After over 06 years of implementing Decree 101/2013/ND-CP, non-cash payments have become an integral part of Vietnamese people’s payment habits, which has gradually reduced the common habit of cash usage. This is a positive change, as cash usage has substantial risks concerning money laundering, fraud and costs (especially note replacement costs).
More importantly, this habit change has facilitated the development of intermediary payment service, now known as a prominent and investment worthy business. Over the last 06 years, the State Bank of Vietnam has issued licenses to provide intermediary payment service for 31 non-bank organizations. Recognizing the importance of this business, the Vietnamese Government is preparing a new draft decree to replace Decree 101 to further improve the legal framework for intermediary payment service, specifically to lower business requirements, control risks and clarify various uncertainties under the current laws.
This article aims to introduce changes worth paying attention to for organizations who are operating in the intermediary payment service as well as domestic and foreign investors who realize the potential of such service and wish to invest in it.
- Business conditions on intermediary payment services are trimmed down
The new draft Decree has lowered the conditions to carry out intermediary payment services. In particular, the draft Decree stipulates that a number of services are not administratively required to carry out the licensing procedures, rather only having to meet business conditions and enter into cooperation contracts with banks. These include electronic payment gateway, collection assistance, payment and electronic money transfer support services.[i] By contrast, services which require licensing include financial switching services, electronic clearing services, e-wallet services and mobile money services[ii].
For these services not subject to licensing procedures, the requirement is that the intermediary payment service providers must cooperate with commercial banks and foreign bank branches to provide such services. The Bank is responsible for assessing, selecting, inspecting and supervising the operations of the intermediary payment service providers to ensure compliance with the provisions of law.
If the intermediary payment services providers violate its obligations in providing intermediary payment service under the provision contracts resulting in damage to customers' lawful rights and interests, commercial banks and foreign bank branches shall handle collection of money from Intermediary Payment services, arrange intermediary for payment or blockade of payment guarantee accounts (if any) to reimburse customers.[iii]
In our opinion, compared with current regulations whereas all intermediary payment services must seek a license from the State Bank of Vietnam, the draft Decree is considerably less strict. It is therefore our expectation that this will open the gates for future players to enter the intermediary payment services.
2. Clarification regarding foreign ownership ratio in intermediary payment service providers.
a) The threshold for foreign investors' charter capital ownership, including both direct and indirect ownership, is 49% in the intermediary payment service providers.
Under the draft Decree, an explicit threshold of 49% has been imposed on the foreign ownership by intermediary payment service providers. In our opinion, this regulation aims to attract foreign direct investment whilst ensuring the active participation by domestic enterprises whilst ensuring effective regulatory control over the banking – finance industry.
We note also that regarding this requirement, there’s no specific legal regulations on the definition of the term “indirect ownership of foreign investors”. Based on the common interpretation of state agencies and based on the 2014 Investment Law, "indirect ownership does not exceed 49%" can be understood as holding no more than 51% of the charter capital in organization holding 49% or more of charter capital of the intermediary payment service providers;
b) Exception for foreign investors holding more than 49% of charter capital in intermediary payment service providers before the Decree’s effective date.
Article 42.1 of the Draft Decree provides an exception for those foreign investors who have already held charter capital in intermediary payment service providing companies prior to the Decree’s effective date. Specifically, those investors are allowed to hold onto their ownership in the service provider until that that service provider’s license is expired, or there is a change in foreign ownership.
This provision would however make divestments from intermediary payment service providing companies more difficult, as any divestments in the company would have to be balanced out to ensure the foreign investors do not hold more than 49%. For example, a foreign investor A may be holding 30% of the share and another foreign investor B holding 60% of the share. If that investor A transfer all of its share in the company (30%) to a domestic investor, the foreign ownership ratio of the company remains 60%. Consequently, the company would be in breach of the foreign ownership limitation.
Such issue, amongst others, is why certain sources of news inform that the State Bank of Vietnam is considering to remove this requirement of 49% threshold of foreign ownership in payment intermediary service providers. However this information is currently unofficial, and investors would be well-advised to keep out for updated information in future notices.
`3. Mobile money service is defined as intermediary payment service
As provided under Article 3.13 of the Draft Decree, mobile money means electronic money issued by an intermediary payment service provider providing telecommunications services and identifying customers through a mobile subscriber database.
The above provision will allow intermediary payment service providers after being licensed by the State Bank of Vietnam to deploy the use of telecommunication accounts to pay other small-value services. This is essential for people to be able to pay anytime, anywhere with an Internet-connected mobile device and help promote comprehensive financing.
It should be additionally noted that the definition and procedures regarding the operations of mobile money is not yet fully clear under the draft Decree. In particular, we understand from the definition of mobile money under Article 3.13 of the Draft Decree to be a form of currency. However, this would create a conflict with the overarching definition of electronic money being only “value of money stored on electronic devices prepaid by the customer, which clearly means it is not a currency. More importantly, the Draft Decree has not provided detailed guidance of the mobile money – under Article 6 of the Draft Decree, mobile money must be approved by the State Bank of Vietnam and satisfy requirements regarding intermediary payment service, and detailed guidance regulations on mobile money.
No such detailed guidance regulations on mobile current exists. It is therefore our opinion that this space be closely watched, as based on previous experience we believe that the State Bank of Vietnam in the future will issue detailed guidance on the process, technical, operational requirements regarding mobile money service in form of a Circular sometime after the Decree.