Equity Analysis / Vietnam

Vietnam digital payments: On the cusp of rapid change

  • Key industry drivers are technology, government/ regulator support and foreign funding/ expertise
  • 33 licences have been issued, but the top 5 players control c80% of the market
  • We see a shakeout as the industry consolidates around the strongest and most innovative operators

We think the Vietnam digital payments landscape is set for a period of rapid change, for the following reasons:

 1. Most transactions are still conducted via cash, but digital payments technology is evolving rapidly, and the government is also promoting a shift towards electronic payment media.

2. 33 payments licenses have been granted by the central bank, but the top 5 players account for over 80% of the market. As a network-based business, we see significant scope for consolidation.

3. Some of the main payments operators recently secured significant additional funding, which could accelerate their development in terms of customer acquisition and product development.

Market profile

Of Vietnam’s 75mn adults, 31% have an account at a financial institution. Per the State Bank of Vietnam, there were 18.6k ATMs at the end of 2018 and 243k card-accepting devices (POS). These metrics lag those in neighbouring markets. At c150%, the number of mobile phone subscriptions, on the other hand, is broadly on a par with ASEAN neighbours. 67% of the population has mobile broadband connectivity, which creates a viable constituency for smartphone app-based products and services.

Table 1: Vietnam market profile


VietnamIndonesiaThailandMalaysia
Account at financial institution (% of adults)30.8%48.9%81.6%85.3%
ATMs (per 100k adults)25.354.7115.146.6
Mobile subscription (% of total population)147%119%180%135%
Cashless transactions (% of total transactions)5%n/a60%90%

Source: World Bank

 

Digital payments have strong growth prospects in Vietnam

The State Bank of Vietnam has licensed 33 non-bank organisations to act as payment intermediaries in the country. As of 2017, only 5% of transactions in Vietnam were cashless (source: World Bank), which is one of the lowest figures in the region.

As further evidence for the growth potential of digital payments, a Standard Chartered study last year indicated that 90% of Vietnamese consumers preferred cash on delivery for their online purchases, a much higher proportion than other regional markets.

One of the key catalysts for growth in digital payments volumes is the increasing popularity of eCommerce transactions, through portals such as Alibaba-owned Lazada, Shopee and Sendo. Currently, cards (notably debit cards) are the main non-cash payment channel. But in rural areas in particular, card usage is still uncommon.

We note that urban centres such as Ho Chi Minh City have been promoting the use of cashless payments for utilities, hospitals and education, as well as for pension and welfare disbursements.

A further driver of cashless payments will come from the roll-out of more point of sales units. Last year, South Korean firm Alliex announced plans to invest US$700mn over a five-year period to install 600k POS units across the country in collaboration with Sacombank and Vietinbank.

Lastly, increased usage of QR-codes will also enable traders that do not have an electronic point of sale to still access digital wallet payments.

The digital payments landscape

In December 2014 the State Bank of Vietnam issued Circular 39/2014 which set out the rules under which payments service providers could operate. To date, 33 ten-year licences have been issued by the SBV, at a rate of around 1 licence every two months. We understand other companies are waiting to join the throng, including ride-hailing firm Go-Viet, which is part of the Indonesian Go-Jek empire.

 Figure 2: Vietnam digital payments landscape


Source: State Bank of Vietnam, Tellimer Research. Note: NextPay is formed by a merger of Vimo and mPOS

Why digital payments are important for technology firms

We think significant regional players, such as Grab (whose GrabPay division has teamed up with Moca) and Go-Jek (via its Go Viet and Go Pay divisions) believe that becoming the leading payments platform in a market/ region will give them a greater ability to cross-sell additional services to consumers. This model has been successfully pioneered by Tencent and Ant Financial in China. We note that Ant Financial recently forayed into Vietnam, via an investment in eMonkey (a digital wallet by M-Pay) adding to its portfolio of investments in South Asia (Easypaisa, PayTM, bKash).

Conglomerates are active in the digital payments space…

GrabPay has access to Grab’s service offerings such as ride-hailing and financial services (such as loans and insurance). 

NextPay is part of the NextTech Group, whose activities include mortgages, eCommerce, insurance, logistics and ride-hailing.

ViettelPay can be used on the My Go ride-hailing app, which was launched by common parent Viettel Group. 

