The hardships caused by the Covid-19 pandemic have driven many businesses worldwide to the brink of bankruptcy. Nonetheless, it is due to the occurrence of the pandemic that digital transformation has been implemented more urgently than ever before. In this context, the fintech industry has emerged as one of the few brightest spots, becoming a strong competitor in the world of finance.
The Asia-Pacific region (APAC) has witnessed strong growth in Fintech companies. When it comes to Fintech adoption rate, the Fintech services all over Asia and the eastern Pacific Rim are increasingly used by the majority of the population. Within two years (from 2017 to 2019), consumer usage rates of Fintech-powered services have doubled, and in some cases, tripled, across key Asia-Pacific markets. Specifically, the Fintech adoption rate in Hong Kong, Singapore, and South Korea reached 67%, whereas Australia stood at 58%. However, most markets are still lagging behind China, with a penetration rate of 87%. In short, from fast-growing young economies, namely, China and India, to mature markets such as Australia and Japan, advanced Fintech systems have rapidly become a part of the fabric of everyday life.
Driven by global trends, the vibrant fintech space in APAC has garnered a lot of interest among investors and banks looking to satisfy their tech needs of building and accelerating their digital capabilities. Data from Market Intelligence shows that Asia-Pacific fintech firms scooped up 3.14 billion USD across 113 deals in the 2020 fourth quarter, which marks the highest quarterly funding activity for the year. In detail, Indian fintech companies raised 2 billion USD in 121 deals in 2020. In addition, total fintech investment and deals activity in the Asia-Pacific region saw a solid rebound in the first half of 2021 with 467 deals and 7.5 billion USD. Among strong fintech offerings continuing to be very hot in the Asia-Pacific region, the payment space was incredibly robust across Asia-Pacific in H1 ’21, with the ‘buy now, pay later’ sub-sector considered to be one of the fastest-growing subsectors.
ASEAN proves to be a hotspot for Fintech start-ups in APAC as the number of unicorns in this region has continued to increase over the last two to three years, now adding up to 35 unicorns, which is the most prominent figure recorded in APAC. Singapore and Indonesia are home to the lion’s share of the region’s unicorns, with fintech representing the most common sector. This place is more attractive than ever before thanks to the investment activities along with appealing deals. In particular, Southeast Asian fintech firms netted 28% of Asia-Pacific deal activity and 17% of the region’s funding value in 2020. Explainable, fintech in ASEAN is an appetizing cake for investors.
The Internet economy in ASEAN is predicted to grow at a CAGR of 20% between 2019 and 2025, expanding to approximately 300 billion USD, fueled by the further adoption of digital services and a growing middle class. The digital services and growing middle-class drive corresponding growth within the financial service sector as consumer demand for related offerings such as payments solutions rise in tandem.
Despite its adverse impacts on various aspects of life, COVID-19 has accelerated the digital economy, creating numerous opportunities for FinTech firms across ASEAN. With an estimated 50% of the ASEAN-6 population unbanked, and an additional 24% underbanked, the market opportunity is enormous. Payments, widely seen as the starting point for a nation’s FinTech industry, remain the dominant FinTech sector across ASEAN-6, while insurance technology (InsurTech) and alternative lending were additional areas investors saw benefitting from COVID-19 behavioral changes.
Singapore continued to attract the most FinTech investments within ASEAN-6, accounting for 42% of the region’s total disclosed deals. Singapore’s ability to stabilize and manage the spread of COVID-19 within its borders, along with its established leadership position in ASEAN’s FinTech landscape, may also have contributed to continuing the country’s strong performance in attracting funding. Indonesia moved up to a second spot at 20%, while Thailand and the Philippines tied for the third spot given a sharp increase in funding amounts year-on-year, driven mainly by three deals (Thailand: SYNQA – 80 million USD and Lightnet – 31.2 million USD, the Philippines: Voyager Innovations – 120 million USD). Vietnam closed four undisclosed early-stage deals, which received the second-highest funding last year due to VNpay’s 300 million deal.
In the first nine months of 2021, Thailand secured 210 million USD in FinTech funding, a 60% increase compared with full-year 2020. The total funding includes a 150 million USD mega-round raised by Thailand-based FinTech firm, Ascend Money, propelling the firm to the unicorn status – the first in the country.
