Unlocking Vietnam's immense fintech potential

The Vietnamese fintech scene is flourishing, drawing in local and international investors alike, photo Le Toan

FPT Telecom was last week granted a licence by the State Bank of Vietnam (SBV) after two years as a non-bank intermediary payment service, with its soon-to-be-launched Foxpay as the core product.

Since the beginning of 2020, the SBV has approved two other non-bank firms, Gpay and Vindiva, to provide payment services.

Vietnam is now home to more than 150 fintech firms, rising from 40 in 2016. Thirty-five of them operate in payment and 40 in peer-to-peer (P2P) lending, while others have provided banking support services without directly collecting fees from end-users.

“Foxpay is slated to deliver seamless services to clients, including e-payment gateway, e-wallet, and special payment intermediaries services,” FPT Telecom noted.

The potential for cashless payment in Vietnam is enormous thanks to the growing middle class and rapidly improving telecom infrastructure. Some 70 per cent of the population is still unbanked, especially in remote areas, and at least half of the total population has access to the internet. Only around 37 per cent of Vietnamese consumers are using contactless card payments and around 42 per cent are making mobile contactless payments, cited from VISA research.

In terms of funding, Asia-Pacific consultancy Solidiance pointed out that Vietnam’s fintech market was expected to $7.8 billion this year, from $4.4 billion in 2017.

Finance lecturer Huy Pham from the School of Business and Management at RMIT Vietnam emphasised there are over 20 e-wallets in the country, but the majority of the market falls into big names such as MoMo, Moca, and ZaloPay.

“MoMo is one of the oldest players and the most notable e-wallet in this market with a huge customer database, while Grab and Zalo are taking advantage of their own ecosystems so the competition in this market is quite stiff, leaving a tiny opportunity for newcomers,” Pham told VIR. “Together with the changing landscape in this market from a basic e-wallet to a super app, the old and experienced players will definitely have a competitive advantage over the new ones.”

According to Pham’s colleague Huy Doan, also a finance lecturer, a typical way for e-wallet providers to expand their customer base is to build their own business ecosystem (such as associated e-commerce and delivery platforms) so this opens up the chance to increase customers’ awareness if the firm can build up a user-friendly ecosystem to facilitate the use of e-wallets.

Besides, the e-wallet firms can also work with banks to reach customers without having to expand their network of branches and offices, saving costs and improving business efficiency.

On the other hand, the SBV once revealed its intention to tighten regulations on the domestic fintech sector by setting a foreign ownership limit of 49 per cent. However, the central bank scrapped the cap a few months ago.

Doan cautioned that the SBV is concerned about the manipulation of foreign investors and the safety of the national monetary policy. This leads to limiting activities of e-wallets such as limit on top-up and withdrawal methods. Currently, the only official method to top up or withdraw money from an e-wallet is by using an account with a bank that is partnered with the e-wallet provider.

“To allow customers to top up and withdraw money using bank accounts at non-partnered banks, the e-wallet provider must connect with an entity providing e-payment infrastructure services such as Napas,” said Doan. “Besides, no access to non-bank customers is also a challenge – by law, customers are required to have bank accounts linked to their e-wallets to use the service.”

Looking on the bright side, there has been increasing interest in the Vietnamese e-payment market in the last few years, with domestic fintech companies attracting considerable interest from foreign investors.

A report by UOB, PwC, and the Singapore Fintech Association reveals that $420 million, equivalent to 36 per cent of all fintech funding in Southeast Asia, was raised for Vietnamese firms in the first nine months of 2019.

This includes funding from Warburg Pincus to MoMo, from Softbank and GIC to VNPAY, and from Ant Financial to eMonkey, making Vietnam the second amongst ASEAN members in regard to fintech funding behind Singapore ($714 million, or 51 per cent).

In addition, foreign investors who are unable or unwilling to wait for the removal of foreign ownership in the banking sector to enter the market are now taking detours to get into the payment industry.

According to the Korea Trade-Investment Promotion Agency, deals are currently being reviewed by major South Korean financial institutions, including Shinhan Bank and KEB Hana Bank. Other South Korean banks which have a presence in Vietnam or are seeking to enter the market are also looking at fintech firms to add value to their banking system.

Newswire KoreaHerald reported that seven fintech companies headquartered in South Korea are preparing to make further inroads into 14 markets including Vietnam, Thailand, Indonesia, and Hong Kong, as part of their efforts to become unicorn startups.