VinGroups’ VinID subsidiary acquired MonPay last May, while media company VNG has launched ZaloPay.

 but partnerships are also blossoming

A route to improve attractiveness to customers is partnerships, which can increase the number of use cases for digital wallets and accelerate customer acquisition. As an example, Vietcombank and Viet Capital Bank have tied up with Payoo. BE Group, the ride-hailing firm, has entered into a digital financial services partnership with VPBank.

Network-based businesses tend to be concentrated

If we look at other network-based industries (eg search engines, ride-hailing apps, telecoms services, operating systems), concentration levels tend to be high. We think it highly likely that most of the 33-licensed payment companies will fail, with only a small number of firms able to develop sustainable business models. As we highlight below, c80% of the market in Vietnam is already controlled by around five operators.

Customer acquisition strategies don’t come cheap…

In order to stand out from the crowd, and gain scale, some digital wallet providers have been offering discounts of up to 30% to consumers. Merchants are also offered incentives to promote particular wallets.

...and fund-raising rounds have lifted the bar

VNPAY last year raised US$300mn from investors including Softbank and GIC, while Momo raised US$100mn. NextPay, created from the merger of Vimo and mPOS, also raised US$30mn last year. Operators with deep pockets carry a significant advantage over their peers because the industry requires significant investment to be made to acquire consumers and merchants, and to fund technology and product development.

Consolidation can be a way for sub-scale firms to stay in the game

Vimo and mPOS merged last June, creating NextPay, and used this to support a fund-raising round. The firm, which had 60k access points at the time of the merger, targets this to increase to 300k in 2023. Following its merger, NextPay claimed to control close to 15% of the POS market, with a goal of reaching 40-50% three years later. We think consolidation could be a viable strategy for other payments firms in Vietnam to gain scale and move closer to financial sustainability.

The M&A scene has also been active

Grab invested in the Moca payments platform in 2018. Last year Grab announced its intention to invest US$500mn in Vietnam over the next five years to expand its transport, food and payment networks. This was in addition to an estimated US$200mn investment in Vietnam during 2019. As highlighted above, Vingroup’s VinID acquired MonPay last year, while NextPay was also the product of a merger in 2019. We think further M&A activity is likely.

Foreign ownership restrictions likely to come into play, but only after the industry matures

Late last year the SBV floated the idea of restricting foreign investor ownership in licensed payments companies to 49%. Previously there was no limit. We understand that these plans have now been shelved, but in our view this is most likely just a temporary reprieve, with a transition to more restrictive ownership rules being more likely once these businesses become less cashflow negative.

Due to the capital-hungry nature of these businesses in the start-up phase, we think most of the digital payments companies operating in Vietnam have significant foreign ownership, notably 1Pay (Thailand’s True Money), Payoo (Japan’s NTT), VMPT EPAY (South Korea’s Global Payment Service and UTC Investment Company) and MoMo (US firms Warburg Pincus and Goldman Sachs, plus the UK’s Standard Chartered Bank).

If foreign ownership were to be restricted (bringing the industry more into line with the banking sector, and most listed Vietnamese companies), we think this would catalyse a significant shift in industry structure, with some firms raising capital locally, and others perhaps merging and seeing capital withdrawals in order to fall into line with foreign ownership restrictions. We note that in China and Indonesia, foreign ownership of the sector is restricted to 20%, and in Malaysia to 30%.

The digital payments industry is already quite concentrated

According to the SBV’s Department of Payments more than 80% of the deposits in digital wallets were controlled by five players: Payoo, Mom, SenPay, Moca and Airpay. In terms of the number of registered wallets, over 70% were in the hands of Airpay, MoMo, Senpay, Moca and VTCPay. In relation to transaction value, the main players (accounting for 95% of the total) were Payoo, Momo, Senpay, Airpay, Zalopay. Three operators rank highly across all three of these metrics, namely Airpay, Momo and Senpay.

Why digital payments are important for technology firms

We think significant regional players, such as Grab (whose GrabPay division has teamed up with Moca) and Go-Jek (via its Go Viet and Go Pay divisions) believe that becoming the leading payments platform in a market/ region will give them a greater ability to cross-sell additional services to consumers. This model has been successfully pioneered by Tencent and Ant Financial in China. We note that Ant Financial recently forayed into Vietnam, via an investment in eMonkey (a digital wallet by M-Pay) adding to its portfolio of investments in South Asia (Easypaisa, PayTM, bKash).

Conglomerates are active in the digital payments space…

GrabPay has access to Grab’s service offerings such as ride-hailing and financial services (such as loans and insurance). 

