Recently, Tien Phong Commercial Joint Stock Bank (TPBank) has decided to offer free services to customers making online money transfer to any accounts at any banks in Vietnam via TPBank’s eBank internet banking application.
Particularly, when using ATM cards of TPBank to withdraw money at all ATMs nationwide (except for HSBC, Standard Chartered and Vietnam Russia Joint Venture Bank), customers do not have to pay any costs.
Transferring money online and withdrawing money from ATM cards are two of the most common banking transactions. Up to now, TPBank is the first and only bank in Vietnam to waive these two types of fees at the same time.
In addition to TPBank, two other banks are also applying the “zero fee” policy, but only free online transactions, namely Vietnam Technological and Commercial Joint Stock Bank (Techcombank) and Vietnam International Commercial Joint Stock Bank (VIB). In particular, Techcombank is a typical success model for this policy. Some other banks also have free transaction policies, but they are limited to each type of customers, and mostly for the purpose of attracting customers to use one or some certain services.
“Zero fee” on one hand requires the bank to sacrifice revenue from payment services (TPBank also has to sacrifice revenue from the cash withdrawal fees via ATM) while they still bear related transaction costs. It is on the other hand helps banks quickly increase the number of customers as well as increase the amount of demand deposits.
Increasing demand deposits is important because this type of deposits has a very low interest rate. For the same amount of deposits, banks having large proportion of demand deposits will have lower costs of capital, creating a great competitive advantage in the interest rate race as well as improving its profit growth potential.
“Zero fee” is a core policy that has helped the proportion of non-term deposits in total customer deposits (CASA ratio) of Techcombank even surpass Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank)’s and Military Commercial Joint Stock Bank (MB)’s. This is noteworthy because Vietcombank has a great advantage in transactions of state agencies and businesses, while MB covers most defense spending (both institutional and personal). These unique advantages help the CASA of these two banks to stay at a very high level compared to the common level.
Certainly, offering free services is not enough. Along with the “zero fee” policy, banks must have other synchronous solutions to turn them into customers’ main transaction bank. As such, the payment deposit balance will be high and sustainable.
For TPBank, the comprehensive “zero fee” move for both online money transfer and ATM withdrawal shows that the bank is really ambitious in increasing customer size as well as CASA. In particular, the goal of increasing the number of customers is very important because for a “technological bank” like TPBank, technology cannot help TPBank make a big difference in costs as well as revenue compared to other banks if its customer base is small.
TPBank’s 2018 financial report showed that the bank attained 268 billion dong in income from payment services (up by 2.1 times compared to 2017), along with 131 billion dong in payment service costs. In the first nine months of 2019, these numbers were respectively 299 billion dong (up by 67 percent over the same period of 2018) and 137 billion dong.
Thus, TPBank is likely to have to sacrifice revenue of hundreds of billion dong per year, although this revenue source is increasing rapidly. This again shows the great ambition of this technological bank.
Since being under control of Do Minh Phu, TPBank has not only handled the bad debt burden left from the past but also recorded a rapid growth in profits.
From a heavy loss of over 1.3 trillion dong in 2011, the pre-tax profit reached 116 billion dong in 2012 (when Do Minh Phu started the restructuring) and 2.257 trillion dong in 2018, up by nearly 20 times after seven years. From 2013 to 2018, the bank’s average pre-tax growth was up to 76 percent per annum.
In the first three quarters of 2019, TPBank attained a pre-tax profit of over 2.4 trillion dong, up by 49 percent over the same period of last year. As expected, the bank’s profit will be about 3.2 trillion dong this year.
