financial inclusion in Vietnam through Mobile Money

 (VBSP News) Vietnam Bank for Social Policies (VBSP) aims to develop a mobile money product with a view to improving access to financial services for poor, low-income, and other vulnerable groups in Vietnam in a more efficient and sustainable way, thus contributing to lifting them out of poverty and connecting them to the formal economy.

VBSP field staff guide customers how to trnasact via mobile phone

VBSP introduction

VBSP has been operating in Vietnam from  March 11th, 2003. VBSP is now in the top microfinance bank in Vietnam in terms of total assets and customer base, and also in the list of top five microfinance institutions in the world. To date, VBSP has currently 63 provincial branches, 629 district transaction offices, approximately 11,000 commune transaction outlets and 200,000 savings and credit groups across 63 cities/provinces of Vietnam. VBSP enables financial inclusion of the poor and other disadvantaged groups through grassroots networks, appropriate infrastructure, socialized procedures and skillful employees. VBSP’s vision is to become a leading retail and universal bank promote financial inclusion to the mass market, typically the last mile population.

Challenges to be addressed by innovative technology

Viet Nam has significantly reduced its poverty incidence from 58% in 1993 to only 4.5% in 2015[1]. This is largely attributed to the successful implementation of the Government’s National Poverty Reduction Program that focused on modernizing agriculture and value-added agro-processing, promoting non-farm household businesses and increasing employment opportunities through geographically dispersed industrialization and the promotion of small and medium enterprises. However, the Ministry of Labor, Invalids and Social Affairs (MOLISA) reported in 2014 that there were still 1.44 million poor households (5.97%) and 1.34 million near poor households that are vulnerable (5.62%) and difficult to access financial inclusion. Poverty incidence is also much higher in rural areas and among ethnic minorities. Vietnam's poor are largely uneducated and 70% the poor living in rural and remote areas. In addition, most population in Vietnam, especially the poor operate almost entirely in the cash economy. Daily they use cash, physical assets or informal providers to meet their financial needs—from receiving wages to saving money. However, these informal mechanisms can be insecure, expensive, and complicated to use. And they offer limited recourse when a major problem arises, such as a serious illness in the family or a poor harvest.

VBSP is currently serving a large number of clients which include seven million active borrowers, over eight million loan accounts, and four million savings accounts. Among these clients, 90% are living in rural and remote areas and engage in small business and other small-scale livelihood activities. VBSP initiates transaction with clients once a month (on a fixed date of the month) at communal transaction outlet. VBSP provides inclusive finance to the poor and other vulnerable groups through the community participation channel with its current 200,000 credit and savings groups at commune/ward/town as well as partnership with local government and mass organizations.

Despite being evaluated as successful, during processing transaction at remote, mountainous areas still reveals a number of limitations, such as high cost and time consuming for VBSP due to arrangement of transports, facilities and personnel travelling to transaction at each commune monthly over the country. Travelling cost and time consuming for clients when coming to mobile transaction points to repay debts and interests to VBSP. VBSP realizes that the necessity for technology innovation is aimed to improve productivity by increasing the efficiency and lowering the cost of transactions, improving security, generating new employment opportunities, and creating a platform on which other businesses can grow.

Opportunity for mobile money serving the poor

Over the past ten years, Vietnam has undergone an increasing evolution in information, communications, and technology (ICT) with a telecommunications network covering almost the entire country, and nearly 100% of adults having cell phones. The number of mobile subscribers nationwide is increasing rapidly to comprise nearly 140 million by end of 2015, ranking Vietnam as five top mobile subscriber countries over the global. Despite this widespread telecommunications coverage, the use of mobile technology to facilitate electronic transactions (e.g. “mobile money”) is still a relatively new concept in Vietnam, where cash transactions remain the predominant method for payments and banking. The Government of Vietnam has begun pushing the use of ICT to replace cash transactionsand has accordingly issued a number of basic regulations on e-transactions. In recent years, some commercial banks have started introducing mobile money services, albeit to a limited client base of a small portion of the country’s urban population. Over two-thirds of Vietnam’s 90 million population, particularly the rural poor, have little access to banking services. This presents a great challenge but also a great potential market for retail banks in Vietnam.

The use of mobile phones to facilitate small-scale financial transactions is increasingly recognized and employed as a means to expand access to financial services among poor and low-income populations in many countries. This, however, has not yet been pioneered by any microfinance service providers in Vietnam while at the same time, commercial banks have yet to expand their services to reach the low-income and unbanked market. Mobile money is also recognized as a way to help financial service providers improve financial governance by reducing costs, increasing transparency, and diversifying their services. Innovations in mobile banking can allow microfinance service providers to better meet the different financial needs of their client groups who come mostly from poor and low-income populations and are not yet reached by traditional bank branch networks. It can reduce the costs of service delivery while at the same increasing their clients’ access to services through an ICT-based delivery channel. 