NextPay is part of the NextTech Group, whose activities include mortgages, eCommerce, insurance, logistics and ride-hailing.

ViettelPay can be used on the My Go ride-hailing app, which was launched by common parent Viettel Group. 

VinGroups’ VinID subsidiary acquired MonPay last May, while media company VNG has launched ZaloPay.

 but partnerships are also blossoming

A route to improve attractiveness to customers is partnerships, which can increase the number of use cases for digital wallets and accelerate customer acquisition. As an example, Vietcombank and Viet Capital Bank have tied up with Payoo. BE Group, the ride-hailing firm, has entered into a digital financial services partnership with VPBank.

Network-based businesses tend to be concentrated

If we look at other network-based industries (eg search engines, ride-hailing apps, telecoms services, operating systems), concentration levels tend to be high. We think it highly likely that most of the 33-licensed payment companies will fail, with only a small number of firms able to develop sustainable business models. As we highlight below, c80% of the market in Vietnam is already controlled by around five operators.

Customer acquisition strategies don’t come cheap…

In order to stand out from the crowd, and gain scale, some digital wallet providers have been offering discounts of up to 30% to consumers. Merchants are also offered incentives to promote particular wallets.

...and fund-raising rounds have lifted the bar

VNPAY last year raised US$300mn from investors including Softbank and GIC, while Momo raised US$100mn. NextPay, created from the merger of Vimo and mPOS, also raised US$30mn last year. Operators with deep pockets carry a significant advantage over their peers because the industry requires significant investment to be made to acquire consumers and merchants, and to fund technology and product development.

Consolidation can be a way for sub-scale firms to stay in the game

Vimo and mPOS merged last June, creating NextPay, and used this to support a fund-raising round. The firm, which had 60k access points at the time of the merger, targets this to increase to 300k in 2023. Following its merger, NextPay claimed to control close to 15% of the POS market, with a goal of reaching 40-50% three years later. We think consolidation could be a viable strategy for other payments firms in Vietnam to gain scale and move closer to financial sustainability.

The M&A scene has also been active

Grab invested in the Moca payments platform in 2018. Last year Grab announced its intention to invest US$500mn in Vietnam over the next five years to expand its transport, food and payment networks. This was in addition to an estimated US$200mn investment in Vietnam during 2019. As highlighted above, Vingroup’s VinID acquired MonPay last year, while NextPay was also the product of a merger in 2019. We think further M&A activity is likely.

Foreign ownership restrictions likely to come into play, but only after the industry matures

Late last year the SBV floated the idea of restricting foreign investor ownership in licensed payments companies to 49%. Previously there was no limit. We understand that these plans have now been shelved, but in our view this is most likely just a temporary reprieve, with a transition to more restrictive ownership rules being more likely once these businesses become less cashflow negative.

Due to the capital-hungry nature of these businesses in the start-up phase, we think most of the digital payments companies operating in Vietnam have significant foreign ownership, notably 1Pay (Thailand’s True Money), Payoo (Japan’s NTT), VMPT EPAY (South Korea’s Global Payment Service and UTC Investment Company) and MoMo (US firms Warburg Pincus and Goldman Sachs, plus the UK’s Standard Chartered Bank).

If foreign ownership were to be restricted (bringing the industry more into line with the banking sector, and most listed Vietnamese companies), we think this would catalyse a significant shift in industry structure, with some firms raising capital locally, and others perhaps merging and seeing capital withdrawals in order to fall into line with foreign ownership restrictions. We note that in China and Indonesia, foreign ownership of the sector is restricted to 20%, and in Malaysia to 30%.

The digital payments industry is already quite concentrated

According to the SBV’s Department of Payments more than 80% of the deposits in digital wallets were controlled by five players: Payoo, Mom, SenPay, Moca and Airpay. In terms of the number of registered wallets, over 70% were in the hands of Airpay, MoMo, Senpay, Moca and VTCPay. In relation to transaction value, the main players (accounting for 95% of the total) were Payoo, Momo, Senpay, Airpay, Zalopay. Three operators rank highly across all three of these metrics, namely Airpay, Momo and Senpay.

Figure 3: Leading mobile wallets in Vietnam 

Source: State Bank of Vietnam, Department of Payments, VnExpress

 

Key player profiles

Airpay

AirPay is the mobile wallet of Vietnam Esport JSC, and was licensed by the State Bank of Vietnam in December 2015 for providing intermediary payment services. It is one of the top 5 players in Vietnam in terms of deposits, number of wallets and transaction value. AirPay is backed by a Singapore Internet company, Sea, and also operates in other South-East Asian countries including Thailand and Indonesia.

