Financial Switching Services: Unanswered Issues

While many Fintechs are losing money, NAPAS has been growing profits continuously, averaging hundreds of billions of VND per year, and even reaching nearly a thousand billion in 2022 thanks to financial switching and clearing services. This corporate profit margin is also the dream of many big names on the stock market.

Thanks to the financial switching business, clearing has brought in approximately a trillion in profit each year for NAPAS.

Non-cash payments have gradually become familiar to Vietnamese people in recent years. While the market only focuses on payment intermediary Fintechs, a name that is less mentioned is the National Payment Corporation of Vietnam (NAPAS). According to research by the Journalist & Public Opinion newspaper, this is the only payment intermediary licensed by the State Bank to provide financial switching services and electronic clearing services in Vietnam and is the enterprise with the "most terrifying" growth rate.

In the 5-year period from 2017 to 2021, NAPAS's revenue increased nearly 4 times, from 1,160 billion to nearly 4,300 billion VND. If revenue growth is not difficult to see with the Fintech group, then profit is probably the biggest difference.

Compared to revenue, NAPAS's profit has grown even more rapidly. In 2017, the company recorded a net profit of more than VND200 billion. This figure doubled in 2018 and nearly 5 times in 2021, reaching nearly VND980 billion.

Not only in terms of business operations, NAPAS's total assets have also been continuously expanding. In 2017, the company's total assets reached less than VND800 billion. However, by 2021, this number had increased to more than VND3,400 billion.

Besides, if comparing the growth rate between NAPAS and e-wallets, it is easy to see the contrast, because when the e-wallet market is fiercely competitive and these units often have to promote and refund to attract customers, while NAPAS is "in the most lucrative cake".

NAPAS's revenue mainly comes from collecting fees for banking services and is the only payment intermediary licensed by the State Bank to provide financial switching and electronic clearing services in Vietnam. Therefore, the more transactions through banks, the more NAPAS benefits.

At the "2023 Task Implementation Conference", NAPAS representative said that electronic payment activities in 2022 continued to grow rapidly with the total number of transactions and transaction value conducted through NAPAS continuing to increase by 96.5% and 87.3% respectively compared to 2021. The proportion of cash withdrawal transactions out of total transactions processed through the NAPAS system decreased from 12% in 2021 to 6.56% in 2022.

The proportion of chip card transactions conducted through the NAPAS system increased from 26% in 2021 to more than 60% in 2022. The NAPAS 247 express delivery service using VietQR code also had impressive growth after more than 1 year of launch, payment using VietQR code has become one of the popular payment methods and is well received by the market.

The Power of NAPAS

Nearly two decades ago, ATM cards of any bank could only be used at ATMs of that bank, causing inconvenience and expense for users. In 2004, the first card alliance BanknetVN was established with 8 founding members. Three years later, another card alliance: Smartlink was established. Both of these card alliances are tasked with switching shared connections, connecting member banks.

In 2014, BanknetVN and Smartlink merged, the card switching system was unified and then renamed the National Payment Corporation of Vietnam (NAPAS). From here, NAPAS became an enterprise providing financial switching services in the market for banks.

After its inception, NAPAS has boosted the national payment system. During the period 2015 - 2019, the total number of transactions processed through the NAPAS system increased 21.5 times. The NAPAS system is processing 2.3 million transactions/day, nearly 5 times higher than in 2015. The transaction structure has also shifted from ATM switching to interbank payment switching.

However, according to the analysis of leaders of some large enterprises in the technology - telecommunications sector, Vietnam's electronic payment system currently only meets part of the retail payment needs of people in urban areas. In fact, many other enterprises are fully capable of building financial switching and electronic clearing systems to serve the domestic market, with the advantage of available telecommunications infrastructure and technology.

According to some experts: "Allowing only one company to participate in financial switching and electronic clearing activities is a limitation for innovation and creativity". To promote non-cash payments, develop Mobile Money, and explode in Fintech... it is necessary to create conditions for companies with enough technological potential to participate in this "piece of cake" to innovate, increase competitiveness, and reduce fees for users". However, up to now, the most delicious "piece of cake" still belongs to NAPAS. The more people use money transfer services, the "richer" NAPAS becomes when acting as an intermediary for transactions.

According to Public Opinion