What is embedded finance?
Embedded finance is a new way of consuming financial products. In the traditional way, you go to your bank or banking application, or you go to your insurer to get credit or an insurance policy. Embedded finance is the principle of accessing such products in another context.
|Bruno Sivanandan, compliance head at embedded finance platform Credify |
You are shopping for consumer goods, and you can access a consumer credit at the checkout of the e-commerce website. You are buying a tour, and you can subscribe to an insurance policy just as you finalise the booking. In Vietnam, the buy now, pay later (BNPL) trend is the most famous example of embedded finance.
What are the potential and the tough challenges of this trend compared to conventional financial services?
I would distinguish different added values, such as the end-user having an augmented consuming experience thanks to accessing credit or insurance. As I mentioned, there is a huge BNPL trend in Vietnam, and this is a good illustration of how e-commerce platforms can be more attractive.
They can also offer contextual offers by pre-filtering their data. For example, you can enable BNPL only for accounts that have purchased more than $200 to maximise the chances of people accessing credit.
On the other end, financial service providers have new channels to push their products and reduce the costs of acquisitions. Access to data also enables credit assessment for a broader part of the population. Many underbanked people have good behaviour, as shown by data on their usage in the marketplaces, but the banks need access to it.
The challenges of embedded finance applications lay in keeping the right balance between offering financial products with good terms to a broad part of the population and operating a profitable business. With automated processes come new types of fraud and the like, for which it’s important to be prepared. Finally, there is a big challenge around data ownership and data security.
What is the current legal framework of embedded finance in Vietnam?
Embedded finance touches on banking and insurance, consumer credit, and data regulation. There is a big gap between players regulated by the State Bank of Vietnam and those who are not. Simply put, the role of regulation is to protect the consumer. You do not want your relatives to take out a debt they cannot pay.
However, regulation is currently more relaxed around non-bank consumer finance companies that have been able to take a big market share by lending less scrupulously.
On top of these regulations, Vietnam is rolling out its digital regulation with the Law on Cybersecurity, a personal data protection decree, and a law on e-transactions. This ensures that all services you access online are secure and respectful of your privacy and the business environment in general. The regulatory framework of Vietnam is changing a lot and catching up with the digitalisation trend.
What are your suggestions for developing a more complete legal corridor in the sector?
The different laws I mentioned provide broad coverage for embedded finance. However, if the regulation is playing catch up with the market, the race is not over. Digitalisation is now happening with more and more technologies, such as blockchain, 5G, the Internet of Things, and biometrics.
Regulation is not addressing questions related to these new technologies. For example, there are questions of being allowed to use blockchain technology to keep a digital passport secured with biometrics stored on a smartwatch.
In my role in charge of compliance at Credify, when we look at the details of IT systems, engineers ask me very detailed questions related to cryptographic algorithms or how we can consider data secure. We look at international norms and standards.
Vietnam is building a sandbox for fintech businesses. How do you suggest improving this with regard to embedded finance?
The sandbox mechanism is a great idea. It enables players operating in regulatory grey areas to start their businesses and participate in the clarification of the regulatory framework. However, for the sandbox to be effective, there needs to be a clear understanding of what is required.
Will I, as an investor, commit a significant amount of money to a business that will stay in the sandbox? What will happen in the long run? Is there a chance I won’t be able to scale? What If I can’t get out of the sandbox?
The most important thing is to remember the purpose of all the efforts around digitalisation, innovation, and regulation. With the right framework, usage, and publicity, we have a chance to make a real impact. We can help the underbanked population access financing to build their lives.
| ||How mobile money services operate |
At the most basic level, mobile money is the provision of financial services through a mobile device, and the used applications are typically small pieces of software embedded on a SIM card or available over a mobile network.