Gpay

GPay is the latest firm to be awarded a payments licence by the SBV. The firm is a member of investment company G-Group, whose companies have a combined 20mn users across financial platforms, gaming, social networks and technology sectors. 

Founded in 2018, GPay has already reached US$50mn Gross Merchandise Value, with a presence in 42 cities and provinces in Vietnam. The firm targets more than 5mn users by 2023. Sister company, Gapo, a social network, aims to reach 20mn users by January 2021. Note that the ruling Communist party has asked domestic tech companies to provide alternatives to Facebook, which in January 2020 was accused of violating Vietnamese law in areas relating to content, advertising and taxation.

Moca

Moca is Grab’s digital wallet platform in Vietnam. Grab is SE Asia’s largest ride-hailing firm. During the course of H1 2019, payment volumes grew 150% while the number of active mobile users advanced by 70%. The firm is helping to grow the number of services that can be paid for without use of cash or a bank card, including international remittances.

MoMo Pay

Founded in 2007, M_Service’s MoMo app is an industry leader with over 10mn users. One of the key factors for its success has been its aggressive acquisition of c10k partners across consumer finance, insurance, utilities, entertainment providers, eCommerce, shopping and transportation. The platform is integrated with most local banks, as well as international payment networks such as Visa, Mastercard and JCB. Key shareholders include Goldman Sachs, Standard Chartered and Warburg Pincus.

The company has credited its success to its focus on developing the largest merchant network in the country, both offline and online.

Payoo

Payoo is owned by VietUnion, which in turn is owned by Saigon Construction Corporation and Japan’s NTT. Payoo users can access 12,000 point of sales counters across Vietnam. Payoo customers can make payments online or at physical locations, for over 200 different types of services, including rental payments, utilities and services. The company has partnerships with many local and international banks.

SenPay

Senpay is a mobile wallet operated by FPT Wallet Co. – which is owned by the Sendo e-commerce marketplace that offers more than 10 million products on its platform. SenPay received its licence from State Bank of Vietnam in 2016 and operates under the model of both an electronic wallet and an intermediary payment gateway.

ViettelPay

ViettelPay was launched in June 2018 by Viettel, the largest mobile telephone operator in Vietnam that is also active in 11 markets, with 70k employees and 2018 revenues of VND234.5trn.

Via a smartphone app, ViettelPay enables payments to companies (utilities, transport providers, airtime providers etc) and individuals (either to mobile wallets or bank accounts).

ViettelPay has close to 9mn subscribers. By year-end the company plans to integrate with more than 120k access points across the country, rising to 600k in 2025 when the company should have 26mn subscribers.

VTC Pay

VTC Pay is a subsidiary of Vietnam Multimedia Corporation (VTC), one of the country's largest corporations. VTC Pay was officially launched in 2009, obtained an intermediary services license from State Bank of Vietnam in 2016, and currently has over 3mn wallets. VTC Pay provides payment services through a network of 37 domestic banks and three international card organisations.

VNPT Pay

VNPT Pay is run by Vietnamese telco VNPT. It received its license at the start of 2016 and there are now nearly 50,000 points accepting VNPT Pay. Recently, VNPT Pay became one of four selected payments platforms to provide electronic payment services on the National Public Service Portal system. Via NPSP, customers can pay the fees and charges of public services (such as electricity, tax filing fees and so on) with the VNPT Pay e-wallet.

Zalo Pay

ZaloPay runs on Zalo, Vietnam’s largest chatting platform, with over 100mn users worldwide. The platform integrates with bank accounts to allow for cash withdrawals, purchases and money transfers. The company is backed by VNG Corporation. The company offers QR-based payments that avoid the need for dedicated POS termainals, which can be helpful in rural locations.

 

Acknowledgements

We would like to thank Anh Nguyen, Rong Viet Securities, for her help with this report.


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Macro Analysis / Global

Digital transformation in commodities and energy

Refinitiv Perspectives
15 May 2020

Commodities trading is entering a new era thanks to increased data, and the rapid pace at which data can be processed. A report from Refinitiv and the Boston Consulting Group asks: What are the implications of this digital transformation in commodities and energy as it becomes more transparent and automated?


