Enabled by the e-commerce rise in 2020 and 2021, Financial Technology (“Fintech”) became one of the fastest-growing business sectors globally, with Vietnam at the forefront of Fintech growth. In the following insight, we present the scalability potential and the challenges of the sector in Vietnam, covering regulatory and policy frameworks, and touch on the fintech verticals which are most attractive for international investors.
The potential
According to the Singaporean news agency Fintech News Singapore, the start-up scene in Vietnam tripled in the last 3 years, looking at the number of startups established, and the biggest segment remains payments – ie digital wallets such as Zalo Pay, MoMo, Moka, and so on, just of few of over 40 non-bank payment services providers.
As per State Bank of Vietnam information, in Vietnam, there are circa 5 million e-wallet users, from a population of closet o 100 million, which means that there is still a lot of room for growth. Strong growth can also be seen in the P2P lending and blockchain space. At the same time, most of the Vietnamese businesses address the B2C model, leaving the B2B space underdeveloped and with significant growth potential.
MoMo, for instance, one of the first fintech start-ups in-country became Vietnam’s largest digital wallet, capturing close to 50% of the mobile payments market, enabling consumers to transfer funds between bank accounts and perform payments.
Ride-hailing giants like Grab, Be Group, GoJek are entering the fintech space with their own wallets and digital payment ecosystems, or through acquisitions or special partnerships with established brands – like Grab-Moca.
Vietnam is a predominantly cash-based economy, due to the low rates of financial inclusion, where more than 70% of the population is not part of the banking ecosystem, with limited access to financial information, ATMs bank branches in rural areas, and so on. For online purchases for instance, circa 80-90% of the transactions are performed in cash, due to the cultural background and low financial literacy, or trust in financial institutions.
However, in a market where circa 80% of transactions are still performed offline, and in cash, there is a significant potential to tap into this fresh consumer base for new entrants and incumbents alike, such as existing banks which are promoting more and more digital banking programs and tools, especially in a tech-savvy market such as Vietnam, with high internet and mobile penetration.
Regulatory issues and the way forward
Up until 2020, the government was very lenient with the sector from a regulatory and investment perspective, allowing foreign investments in the fintech zone, even when there were no clear regulations and legal prerequisites for dealing with some of these new financial businesses models, such as P2P lending and e-wallets. Lately, however, due to the significant growth thanks to the pandemic which forced consumers to adopt more digital financial assets and tools, the market became overcrowded and a mindset of scrutiny slowly arose.
At the same time, The Ministry of Finance, in collaboration with the SBV has put in place a sandbox, a regulatory framework to further boost the financial ecosystem and enable enterprises within various fintech zones such as APIs, P2P lending, payments credit, consumer identification to participate in the pilot regulatory program. There is also a research group in place to cover and manage policies for virtual assets and cryptocurrencies, as the Vietnamese and Asian market is at the top among users.
Therefore, the SBV has a double edge-sword task to handle: enable financial innovation and support the digitalisation of the economy through support policies for attracting quality investment, but also look after and create strict policies to regulate the fintech sector and maintain stability and safety, with the aim to protect the consumer ultimately from many risks including money laundering, terrorist financing, and risks related to security, information confidentiality and unauthorized use of personal information. We expect the issuance of a decree to cover this issue by the end of 2021.
Vietnam remains one of the most attractive markets in the region for investors interested in the fintech sector, and the potential for value creation is huge, starting from financial inclusion programs and community focussed projects, and moving towards a complete redesign of the digital economy. This can be achieved by involving the central bank and policymakers, the incumbent banking sector, and the new market entrants which can bring innovation and synergy together.
Author
Vlad Savin
Head of Business Development – Acclime Vietnam
Vice-Chairman – CEEC
Vlad currently actives in business strategy and development, advising international investors with market entry and compliance governance in Vietnam and across the Asia region. He is a business development, finance and marketing professional, and has resided in Southeast Asia for the last 7 years. Vlad has a wide experience in personal and corporate finance, working with investment firms in Malaysia in Vietnam, with extensive knowledge in business consulting, strategic analysis, client engagement, marketing and events with international exposure. Vlad is Head of Business Development at Domicile Corporate Services, a corporate consulting firm that supports investors with market entry, licensing, incorporation, compliance and tailored advisory services.
Vlad can be reached at v.savin@acclime.com