Southeast Asia is considered a great potential market for online payments, of which, Vietnam is forecast to be the third largest internet economy in the region, after Indonesia and Thailand. The application of financial technology (fintech) has grown and Vietnam is going through a period of rapid development in the area. In just four years, the number of fintech companies in the country has increased from 40 to more than 150. Notably, the COVID-19 epidemic, though causing severe damage to the whole world, on the other hand has created a great opportunity for some new emerging trends, typically fintech.
Online transactions increasing sharply
Since the COVID-19 outbreak, the fear of the disease spreading through social contact and when dealing with cash is one of the reasons why more Vietnamese people are using fintech. According to some major retailers, the number of online transactions during the outbreak increased by 3-5 times. Sales Director in charge of the Vietnam Payment Solution Company (VNPAY) Ngo Anh Tuan said that compared to the previous year, the number of people paying using non-cash payment methods has increased significantly. The growth rate of payment transactions via the payment gateway VNPAY - QR increased by 600% in February, Tuan revealed.
Vice Chairman and Co-founder of MoMo Nguyen Ba Diep also shared that payments through the e-wallet have doubled since the Lunar New Year holiday. ZaloPay has also witnessed a sudden growth in recent years with an estimated growth rate of 36%. "It is predicted that, after the COVID-19 epidemic, e-payments will grow strongly and replace traditional payment methods in the near future," said ZaloPay Director Truong Cam Thanh. Assessing opportunities for Vietnamese fintech enterprises in this period, Managing Director of Fiin Financial Technology Innovation Joint Stock Company (FIIN) Tran Viet Vinh said that this period offers an opportunity for businesses operating in the field of payment and digital finance in Vietnam. When there is a need for shopping, a requirement to limit contact with sellers and shippers, as well as a cash use restriction, people will choose e-payment applications instead.
When the COVID-19 pandemic is over, it may be time for the public to adapt to the emerging trends, including those of the digital economy and digital payments. This is also an opportunity for businesses, including fintech companies, to rethink and reform themselves. According to the relevant statistics, among more than 150 fintech operating in the Vietnamese market, the activity that attracts the most attention is offering payment intermediary service, such as an e-wallet. Data from the State Bank of Vietnam (SBV) shows that, as of April 20, there were 33 non-bank organisations licensed to provide payment intermediary services, mostly e-wallets and payment gateways. According to experts, cashless payments in Vietnam have many advantages, such as the young population structure combined with the fast growing economy and middle class. Therefore, this market will see strong developments in the future. Competition among fintech companies will be fiercer, but on the other hand there is expected to bring more benefits and value to users.
Developing a fintech ecosystem
According to forecasts from the SBV, by 2025, personal credit will account for about 24% of the domestic fintech market. Demand for personal credit in Vietnam is expected to continue to grow in the near future. This shows that Vietnam has many favourable platforms to accelerate the formation of a fintech ecosystem with the finance - banking sector taking the lead. However, in order to do that, it is necessary to have more support, a ‘nudge’ from mechanisms and policies to bring new fintech applications into play in the near future.
According to economists, although online payments have increased sharply over recent times, they have still not completely replaced cash transactions, which have existed for a long time in Vietnam’s social system. Specifically, statistics show that, although there has been significant growth, the proportion of the Vietnamese population with a bank account is still low and concentrated mainly in urban areas. In rural areas, where 70% of the population is found, the proportion of people having a bank account is very low. Meanwhile, according to current regulations, e-wallet account owners who want to activate the service must link to a bank account. As a result, online payment transactions have only increased locally in urban areas.
In addition, despite the outstanding development, compared with other countries in the region such as Malaysia, China or Singapore, fintech companies in Vietnam still face limitations both in their number, scope of operation and human resources. In terms of numbers, the number of fintech companies participating in the Vietnamese market is still quite modest compared to Singapore (over 1,150 companies), Indonesia (510) and Malaysia (370). Regarding human resources, Vietnam also has no human resource training facilities due to the lack of training cooperation between the IT and finance sector and banking experts. Therefore, the quality of human resources is also an issue that fintech companies should pay attention to when expanding their business operations.