  1. The commodities trading world is rapidly evolving. Companies need to keep pace with the latest changes by employing digital tools and analytics platforms to smooth the digital transformation in commodities and energy.
  2. The Digitization of Commodities, a report authored by Refinitiv and the Boston Consulting Group, outlines the consequences of this digital transformation in commodities and energy, and how companies can grasp the opportunities it presents.
  3. By partnering with Refinitiv, commodities traders will be able to chart a course towards digitization that suits them, combining all the data and information they require into a single holistic solution.

The digital transformation in commodities and energy trading has been made possible by the increase in information available to trading firms and the speed at which they are able to process this data by employing digital tools and analytics platforms. All of this has enabled commodities trading firms to enter a new market era.

While trading firms are aware of this transformation, some are struggling to develop a clear vision of what it takes to remain competitive.

The question is: Where should they invest to achieve bottom-line results? The answer is not the same for everyone.

Data aggregation and standardization. Digital transformation in commodities and energy

In a new report, The Digitization of Commodities, co-authored with the Boston Consulting Group, we outlined the main implications of this trend towards the digitization of commodities. More specifically, we explored how traders and analysts can harness these market changes and embrace the opportunities they present.

The Digitization of Commodities: How can you stay competitive in a new market era?

Data and commodities trading

The democratization of information, and the simultaneous exponential growth of data, is eroding the old information edge and introducing a new level of transparency.

Data has always been a source of power. In fact, the competitive advantage in commodity trading used to be determined by whoever had the best information and control of critical assets.

Alessandro Sanos quote. Digital transformation in commodities and energy

However, new technologies mean that information is more transparent and automated, enabling traders to make decisions in seconds. To predict commodities prices faster and more accurately, firms will have to consider the influence of artificial intelligence, blockchain, data management adeptness, and the demand for new skills.

Success will now result from a process of continuous anticipation.

To effectively respond to the disruption in commodities trading, instead of investing in isolated and disjointed projects and tools, companies need to develop an entirely new operational model. This model needs to put the right processes in place to continually respond to the market at speed.

For some companies, this means passing through the four stages of digitization identified by the Boston Consulting Group:

  1. Invest in electronic platforms and straight-through processing to cut direct costs.
  2. Use automation based on parametric algorithms to optimize processes and market entry.
  3. Leverage data-driven assistance to support decision-making and execution.
  4. Achieve full automation of the value chain.

The four stages of digitization. Digital transformation in commodities and energy

Digital transformation

It is important to understand the difference between a technology upgrade and a true digital transformation.

The only way to stay relevant in this new landscape is to be purposeful in your transformation — think digitalization, not digital.

That means not falling into the trap of chasing the latest buzzword, but rather trying to find a match, or a compromise, between your specific business needs and the available technologies that can solve those needs, that have successfully moved from concept stage to reality, that can scale fast, and that are within budget.

The digitization journey will rarely be a straight line. Firms will have to face the endogenous and exogenous factors that will inevitably arise. As opposed to a series of adaptions, success will come from a constant process of anticipation.

However, this process needs intelligence and insight that trading firms can trust, as well as the digital capabilities to quickly manage and interpret information.

Holistic solution

The good news is that commodity firms do not need to develop the applications and infrastructure in-house. By partnering with Refinitiv, they can gain access to all the data sources they need and commingle it with proprietary information in a single holistic solution.

Refinitiv Data Management Solution. Digital transformation in commodities and energy

Charting the right course for your digital journey is crucial. Once you understand the changes, you can respond with speed and market insight, gaining the competitive edge required to thrive in a digitized world.

For a more in-depth examination of the trend towards the digitization of commodities and how you can gain a competitive edge, explore our report:

The Digitization of Commodities: How can you stay competitive in a new market era?

The post Digital transformation in commodities and energy appeared first on Refinitiv Perspectives.


 
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Equity Analysis / Vietnam

Vietnam Energy: As demand soars, solar can shine with the right policies

  • Vietnam's solar power capacity could reach 8.9GW this year, 10x the government target of 850MW by 2020
  • But lower tariffs may only attract investment in the southern provinces, putting further pressure on the overloaded grid
  • The government needs to adopt take-or-pay, price-competitive auction schemes to attract international players
Vahaj Ahmed @
Tellimer Research
28 May 2020

Vietnam has issued a new policy to promote the development of solar power projects, commonly known as Decision 13, effective 22 May 2020. While this ends ten months of policy uncertainty, the new feed-in tariffs (FiTs) will only be able to achieve so much by 31 December 2020 (when the policy expires). Other than a handful of international players such as Thai-listed B. Grimm Power and Singapore's Sunseap, most solar projects are owned by both unlisted and listed Vietnamese conglomerates (like Trungnam Group and Vinh Nha Trang Investment JSC). But with the right policies, this could soon change. In this note, we briefly discuss the new policy and highlight the opportunity size for renewable power capacity in Vietnam until 2030.

