July 26, 2014
To transfer monthly money to his son, a university student in Hanoi, Vang A Dinh, a farmer in Muong Khuong District, Lao Cai Province, has to travel over 60 kilometers to the nearest post office. He has no other choice rather than undergoing the ordeal of trekking the rough terrain on the way to conduct such a simple service.
Dinh is just one among the many residents in remote areas who have to face challenges in accessing basic banking services.
More disadvantages to the poor
According to a recent survey on financial service approach in rural and remote areas conducted by Singapore-based Spire Research and Consulting, around 60 million people in the areas have yet to use basic financial services.
Yap Far Loon, business development director of telecommunication of Spire, said only 22% of Vietnam’s population has used financial services and most of them are city-dwellers. Each townie often owns several bank cards, a phenomenon which has resulted in an excessively high number of card users in urban areas compared to that in rural areas, where most residents still do not know what such a card is for. As of the end 2012, Vietnam has around 54.2 million bank cards. Townspeople own the overwhelming majority of them.
The report says that financial institutions have ignored rural areas because costs in these quarters would be up to over VND300 million for land rent, and installation, operation as well as maintenance of an automated teller machine (ATM) each year. Running a transaction office is even costlier while residents in hinterland conduct only a few transactions. Therefore, those facilities are sure to be loss-making investment.
“This is sad reality because in fact, residents, small and micro businesses in rural areas are still in need of basic financial services such as money transfer, insurance and remittance,” Loon said.
Banks on fingertips
Spire says to help rural residents reach financial services, a cell-phone will be an effective money transfer device (mobile money) assisted by three aspects – financial institution, telecom service provider and intermediary mobile payment company.
The above model is a creative and effective financial service tool for remote and rural areas which are stricken by traveling difficulties and underdeveloped banking network.
At present, M-PESA service in Kenya is arguably the most successful mobile money model in the world. Launched by Safaricom in 2007, there have been 17 million people (two-thirds of the adult population of Kenya) using the service regularly and around 25% of Kenya’s gross domestic product (GDP) has been processed through M-PESA.
Statistics of the World Bank showed that Kenya has saved 2-5% of domestic money transfer fees, thus improving money circulation volume by 50-70%, especially small transfers. In fact, M-PESA has helped improve domestic transfer of small sums of money and stimulate Kenya’s economy.
Similarly, in a survey, Consultative Group to Assist the Poor (CGAP) points out that income of families using M-PESA service in Kenya have increased by 5-30%.
According to the Ministry of Information and Communications, Vietnam was home to around 105 million telephone subscribers as of December 2013, in which 93% were mobile phone subscribers. In addition, the third generation (3G) network has grown strongly attracting nearly 20 million subscribers.
In Vietnam, mobile money was kicked off in 2007 but the service has only lured investment from enterprises, especially telecom service providers and intermediary payment firms.
In late May, M-Service Joint Stock Company in partnership with Vietcombank and Vinaphone launched MoMo, an online payment service which uses cell-phone numbers of customers as MoMo e-wallet number accounts. Mobile subscribers can easily perform transactions such as money transfer, bill and game card payment. Moreover, when their bank accounts are connected to MoMo wallets, customers who cannot find out ATMs can reach over 2,000 MoMo points of sale across the country.
M-Service general director Nguyen Ba Diep says the combination of telecom, banks and online services may substantially assist low-income earners, especially migrant workers who want to transfer money to remote areas, and approach financial services at the lowest costs.
Currently, money transfer among MoMo wallet owners is free of charge. Customers only have to pay fees for transferring money to those who do not own a MoMo wallet. The company charges from VND15,000 for transfer of VND1-2 million and collects the fees directly from the MoMo wallets.
Viettel has also joined the mobile money race by offering BankPlus service to its mobile subscribers since 2011. The service has been connected with nearly 20 banks and has managed three million subscribers so far.
Nguyen Duc Hung, who is in charge of sales and marketing of the value added service center of Vinaphone, says telecom companies and financial institutions have committed remarkable capital in mobile money service given its profitability. When a telecom service provider has reached a certain number of subscribers who have formed the online payment habit, it will certainly gain hefty profit from it.
(By Hien Nguyen)