Cashless payments lead many into debt

Merely two weeks after the receipt of her VND20 million (US$800) salary, Thanh Huyen was shocked to find only VND1 million remaining in her account.

Astonished that she could deplete most of her salary in a mere half month, the 27-year-old office worker felt as though she had been "stolen" from. However, the transaction history clearly showed over 100 purchases for clothes, shoes, food, cosmetics, and bookings for flights and accommodations for a trip she had made. Many of these transactions happened early in the morning while she browsed social networks.

Adopting the habit of carrying minimal cash for the past three years, Huyen leaned into the rising trend of cashless payments via various e-banking and e-wallet apps as well as QR codes, conducting all her transactions on her phone. This shift has seen her expenses soar from VND10 million a month to often depleting her funds before the month’s end.

"I assumed I wouldn’t spend as much if I didn’t ‘see’ the money in my wallet, but the reality was I ended up spending more due to the widespread acceptance of card payments and bank transfers," Huyen stated.

Huyen uses a QR code to pay for an apparel purchase in Ho Chi Minh City in early March 2024. Photo courtesy of Huyen

Visa’s 2023 Consumer Payment Attitudes report revealed that Vietnam leads the cashless charge in the surveyed Southeast Asian nations including Cambodia, Indonesia, Malaysia, Singapore, Thailand, and the Philippines, with an adoption rate of 88%. The country also saw a significant growth in new e-wallet registrations.

Safety concerns—fear of cash theft or loss—and the expanding acceptance of cashless payments were primarily cited by Vietnamese participants as key drivers of this shift.

Additionally, the report noted that 61% of Vietnamese respondents now carry less cash than previously, and 62% have adopted QR payments.

Data given by FiinGroup, a Vietnam service provider of financial and business information, underscores this trend, showing that at least four out of five Vietnamese, mainly young people (born between 1981 and 1996) and high-end shoppers, regularly engage with e-wallets, highlighting a surge in cashless payment popularity.

This movement is accompanied by a noticeable decrease in cash reliance, evidenced by a State Bank of Vietnam report of a 2% drop in ATM installations as of January 2024, and the once-common holiday ATM congestion has now vanished.

Nevertheless, frequent users of cashless payment methods might be experiencing the "Cashless Effect," a phenomenon highlighted by Dr. Do Minh Cuong, a former professor at the University of Economics & Business at Vietnam National University in Hanoi. This effect arises from the lack of physical interaction with money, which tends to increase spending habits.

NerdWallet, a personal finance company, also suggests that spending physical cash carries a tangible sense of loss, making it feel more consequential and thereby limiting expenditure compared to the more abstract nature of card or digital transactions, which lack an immediate physical impact and can lead to higher spending.

Supporting this observation, a 2023 study conducted by data provider Dun & Bradstreet found that individuals using credit cards tend to spend 12-18% more than those relying on cash transactions.

A customer demonstrates her QR code payment receipt to staff at a coffee shop in Hanoi’s Thanh Xuan district in April 2024. Photo by VnExpress/Quynh Nguyen

Previously, when her salary was paid in cash, Bao Chau, 40, from the northern town of Hai Phong, would allocate her earnings between daily expenses and savings. But since her salary began being transferred directly to her bank account, she found online payments more convenient and started to use them for everything from paying bills to grocery shopping and even lending money to friends.

This convenience disrupted her and her husband’s goal of saving 50% of their 30-million-dong income, leading to them saving nothing.

"Before, I would count the cash in my wallet before making a purchase decision," Chau recounted. "The act of parting with cash was painful."

"Now, with a quick QR scan or card swipe, I don’t think twice and often only realize I’m out of funds when transactions fail."

Cuong notes that digital advancements have indeed facilitated and popularized cashless payments, a trend also observed in developed nations where technology enhances convenience.

"Yet, everything has its pros and cons," Cuong remarked. "The ease and speed of online payments come with risks like overspending and accruing debt without prudent financial management."

Huyen’s narrative confirms this, as linking her bank account to numerous e-wallets and unchecked shopping habits frequently push her into debt, requiring her to seek financial assistance from family and friends to get through the month. Her attempts to revert to using cash for better expenditure control were short-lived due to ATM scarcity and her fear of losing cash as well.

"The simplicity of modern shopping technology complicates saving efforts," Huyen admitted.

Chau’s experience also confirms Cuong’s claim, as her failure to fully understand how her credit card works, which resulted in late payments and led to a substantial accumulation of interest, once amounting to a VND20 million fine.

Besides overspending, Cuong also highlighted the risks of erroneous transactions and fraud in online payments. Bank transfer users may send money to the wrong accounts or in wrong amounts, according to Cuong. They could also become victims of frauds when clicking a malicious link, Cuong warned.

Mai Anh from Hanoi’s Thanh Xuan district experienced significant losses due to mistyped bank transfers, with the biggest was when she accidentally typed 20 million instead of 200,000 when making a bank transfer.

Financial experts thus suggest the 50-30-20 budgeting rule for effective financial management. Applying this method means allocating 50% of one’s income toward essential needs, 30% toward flexible spending, and 20% toward savings and investments. These sums should be clearly separated and never be mixed up.

"However, extreme solutions such as exclusively using cash or splitting funds across multiple cards are not encouraged," said Cuong. "The more cards you have, the more you spend, and credit card users may get into debt if they do not pay on time."

Understanding how cards work before acquiring one is crucial, he advised, recommending that individuals embrace technological advancements for convenience rather than accruing debt.

The Anh, 30, from Ho Chi Minh City, struggled with card-induced debt but is learning to manage his finances better, aiming to purchase a home before age 35. By allocating 30% of his monthly income for daily needs on a single bank card and not allowing himself to spend more than that amount, Anh has improved his financial control.

"This method allows me to manage my finances effectively," Anh explained. "I now know when to stop instead of spending irrationally."