Vietnam's energy demand set to triple by 2030

We assume that Vietnam's 2017 per-capita electricity consumption of 1,980kWh will grow in line with its GDP/capita growth (13-year, 2018-30 CAGR of 7.8%). As a result, the country's total consumption could stand at 550bn kWh in 2030, nearly 3x its 2017 consumption.

Renewables (excluding hydro) can claim a greater share of the growing energy pie

In 2017, 45% of Vietnam's electricity was produced from renewable resources. However, excluding hydropower, the share of renewable energy stood at a meagre 0.2%. By 2030, renewable electricity may only account for 23% of total output, but the cumulative share of biofuel, solar and wind (i.e. renewables excluding hydro) may reach 7.5%.

The size of the opportunity in Vietnam for renewable power capacity until 2030

According to the Revised National Power Development Master Plan (March 2016), the country's renewable electricity (excluding hydro) should cover 7.5% of total generation by 2030. As a result, Vietnam's installed solar power capacity needs to reach 14GW by 2030 (currently 5GW) to meet this target, while the installed wind power capacity should reach 5GW (currently less than 1GW). 

This will require an estimated investment of US$7.0bn and US$6.5bn in solar and wind projects, respectively, between 2020 and 2030. According to our estimates, both types of technologies could yield up to 14% US$-IRR over the 20-year project life.

To encourage international players the government needs to adopt take-or-pay, price-competitive auction schemes

Other than a handful of international players (including, but not limited to, Thai-listed B. Grimm Power and Singapore's Sunseap in solar, and Thai-listed Sun Energy and Belgium's Enfinity in wind), most of the projects are owned by both unlisted and listed Vietnamese conglomerates (like Trungnam Group and Vinh Nha Trang Investment JSC). 

So far, international solar giants have shied away from investing in Vietnam due to its underdeveloped transmission lines which are owned and managed by the government. The overloaded grid (especially in the southern provinces) has wasted up to 40% of the new solar electricity generated, while developers have incurred losses. The government needs to adopt a take-or-pay model which will ensure predictable returns and make investment in solar projects more attractive. This, coupled with price-competitive auction schemes (expected from 1 January 2021), could be beneficial for the country's power supply.

Auction schemes will not only help reduce electricity prices, they will allow the government to manage the grid effectively (i.e. control when and where the solar power projects are installed) and also help drive out small-scale, speculative players from the market.

If Vietnam plays smart, it may replicate the record-low price of USc3.88/kWh in Southeast Asia achieved last year at neighbouring Cambodia's first solar auction, and invest the differential (i.e. USc3.21/kWh) to upgrade its transmission infrastructure. The most advisable action for investors is to wait for the take-or-pay, price-competitive auction in order to eliminate the risk of irregular off-take by the government resulting in lower-than-expected returns. 

The new solar policy

Lower and (still) uniform feed-in tariff (FiT) across the country...

In contrast to the previous flat tariff of USc9.35/kWh for all grid-connected solar power projects and the proposed FiTs (which were higher on average and categorised into four regions according to the levels of photovoltaic potential), the new tariffs are 10-24% lower (ranging from USc7.09/kWh to USc8.38/kWh) and still uniform across the country (except for Ninh Thuan province which stays at USc9.35/kWh). 

...may only succeed in attracting investment in the southern provinces, putting further pressure on the overloaded grid

Photovoltaic (PV) power potential in Vietnam ranges from 2.6 kWh/kWp in the north to 4.4 kWh/kWp in the south. As a result, the majority of the new solar power projects have been installed in southern Vietnam (including the 600MW Dau Tieng project shown in the image above, which is Southeast Asia's largest solar farm). However, transmission lines, which take much longer to get approval and build, have struggled to keep pace with the new solar capacity. This has resulted in losses for the developers as the existing grid is insufficient to accommodate 100% of the new solar electricity that can be produced. 