Most investors showed strong interest in the late stage. FinTech firms secured 10 out of 13 mega-rounds this year, including one from Thailand. This trend signals a shift in investors’ strategy across several ASEAN markets as they take a more cautious and risk-averse approach of backing mature firms that are seen as standing a higher chance of emerging more robust from the pandemic. Given the growing adoption of digital payments in ASEAN, investors placed their confidence in and injected the highest amount of funds into late-stage FinTech firms from the payments sector.
Even though the growth of new Fintech firms within ASEAN has been tapering since 2018, dropping from 31% growth to 13% in 2019 and down to 2% in 2020, the FinTech ecosystem in Vietnam has been growing for the past decade. There were 39 startups on the Vietnamese fintech scene in 2015, followed by an insubstantial increase to 44 startups within the next two years. The number of fintech companies in the Vietnamese market had almost tripled from 44 to 124 startups in 2 years from 2017 to 2019, with the most noticeable increase in P2P Lending startups, from 3 to 23 startups.
Moreover, Vietnam ranks third in attracting funding in the fintech industry with 375 million USD, accounting for 11% of the six major ASEAN economies. From 2017 to September 2021, Vietnam had seen 76 new fintech companies established, bringing the total to 188. E-wallets continue to gain popularity in Vietnam, with the biggest being MoMo, used by 82 percent of respondents in a report survey. ZaloPay followed at 62%, while VNPay claimed third place at 28%. Besides, two major deals in Vietnam consist of a 250-million-USD investment into payment company VNPay and a 100-million-USD investment into e-wallet MoMo, which covers the first nine months in 2019 (United Overseas Bank, PwC Singapore, and Singapore FinTech Association).
Fintech sectors in Vietnam still have room for strong growth. Ms. Vy Le – Co-founder and General Partner of Do Ventures critically commented that for FinTech companies in Vietnam to succeed, they will need to balance growth and regulatory compliance. On the side of policymakers, the Vietnamese government has approved and issued several policies to support the development of Fintech companies. However, as Fintech is a broad industry, Vietnamese laws currently provide neither a definition of fintech nor a single comprehensive instrument for regulating fintech activities. Therefore, current regulations mostly evolve around fintech in the payment industry.
Regulations for the development of the Fintech sector
To support the development of Fintech, some common international practices and regulations have been introduced worldwide. Countries all over the world have established innovation centers and Fintech-supporting organizations, namely Innovation hubs and the “Regulatory Sandbox” framework, along with establishing forums to enhance discussions and sharings between Fintech businesses, policymakers, and market supervisors. In particular, Fintech is typically regulated at the federal and state levels in the US. The policymakers’ standpoint to support Fintech is to promote innovation while ensuring that consumers are always protected under the law. Similarly, the Australian government is committed to establishing a Fintech hub through increasing investment in scientific, technological, engineering, and mathematical (STEM) research and licensing when eligible. In this way, businesses can test and calibrate their products without meeting licensing requirements for 12 months. In addition, Fintech Action Plan was announced by the European Commission in 2018, enabling innovative business models to spread across Europe and supporting the development of technological innovations in financial markets.
In Vietnam, the government has initiated several projects to accelerate the innovation and the development of the Fintech sector. For instance, Project to support the national innovation startup ecosystem until 2025 (Decision No. 844/QD-TTg dated May 18, 2016) stipulates on building portals and take-up service centers for start-ups, supporting finance and training activities, developing material-technical foundations, and encouraging the use of science and technology development funds to research and propose new solutions, etc. Moreover, with a project to promote sharing economic model (Decision 999/QD-TTg dated 12/08/2019), the Vietnamese government assigned the State Bank to study and develop a project of a trial management mechanism (Sandbox) for Fintech activities, study a pilot mechanism for peer-to-peer lending (P2P).