Innovative technology overview

Before deployment of the innovative mobile money for the last mile population in Vietnam, VBSP conducted a feasibility study on mobile banking in its local branches with partnership with Asia Foundation during 2014-2015. After succeeding in the feasibility study on mobile money that brought about potential opportunities for VBSP to develop one first-ever mobile banking platform, in collaboration with Asia Foundation and MasterCard as a technology solution partner, starting from 2016.

Initial success achieved

 After more than a year of researching the mobile money innovation, the findings proved that implementing banking services via mobile phones will be effective and help the VBSP develop sustainably.

 The main objectives of the study were: i) to have a market-led approach and engage with different stakeholders who can be future participants in development and use of mobile based banking services and ii) to provide recommendations on possible models and road ahead for VBSP.

 The study looked at four key dimensions of mobile phone based banking application via the following main activities:

1. Research on customers or demand-side to seek perspectives of VBSP’s existing and potential customers. This research covered four key aspects: i) customer needs on mobile phone based technology solution for convenient access of financial services; ii) preference for different mobile network operators in Vietnam and frequency with which they change their operator; iii) willingness to pay for mobile-based financial services; and iv) capability to adopt mobile-based technology.
2. Assessment of VBSP’s readiness through internal stakeholder meetings. It is designed to grasp points of view on the bank’s readiness by discussing with VBSP’s key departments (IT Center, Credit, Capital Planning, Risk Management, Internal Control and Polaris – core-banking system contractor), which play critical roles in mobile-based financial service implementation; and by interacting with key staff at provincial and district branch levels.
3. Discussions with external stakeholders, including the regulator & potential partners, to explore possible feasible options. With regard to regulatory environment, the project team conducted meetings with Payment Department of State Bank of Vietnam to identify current legal framework for provision of mobile-based banking services. On the supply-side, the study covered detailed discussions with different potential partners, including an agent network manager (M-Service), a technology service provider (GPAY) and a mobile network operator (Viettel).

By these key approaches, the study is expected to assess internal and external environments, and to provide recommendations on way forward with caveats and considerations for VBSP to make decision on mobile-based banking service implementation.

The research used both qualitative and quantitative methodologies. The qualitative research is used in interaction with internal and external stakeholders and assessments of customers in 5 selected provinces, and the quantitative research survey with VBSP’s existing and potential customers and group leaders in 25 provinces covering.

The key findings of the study in terms of customer perspectives, internal and external environment are listed below.

The key outcomes of customer research based on interactions with ~1500 respondents are:

• Key issues are transparency & understanding of the process: High percentage of respondents rated lack of transparency in getting information and lack of understanding of the process as two key challenges they faced in accessing formal financial services in Vietnam. They also highlighted the cost (direct and opportunity cost) and time involved in accessing the services as another key barriers.
• Mobile related preferences: Most preferred mobile network operator for the respondents has been Viettel. In addition, most preferred mobile type among respondents was basic phone.
• Willingness to pay for service: Majority of respondents were willing to pay to avail mobile banking services, the only condition being that the cost should be reasonable
• Need extensive training and support to adopt new mobile technology based services

Regarding assessment of VBSP’s readiness, all the departments are very positive and supportive towards going ahead with the initiative of offering mobile banking to VBSP customers. Based on their responsibilities, they shared key opinions including challenges, which will need to be addressed for rolling out efficient mobile banking system. Some key considerations are: i) refine and align the process of VBSP to enable seamless integration with mobile banking channel; ii) get buy-in and approval of internal (VBSP’s staff) and external stakeholders (group leaders/mass organizations) for making the model effective; iii) prefer the phased approach and pilot testing; and iv) require training and hand-holding support for clients to adopt the technology interventions.

The IT infrastructure of VBSP is also upgraded, as in 2013, VBSP implemented the project "Upgrade and modernization of information technology system in VBSP". Under this project, VBSP was in collaboration with Polaris (CBS-contractor) to deploy ‘Intellect’- Core-Banking System in its 63 branches across the country. The function of this program meets the expertise and requirements of VBSP such as lending, loan collection, mobilization from savings, money transfer etc. The integrated core banking system provides a strong foundation in technology, which is a pre-requisite to support VBSP in successfully rolling out mobile phone banking services. However, there will be additional system and IT requirements to patch up the mobile banking functions along with existing CBS.

With regard to current legal framework, VBSP is eligible to provide mobile banking services both non-financial and financial, according to SBV’s Payment Department. There is no legal road-blocks preventing VBSP to offer mobile-based banking services; for example, no regulations binding external partnerships and service pricing. The regulator has been supportive of VBSP’s new initiative, particularly suggesting a pilot license required for implementing agent banking model. Considering the nature of VBSP’s customers, SBV also advised the bank to invest time and effort in training the staff and customers on technology, process, security and other aspects related to new banking services via mobile.

