FOL concocted for fintech segment

FOL concocted for fintech segment (illustration photo, source: internet)

The State Bank of Vietnam (SBV) has revealed its intention to clamp tighter regulations on Vietnam’s fintech segment as an alternative for Decree No.101/2012/ND-CP issued seven years ago on non-cash payment. In particular, Article 29 would keep the foreign ownership limit (FOL) of payment intermediaries operating in Vietnam under 49 per cent, which is “the reasonable ratio”, according to deputy director of the SBV’s Payment Department, Le Anh Dung.

Market watchers believe that the controls underscore Vietnamese regulators’ concerns about capital flight and a weakening currency. The shift could be related to the fact that access of foreign investors has not yet been scrutinised properly, thus impeding domestic companies’ potential.

Data from consultancy Ernst & Young showed that Vietnam’s fintech segment is anticipated to reach $7.8 billion next year, which could make up for nearly 3 per cent of Vietnam’s GDP. As of October 31, there were 32 payment intermediary services in Vietnam with 29 of them offering e-wallets. Up to now, the five e-wallet providers which cover 90 per cent of market share in terms of transaction volume and value are Payoo, MoMo, AirPay, Moca, and Senpay.

Sendo, which is one of the largest e-commerce platforms and the owner of Senpay, has secured $61 million from foreign investors in its Series C last month, after its $51 million of investment in Series B in August 2018.

MoMo, Vietnam’s most popular e-payment service, announced in this year’s first quarter that it successfully landed around $100 million from US private equity firm Warburg Pincus, an investment that followed multi-million-dollar injections from Standard Chartered and Goldman Sachs. Last year, Singaporean giant Grab inked a strategic partnership to offer digital payment services with Vietnam’s Moca. Meanwhile, AirPay is backed by Sea, another Singapore-based internet titan.

The previous pattern of inflows reinforced the idea that international investors would prove to be a prop for the Vietnamese financial market. Notwithstanding, as domestic and transnational payment demand scales up, complying with financial regulations can be an enormous challenge.

While Vietnam’s government is plugging holes in the FOL to boost domestic fintech development, experts have raised concerns whether these new measures, cited in Article 74 of Vietnam’s Law on Investment in protecting funding in bilateral and multilateral trade agreements, could violate commitments to the World Trade Organization and Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

That was refuted by Dung of the SBV, who said payment intermediaries are not among the listed sectors in free trade agreements.

Deputy general secretary of the Vietnam Association of Financial Investors, Phung Anh Tuan, meanwhile said payment intermediaries accounted for 90 per cent of local fintech activities, adding that limiting investment would affect the whole fintech market.

Nishikawa Shinichiro, director at Payoo said, “Foreign investors have played a large role in the growth and development of e-payments in the country, driving a huge amount of capital and cutting-edge technology into fintech firms.” Shinichiro urged Vietnamese authorities to reconsider their upcoming initiative.

Yee Chung Seck, a representative of the Singapore Business Association said, “The limit consequently could block overseas capital inflows, which would be even more perilous today because of the essential role of foreign investors in the field.”

Some experts, however, believe that the new regulatory measures are too few and may come too late.

Nguyen Hoa Binh, chairman of digital commerce pioneer NextTech Group, emphasised that it is necessary to facilitate the FOL, but the SBV’s move is quite late in comparison with regional peers.

“Many countries have already set up technical barriers to ensure local FOL in sensitive sectors like financial intermediation. For instance, the People’s Bank of China introduced these limits 10 years ago and Indonesia has built an ownership cap for overseas investors of less than 20 per cent in 2007,” added Binh.

Chau Dinh Linh, lecturer at Ho Chi Minh City’s Banking University, also noted that regulations are undoubtedly a key issue when it comes to digital finance. “The SBV’s intention of tightening activities aims to mitigate any perils that could erode social stability or national monetary security. Moreover, it also paves the way for Vietnamese businesses to become a part of the game,” said Linh.