MoMo is one among a number of popular e-wallets with a large number of customers in Vietnam. (Photo: Ngoc Duong)
“Despite strong growth, fintech companies in Vietnam are still very young when compared to the level of development of fintech in the world. In fact, fintech in Vietnam is still at a small scale with a limited financial capacity. They also limit their activities to the field of payment, so although it has established a certain position in the market, its level of influence still quite modest,” said Dr. Can Van Luc, Chief Economist of the Bank for Investment and Development of Vietnam (BIDV).
At present, although there is high demand to use fintech applications in payment operations, to completely change people’s behaviour from using cash to e-payments will be a long and difficult journey for fintech businesses. Fintech experts say that it will be a gradual transition, and one important thing that can make this process go more smoothly is the need to build a complete ecosystem for the fintech market, in which, the key is to complete the legal corridor for enterprises operating in this field soon.
Soon improving the legal corridor
Following a wave of global investment, in Vietnam, fintech is still identified as a potential investment area, attracting the capital of many ‘sharks’. So far, the Vietnamese fintech market has about 27 e-wallets, and more than 90% of the market share belongs to five large enterprises, including MoMo, ViettelPay, Moca, AirPay and ZaloPay, and all these five e-wallets have ownership rates in foreign countries ranging from 30 to 90%. This fact requires a policy of managing fintech to prevent foreign investors from manipulating the payment field, thereby affecting national monetary policy and data security.
In a recent Asian development prospect report published by the Asian Development Bank (ADB), Country Manager for Vietnam Eric Sidgwick pointed out that Vietnam has seen good growth in the global innovation index, but there are still some factors that inhibit development, including the current legal framework which does not keep up with the development of fintech products and services. Therefore, ADB recommends that a favourable legal framework that allows the incubating and nurturing of the application of fintech is essential to helping Vietnam develop fintech in a comprehensive manner.
Economists also agree that an incomplete legal framework is a barrier to the ability to expand the operations of fintech enterprises. At the same time, it also causes risks for investors and businesses. Under guidance from the Government to honour the commitment to develop a favourable business environment for the development of fintech, the SBV is currently formulating and collecting opinions to finalise a draft decree on non-cash payments which is scheduled to be submitted to the Government in June, as well as studying adjustments to other documents that hinder fintech development. Notably, the SBV is also developing a pilot mechanism for peer-to-peer lending and a mobile money pilot project, in addition to finalising a proposal on a pilot management mechanism for fintech activities (regulatory sandbox) to be submitted to the Government.
Sharing his international experience, Dr. Can Van Luc also proposed to soon complete the legal corridor to manage fintech activities in an open direction in order to support fintech enterprises in taking advantage of development opportunities, while issuing a sandbox pilot regulation for financial products associated with technology in order to better utilise technological achievements, but still control risks and increase people and businesses’ access to financial services.
“The sandbox legal framework must have a clearly defined space and time because testing can fail. The Government may allow the application of a sandbox mechanism akin to the Singapore model with the aim of supporting businesses to test new technologies and new business models, such as sharing economy, to support and promote the development of technological start-ups in Vietnam. At the same time, the Government also needs to study and build ‘special technology zones’ and ‘creative special zones’ to test specific mechanisms for the technology enterprises under the model in some foreign countries like Switzerland, Russia, the Philippines and China,” Dr. Luc proposed.
Economist Vo Tri Thanh, former Deputy Director of the Central Institute for Economic Management, also said that it is necessary to have a flexible risk management mechanism for fintech to make quick adjustments when there is fluctuation in technology and the market. Regarding sandbox, as it is a testing mechanism, there will not be a common policy for all because each business has different technology, thinking and models, so it can be applied in specific cases to both support development but still manage the risk, Thanh suggested.
Also regarding the sandbox, up until now, more than 100 fintech businesses have registered to participate in the testing mechanism. The SBV has stated that it would create favourable conditions for new fintech to develop, so that the policy adjustment could catch up with the innovation practice. In this mechanism, fintech enterprises and banks will be able to participate in testing new products and services with appropriate risk monitoring and control measures from regulatory agencies, such as methods of remote identification for e-customers (e-KYC), application of block-chain technology in banking operations and open data sharing connection applications between banks and fintech. All of these pilot studies and regulatory adjustments are geared towards creating a complete ecosystem, thus enabling fintech to develop safely, healthily and smoothly.
