Is visa on arrival a scam or legit?

Visa Vietnam – Visa on arrival is legitimate and posted in Vietnam immigration laws: - Ph - so it is endorsed by the Vietnamese Government.

Why the embassy told me that it is not legit and a fraud while it looks legit?

After reviewing and interviewing some travel agents who processed this visa, our guess is that “this visa compete directly with the embassy services, that is why they will never recognize this visa as legit procedure even though it is posted clearly in Immigration Laws of Vietnam.
We will report it to Vietnam tourism Administration since visa Vietnam – Visa on arrival may be one of the key factors help boosting Vietnam tourism.

Legally issued by Vietnam Immigration Department, it has been online for almost 7 years and increasingly becomes the most convenient way to get a visa to Vietnam.

The Vietnamese government officially announced that Vietnam provided visa-on-arrivals at international airports and border crossing pointsfor all international travelers. Vu The Binh, head of the travel department ofthe Vietnam National Administration of Tourism (VNAT), officially gave theinformation to reporters. The implementation took a few months to give time forthe Customs Department to adapt its information technology system to accommodate the new system.

The advantage of on arrival visa is that you will not have to spend your valuable time and your transportation cost to go to the Vietnam Embassy in your country to apply for the visa code

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Only citizens of certain countries can visit Vietnam without an Entry Visa (valid for visit within 30 days), specifically as follows:

- Not more than 30 days: for citizens of Thailand, Philippines, Malaysia, Singapore, Indonesia and Laos.
- Not more than 15 days: for citizens of Japan, South Korea, Sweden, Norway, Denmark, Finland.
- French citizens holding valid diplomatic passports are exempt from visa requirements when visiting Vietnam and are allowed to stay for up 3 months at one time or on several visits within six months since their first immigration dates.
- Citizens of Chile holding valid diplomatic or official passports are exempt from needing entry, exit and transit visas in Vietnam's territory and are allowed to stay for up 60 days on each visit
Citizens from all other countries are required to get an Entry Visa before departure or a pre-approved Entry Visa (issued on arrival at Vietnam's International Airports) supplied before arrival in Vietnam. Check website Vietnam Visa - Apply Vietnam Visa online for Tourist, Business for more information.

Source:
Vietnam visa center.