A Fintech wave hit Vietnam’s banking

Fintech uses technology to meet bank consumers’ growing digital demand

This prediction is turning into a reality with the Fintech wave that is driving many banks in the US and Europe to downsize. These banks have been cutting between 30 and 40 per cent of their branches and firing the same percentage of employees. According to McKinsey’s forecast, by 2025 they would see up to 40 per cent of their revenue at risk if they do not take “mitigating actions”. JP Morgan’s CEO Jamie Dimon, in his 2015 annual letter to shareholders said, “Silicon Valley is coming.”

What is Fintech? Financial technology, also known as Fintech, is an industry composed of companies that use new technology to provide financial services. Fintech companies’ innovations will either disrupt, replace, or support traditional banking in order to optimise the banking sector in a digitalising world. Fintech meets the demand of consumers in areas with low capital and low risk such as consumer lending, e-payment, and asset management.

But Fintech app users have limited access to traditional services of banks such as home mortgaging and commercial loans. Therefore, one can see that Fintech not only brings challenges but also many opportunities for traditional banks.

After 10 years of developing Fintech in Vietnam, I think the relationship between banks and Fintech companies is one of symbiosis. Fintech creates new values that may replace the old ones that traditional banking is holding onto. Even if it does not do so, it would draw customers to only a few banks.

The traditional banking model, with its many legal restrictions, makes it difficult for many people to access financial services. Fintech is trying to popularise these services to the masses. Like any good idea whose time has come, the trend of Fintech is not reversible.

I think it takes only three to five years for a new technology to threaten traditional sectors. The increasing popularity of Bitcoin, e-wallets, person-to-person payments, and peer-to-peer lending shows that if banks do not grow these kinds of services themselves, Fintech companies will do so.

However, Fintech has been helping banks too. For domestic money transfers, e-wallets connect to banks, increase transactions, collect fees from users, and decrease the amount of paper money that would be withdrawn from the system.

In e-payment, payment gateways Smartlink and Ngan Luong bring thousands of merchants to acquiring banks and help users of the cards issued by issuing banks transact anywhere, bringing fees to all sides.

In consumer lending, credit rating services based on non-traditional data sources such as social networks and utility bills payment histories, such as TrustingSocial and Lenddo, help banks and financial companies expand their clientele to the unbanked without having to rely on traditional credit rating mechanisms like FICO.

In point-of-sale technology, mPoS.vn and Square bring millions of small and very small merchants to the acquiring banks, and expand the card acceptance network for issuing banks to include points that have been under their radar, such as street food stalls and very small stores.

To sum up, Fintech companies use information technology to bring new business opportunities to traditional financial institutions, and make money from the added value they bring.

Globally, Fintech apps are diverse and touch all areas of the banking sector: deposits, transactions, insurance, consumer and small business lending, risk management, security, and more.

In Vietnam at the moment Fintech services are not so diverse, mostly concentrated in e-payment. The number of companies in this area boomed after the State Bank of Vietnam started licensing firms to provide payment services, with 16 companies licensed and many others waitlisted. Only some of these companies are making a profit and have a market share. The rest are struggling and surviving on investor money.

There are a few apps in consumer lending, including Mobivi, Manh Thuong Quan, and Doctor Dong; credit rating apps such as TrustingSocial; personal finance management apps like MoneyLover; and digital user verification through selfie methods like Verime. The number of companies in other areas of banking is very few.

Besides demand and supply reasons, and Fintech in Vietnam still being at a very early stage of development, I think one of the reasons for this situation is the attitude of traditional financial institutions and banks. They are not yet ready to co-operate because they are not yet aware of the necessity to do so. I would propose regulating agencies encourage the piloting of new technologies in financial services and open a national database for Fintech companies to use – within limits. I hope this will encourage banks to co-operate with Fintech companies, so that they can succeed together.

By Nguyen Hoa Binh Chairman and CEO of NextTech Group