According to VnExpress last year, some renewable power plants in the southern province of Ninh Thaun (where PV potential is high) could only operate at c60% of their maximum capacity. We believe that uniform FiTs across the country will encourage developers to prefer southern Vietnam and put further pressure on its already overloaded grid. 

Figure 1: PV power potential (kWh/kWp*) is higher in southern Vietnam

kWh/kWp is simply defined as units of electricity (kWh/day) which could be generated for every 1kW of installed PV capacity.
Source: Global Solar Atlas 2.0 

Vietnam's solar power capacity could reach 8.9GW in 2020, 10x the government target of 850MW by 2020

We estimate that 3.8GW worth of grid-connected projects could be installed by 31 December 2020. This will take Vietnam's solar power capacity to 8.9GW, or 14.1% of total installed capacity (all else being equal). 

However, aside from the tight deadline, there are some conditions to meet. For grid-connected solar power projects, it is mandatory for the electricity seller and the electricity buyer, state-owned Vietnam Electricity (EVN) or its authorised members, to sign a 20-year PPA. Moreover, the decision on investment policy must have been issued by relevant authorities before 23 November 2019. These projects could qualify for the below FiTs only if they achieve commercial operations date (COD), either partially or wholly, by 31 December 2020. The FiT for solar power projects which fail to comply with these conditions will be determined through a competitive mechanism, i.e. a price-competitive auction scheme which is expected after 1 January 2021. 

  • Rooftop solar powerinvestors (with up to 1MW capacity) will receive USc8.38/kWh versus USc9.35/kWh weighted-average FiT (or 10% lower) proposed in the draft policy.
  • Floating solar power projects will receive USc7.69/kWh versus USc8.28/kWh weighted-average FiT (or 7% lower) proposed in the draft policy. This FiT is applicable to solar projects with photovoltaic (PV) panels installed on structures floating on the water surface, and directly connected to the national grid only.
  • Ground-mounted solar power projects will receive USc7.09/kWh versus USc8.07/kWh weighted-average FiT (or 12% lower) proposed in the draft policy. This FiT is applicable to solar projects with PV panels installed on the land, and directly connected to the national grid only.

For the first time, the Government of Vietnam has allowed direct power purchase agreements (DPPAs). The term 'Electricity Buyer' now includes organisations and individuals, which means that the state-owned EVN and its authorised members are no longer the exclusive purchasers of electricity from solar power projects. 

This facility, however, is limited to rooftop solar power systems, provided that the electricity buyers 'do not make use of EVN's grid for the purchase'. The tariff and the PPA could be agreed between the buyer and the seller at their discretion, as long as it conforms with the applicable laws. This may encourage investments in indigenous solar power capacity, especially by Vietnam's manufacturing sector which consumes c60% of total electricity, and help ease pressure on the electricity grid.


 
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Macro Analysis / Global

Central Bank Digital Currencies: Challenges for commercial banks

ING Think
16 June 2020

Renewed interest in digital currencies

Digital currencies are rapidly moving up the agenda for commercial banks. Although Facebook has been forced back to the drawing board with its grand Libra global currency plan, the Covid-19 pandemic is giving dramatic impetus to the central banks’ studies of creating their own digital currencies. Aside from the sudden jump in cashless contactless payments, the pandemic is sparking renewed interest in the potential for central bank digital currencies (CBDCs) to expand the monetary policy toolkit to tackle a dramatic recession. CBDCs could help get cash or even loans quickly out to people and businesses or allow interest rates to be driven into sharply negative territory. But the implications for the role and profitability of the commercial banks could be profound.

Until recently the commercial banks were working on the assumption that central banks would concentrate on Wholesale CBDCs rather than Retail CBDCs. This would not be disruptive. Indeed, it would largely be welcome for the commercial banks. Wholesale CBDC would only be available to selected financial institutions and would improve cross-border settlements issues by speeding up transactions while reducing costs and scope for errors.

The consequences could be revolutionary

But now commercial banks are having to tune in to the prospect of Retail CBDCs being launched. The consequences could be revolutionary. Banks could find themselves competing with the central banks as well as the Big Tech companies. Indeed, some of their activities might even be taken over by the central banks. Universal access to the central bank balance sheet, and the creation of a new-risk free asset, would create new opportunities but also raise new challenges for central banks, commercial banks and financial markets.

What form CBDCs take will undoubtedly be complicated by the fact that different central banks will pursue different motives, strategies and experiments. Aside from improving existing payments infrastructures, some will also be looking to promote financial inclusion or curb financial crime and the black economy.