From potential partners’ perspectives, all of organizations are completely open on partnering with VBSP regardless of their institutional types: mobile network operator, agent network manager or technology provider. The external partners stated that phase 1 (SMS Banking) will be easier to achieve compared to phase 2 (Mobile Banking), which will be critical to implement, hence it is important for VBSP to conduct a pilot of mobile banking. Given the unique of VBSP and its customer base, the external stakeholders emphasized on providing an assisted transaction for the clients and VBSP’s strategic deciding on the group leader’s role in the loop for mobile banking. Moreover, only when VBSP is clear about the objectives of providing mobile-based banking services, can the potential partners design an appropriate model with suitable commercial offers for VBSP.

In summary, all necessary ingredients are in place, together with a positive environment for launching of mobile-based banking services to help VBSP achieve its overall development objectives. On the one hand, there are internal needs arising within VBSP in terms of improving transparency for customers and group leaders; enhancing efficiency in providing cost-effective, fast and effective services; and achieving sustainability of existing and new services. On the other hand, customers have stated their needs regarding improving transparency; saving time and cost in banking transactions; and having better understanding of products and services. Therefore, mobile-based banking services can play an important role as a new channel to help VBSP meet the bank’s and its customers’ needs in the enabling internal and external environments. Keeping in mind VBSP’s and its customers’ unique features and needs, the provision of mobile-based banking services can be conducted step by step in two phases, with Phase 1 of providing SMS Banking for transparency improvement and Phase 2 of implementing Mobile Banking for efficiency improvement.

Mobile money innovation in progress

During first months in 2016, VBSP in partnership with Asia Foundation and MasterCard – a global leader in payments and technology –develop VBSP’s first-ever mobile banking platform.

The second phase project will be built on a Mobile Banking Feasibility Study in 2014-2015. It will be a five-year project to pilot and roll-out SMS-notification and mobile banking services. The project will utilize a two-track business model and phased implementation approach, starting in peri-urban areas and gradually expanding into less accessible rural and remote regions of the country. Track 1 will provide VBSP with the capability to send account-related information via SMS texts to clients, such as repayment schedules and reminders and monthly account balances. Through SMS banking notifications, VBSP will improve transparency, reduce delinquency rates,and provide timely information to clients. Meanwhile, Track 2 will introduce mobile banking capabilities for Group Leaders of VBSP’s Savings and Client Groups (SCGs), allowing them to initiate financial transactions on their phones on behalf of VBSP clients, including loan repayments and cash deposits and withdrawals, and send transaction confirmations to clients. This will lower the opportunity cost of banking for VBSP at mobile transaction points andreduce the risk of misappropriation in the service delivery channel, and provide clients with access to more diversified banking services, thereby increasing the quality and cost efficiency of VBSP’s operations. 

During the first three years, the project will bring SMS notification services to all 63 branches under Track 1, targeting all 6,863,000 clients and 192,600 Group Leaders. Meanwhile, under Track 2, VBSP will introduce mobile banking services at 25 branches total, targeting 979,345 clients and 27,204 Group Leaders. TAF and its partners will track participation rates for women in activities to design, implement, and manage the program, aiming for a minimum of 70 percent of VBSP beneficiaries to be women; this includes VBSP staff, clients, and Group Leaders.Beyond the first three years, MasterCard and VBSP will endeavor to continue to roll-out mobile banking services to the remaining VBSP clients across Vietnam, with the project expected to reach operational maturity by the end of the fifth year.

More support from international organizations

VBSP expects this initiative as a catalyst and foundation from which VBSP can and will leverage funding from international organizations to roll out the mobile money innovation, thus increasing much-needed financial access to millions of poor and disadvantaged groups in the country. VBSP’s mobile money services will also help to improve the poor and disadvantage population groups’ ability to run their businesses and other livelihood activities more efficiently and effectively through e-transactions, thus help to reduce the dominance of cash transactions in Vietnam.

Weblinks:

http://www.vieted.com.vn/en/news/detail/mobile%20banking-25.html; http://vbsp.org.vn/evbsp/view_detail.php?mtt=503&mamm=33; http://dfat.gov.au/aid/who-we-work-with/private-sector-partnerships/bpp/Pages/mobile-banking-for-the-poor-in-vietnam.aspx; http://english.vov.vn/society/social-policies-bank-provides-services-via-mobile-phone-299609.vov; http://en.vietnamplus.vn/social-policies-bank-provides-services-via-mobile-phone/80757.vnp

Contact information:

 Mr. Nhan Phan Cu

  Director of Communication and International Cooperation Dept.

  Vietnam Bank for Social Policies

  CC5 Ban Dao Linh Dam, Hoang Liet, Hoang Mai, Ha Noi, Viet Nam.

  0084- 975347021

  0084-4-36417226

  0084-4-36417194

  icd@vbsp.vn; nhanphancu@gmail.com

  Web: www.vbsp.org.vn