When it comes to the “Sandbox” framework, in the ASEAN region, Thailand has issued regulations that allow companies to participate in the trial of financial products and services for up to one year without having to comply with any licensing requirements applicable to investment consulting, private fund management and stockbrokers. Likewise, the Malaysian government issued guidelines on market identification and management of fundraising in 2015. A year later, the Fintech Rule Framework was issued, testing Fintech solutions for a certain period. On the other hand, Malaysia has also created a Fintech-friendly environment; therefore, the Fintech Community Alliance was established in September 2015, acting as a center for raising awareness and nurturing the development of Fintech. Additionally, the FinTech Advocacy Group, founded in June 2016, is responsible for developing and strengthening regulatory policies to facilitate the adoption of fintech innovations. The Malaysian Fintech Association was formed in November 2016 as the voice of the Malaysian Fintech community and links with industries and regulators in policymaking. Compared to Malaysia and other countries in the same region, Vietnam is currently lacking Fintech-supporting organizations; hence the government should encourage the establishment of such organizations for the growth of the Fintech sector
Secondly, many nations globally ensure equal competition in the financial market, especially between Fintech enterprises and large banks. In the United Kingdom (UK), the primary goal of the government is to secure support for the development of new business models and new technologies. With the encouragement of financial services innovation as a top priority, the government created the right regulatory environment to ensure that innovative companies compete and thrive. Thus, with Fintech sector development strategy 2018, The UK Ministry of Finance refers to policies towards increasing fair competition, removing growth barriers, and impediments to market entry for fintech companies. Besides, the UK government also develops centers and policies to create the most favorable conditions for Fintech businesses. On the other hand, in Vietnam, to manage Fintech activities in the banking sector, the State Bank of Vietnam has been proactive in approaching the issue and in conversations with businesses in the Fintech field to remove obstacles, facilitating market entry of Fintech promptly. The SBV has also established a Fintech Steering Committee of the SBV since March 2017 under Decision No. 328/QD-NHNN, in which there is one Deputy Governor who is the Head of the Committee. Furthermore, the Fintech sector has collaborated with banking rather than competing, creating an active digital financial market.
Apart from trial mechanism “Sandbox” and equal competition, developing digital identity (e-identification) or KYC (Know your customers) is of concern to most countries in the world. The Hong Kong government promotes Fintech development while the Hong Kong Monetary Authority plays a pioneering role in promoting the application of DLT/Blockchain technology for interbank payments, securities, lending, and credit rating, and digital identity. At the same time, the Vietnam government has issued policies on eKYC and e-identification, for example, Decision 34/2021/QD-TTg providing for electronic identification and authentication. Following the decision, the relevant units should soon build and put the robust national population database into operation for convenient, safe, and accurate personal identification. This allows organizations providing e-wallet services can exploit citizen data associated with biometric factors on the basis of customer consent, thus helping with accurately authenticating customers, opening and using checkable deposits services. In addition, Decree 87/2019/ND-CP amending Decree 116/2013/ND-CP guiding the Law on prevention and combat of money laundering allows the financial institution to decide whether to meet face-to-face or not to meet customers face-to-face when establishing a relationship for the first time.
Other than common practices, the Vietnam government has inaugurated the Project on Completing the legal framework for managing and handling virtual assets, electronic money, and virtual money (Decision No. 1255/QD-TTg dated August 21, 2017). In alignment with the projects, the government reviews and assesses the legal status of virtual assets and virtual currencies in Vietnam and does research and surveys of recorded figures. The relevant international experiences. Plus, it reviews, studies, and proposes amendments, supplements, and new promulgation of legal documents on electronic money, along with making a request for the formulation of legal documents on virtual assets and virtual currency.
Vietnam’s government has effortlessly implemented those policies together with other supporting policies to create a favorable environment for the Fintech sector to thrive. Thanks to the policies, the Vietnam Fintech market has opened tremendous opportunities for domestic and foreign investors. However, as the market is still nascent and the legal framework is being perfected, there are perceived challenges for the market conquerors. Yet, if the investors have clear guidelines and prompt consulting from experts, they are much more confident in gold-digging the Fintech mine.
Fintech in Vietnam is still a newborn sector with a promising future for investors. If you are interested in investing in setting up fintech companies in Vietnam, please contact our Vietonkin consultant team via email or contact page. Our professionals, who are insightful of the Vietnam market and legislation, can provide detailed advice on helping fintech companies navigate through the legal processes of setting up business in Vietnam.