Why Vietnamese merchants dislike credit card payments

Photo: US Department of Agriculture

Merchants in Vietnam don’t like credit cards, and they are not alone. Vendors across the world are refusing to serve credit card customers.

By Preetam Kaushik

In Southeast Asia, cash is king- nearly 70% [1] of all transactions still involve paper money. Yet governments across the ASEAN region are doggedly pushing for a transition to a cashless society.

Nobody can blame them for trying; going cashless comes with a host of benefits for all parties. Customers enjoy faster transactions, greater flexibility, and eye-catching rewards and discounts. Governments can reduce tax evasion, clamp down on corruption and promote improved financial transparency.

But somebody has to be left holding the proverbial short end of the stick. In the case of Vietnam, recent reports suggest that it is the merchants who are left in the lurch, especially smaller ones.

According to Vietnam Insider, thousands of Vietnamese outlets are discreetly discouraging the use of credit cards by charging customers using plastic additional fees. Alienating paying customers does not sound like a solid business model, but the merchants have some compelling arguments.

Bank charges on card transactions eat into their margins

Card company offer rewards to customers who use them but for the businesses that accept these payments, it is a different story. They have to pay fees on individual transactions, often around 2-3% of the total.

A 2% charge may not seem like a significant chunk, but not all merchants can afford it. Smaller vendors operate on tight margins. Even these small fees can leave a large dent in their profits.

A shoe shop in Saigon.
Photo: S. Ken

There are other reasons as well. Training your staff to handle and keep track of all card transactions incurs extra costs. In the case of fraud or card thefts, merchants face the hassle of processing chargebacks.

They are not alone – this is a global trend

In recent years, the popularity of cashless transactions has skyrocketed. ASEAN’s customers may prefer e-wallets to credit cards, but in major western markets like the US, almost every household has at least one credit card.

Like Vietnamese merchants, retailers in the West hate these reward cards, because of the high charges they are forced to pay. The situation has become so serious that even big retailers like Amazon and Target are moving to reject at least some high-cost reward cards.

ASEAN is not yet at the mercy of credit card companies

In 2013, Forbes reported that nearly 55% of small businesses in the US refuse credit cards, for the same reasons as their Vietnamese counterparts. Their plight was compounded by laws that made it illegal for them to pass those card fees to customers.

But with virtually every customer owning a credit card, businesses in the US have reached a stage where they cannot afford to lose customers who pay using plastic. Recent US court verdicts have made things easier for them, by allowing merchants to pass on credit card fees to consumers.

But the payment landscape is quite different in the Vietnamese market, which has one of the lowest percentages of bank account and credit card penetration in Southeast Asia. Only 4.1% of Vietnamese consumers have a credit card. Even online transactions are paid for in cash.

In this scenario, merchants can afford to lose a few customers. Until credit card usage reaches a critical mass, or banks cut back on the charges, they will continue to discourage the use of cards. And who can blame them?

Is there a solution?

In the present situation, the Vietnamese credit card holders are paying the price. It is up to the government, the card companies, and the banks to reach a solution. VISA & MasterCard have both posted robust growth rates in recent years, thanks to the increase in card payments in major markets. 

If they are serious about expanding into the ASEAN region, they have to offer incentives, not just to consumers but to the merchants as well. Credit cards already face stiff competition from a crowded e-wallet and online payments market populated with nearly 100 different entities.

Though these large international card companies can afford to slash their charges, often it is not entirely in their hands. Sometimes, it is the banks involved that impose some of the charges levied on merchants. In this situation, the merchant banks will also have to do their bit to encourage a shift to plastic.

The government can, and should, play an active role in bringing these different groups together. After all, having more credit card users is ultimately another step towards realising a cashless Vietnam.