Big questions revolve around how the private and the public sector will divide up their roles and responsibilities. One key choice would be over whether the Retail CBDC would be exchanged using account-based ledgers or digital tokens. Another would be whether it is distributed directly by the central bank or via banks or other intermediaries. In its purest form, an account-based directly issued CBDC would be particularly challenging for commercial banks. They would find themselves competing for deposits with the central bank, which would be especially hard if the CBDC offered attractive interest rates or if a crisis triggered bank runs. It also begs the question of whether and how the central bank would make loans.

A token-based CBDC might be the least disruptive scenario

Given that central banks, at least for now, lack the resources for such a radical takeover of banking functions, it perhaps more likely that CBDC will be distributed through banks and other institutions. This would allow the central banks to avoid much of the cost and risk of screening and servicing customers, providing complementary services (such as cards and investment products), and building and running the technology and operations.

In principle, a token-based CBDC might be the least disruptive scenario since the tokens would effectively be digital versions of cash and avoid the burden of account management and verification. However, if this were to allow non-financial players like the Big Tech companies (such as Facebook with Libra) into digital finance this would increase competition in an already highly contested market, further reducing margins and challenging the banks’ customer relationships.

The emergence of CBDCs, therefore, raises some deep strategic questions for the future of the commercial banks, at a time when their profitability is already challenged. They should welcome the timely arrival of the Digital Monetary Institute to address them.


 
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Macro Analysis / Global

BIS encourages central banks to continue adapting to the challenge of digital payments

Bank for International Settlements
24 June 2020
  • Rapid reshaping of payment services requires central banks to keep evolving as they support the safety and integrity of the payment system.
  • Changes are generating interest in central bank digital currencies (CBDCs), which deserve consideration as additional means of payment.
  • Covid-19 has spurred contactless payments while highlighting shortcomings in payment systems, especially for the poor and unbanked.

 Central banks, as guardians of the safety and integrity of the payment system, must keep evolving to meet the challenge of rapidly accelerating digital innovation, the Bank for International Settlements (BIS) writes in its Annual Economic Report.

In a special chapter on central banks and payments in the digital era, the BIS analyses the implications of the radical transformation of payment systems over recent years. It also looks at the impact of Covid-19 on payment behaviour. 

"As innovations increasingly emerge from outside the traditional two-tier structure provided by central banks and commercial banks, it is essential that policymakers meet the challenges of these new innovations to maintain the integrity of the payment system," said Hyun Song Shin, Economic Adviser and Head of Research at the BIS. "While the private sector is well placed to draw on ingenuity and creativity to serve customers better, this is best done on solid central bank foundations." 

Central banks play a pivotal role in safeguarding the payment system by underpinning trust in money, thus supplying the ultimate safe retail (consumer) and wholesale (financial institution) settlement medium. Their operation of public infrastructures and promotion of interoperability and competition are also key to accessible, low-cost, high-quality payment services.

But they also need to foster innovation to help tackle systemic shortcomings and ensure that households and businesses have access to a diverse set of safe and efficient payment methods. One option at the frontier of policy opportunities is the issuance of CBDCs, which could offer a new, safe, trusted and widely accessible means of payment.

"Central banks around the world are stepping up their efforts to study CBDCs and, whether wholesale or retail, the goal is to create safe and reliable settlement instruments for transacting in the digital economy," said Benoît Cœuré, Head of the BIS Innovation Hub. "In tandem, international policy coordination can ensure that all advances in payment systems facilitate greater efficiency, cross-border integration, safety, financial inclusion and innovation."

The Report also analyses the pandemic's effect on retail payments, with a focus on unequal access among the poor and unbanked. It highlights the surge in contactless payments to more than 33% of card-present transactions from just over 27% in September, as well as the rapid growth in e-commerce, the slide in cross-border transactions and a forecast 20% drop in migrant remittances.

This special chapter is released on 24 June, followed by the full Annual Economic Report 2020, and the Annual Report 2019/20, on 30 June. 

Note for editors:

The Innovation Hub, established in 2019, aims to identify and develop in-depth insights into critical trends in technology affecting central banking; develop public goods in the technology space geared towards improving the functioning of the global financial system; and serve as a focal point for a network of central bank experts on innovation. As part of the initial phase of implementation, Hub Centres have been established in Hong Kong SAR, Singapore and Switzerland. Additional locations will follow as part of a second phase of implementation. 


 
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