Vietnam is without exception hard hit by the ongoing COVID-19 epidemic; however, the country is the fastest-growing nation in ASEAN. Despite market uncertainty, Vietnam is strongly recovering post-COVID-19 and relentlessly developing the digital economy (PwC, 2021). In this way, global capital continues to pour into the country, in which investment appetite in Fintech is still strong. Therefore, Fintech in Vietnam has blossomed and granted one-of-a-kind opportunities, yet the difficulties in entering the market remain a barrier for domestic and foreign investors. 

Market overview

In ASEAN region, deal activity skyrocketed in the first half of 2021, surpassing the full-year investments of recent years. Funding rebounded from a plunge of 2020, reaching 3.5 billion USD for the first nine months of 2021, more than a three-time increase from 2020 and rank three in ASEAN. This figure set a high record for Fintech funding in ASEAN-6. In particular, Singapore topped Fintech funding numbers in 2021 with 44% of the total amount, while Vietnam accounted for 11%, ranking third after Indonesia with 26%. Although still lagging compared to Singapore and Indonesia, the growth signals of the Fintech market in Vietnam are remarkable. 

According to statistics from the State Bank of Vietnam, from 2016 to now, the number of fintech companies participating in providing services in the Vietnamese market has increased by about 4 times. In which, up to 70% of companies are associated with banks. Only 14% companies develop new services and 14% ones are ready to compete with banks.

In addition, 13 mega-rounds with deals worth 100 million USD amounted to 2 billion USD and made up more than half of total Fintech funding in ASEAN in 2021. The average deal size increased from 9 million USD in 2020 to 21 million USD in YTD 2021. The number of funding deals grew by 32% to 167 deals in YTD 2021, with almost half the deals going to Singapore-based FinTech firms. Meanwhile, Indonesia made up a quarter of deals, with Vietnam joint third with 9%. Specifically, Vietnam sharply bounced back in funding, most notably two large deals: 250 million USD into VNPay and 100 million USD into MoMo’s Series D fundraising round. 

In spite of the Covid-19 pandemic, Vietnam remains a very attractive start-ups hub with more incubators, accelerators, and innovation labs than most other markets in the region. Within two years from 2015 to 2017, compared with 39 start-ups in 2015, the number of new Fintech grew dramatically to 44 companies in 2017, of which 23 belonged to the field of electronic payment. The figure tripled from 44 to 124 companies in the next two years, mainly in the Peer-to-Peer lending (P2P lending) service segment. In YTD 2021, 188 fintech companies were established in Vietnam. The top 4 sub-sectors accounting for 77% of the total included payments,  investment tech, cryptocurrencies, alternative lending. 

Vietnam is receiving increasing deals, but 93% of the funding pour into payments. This may suggest that investors are more cautious and risk-averse due to the economic concerns from the prolonged pandemic. As such, investors have altered their investing strategy towards more mature FinTechs as they are assumed to be more resilient and stand a higher chance of emerging more substantially from the pandemic. (UOB, 2021)

Potential markets

According to Ms. Le Vy – Co-founder and General Partner of Do Ventures, leading the payment segment in Vietnam are domestic companies, namely VNPay and MoMo, while in the market, there are also regional “big players” participating in this “playground”, such as Grab through cooperation with Moca to create a Grabpay e-wallet. However, according to experts, in 2022, the e-wallet market will be fiercely competitive, possibly promoting e-wallet providers to merge into a few top “super apps” in order to dominate the market. In addition, many “super apps” and service providers from other economic sectors (such as e-commerce, retail and financial services) also show interest in this segment.

While payment businesses make up the majority of FinTech firms in Vietnam, alternative lending and crypto firms are catching up. Vietnam ranked second in cryptocurrency adoption rate among 74 surveyed economies, driven by remittance payments (Statista, February 2021). However, bitcoin and other cryptocurrencies are not recognized as legitimate means of payment in Vietnam. Furthermore, the government and policymakers may need to consider policy options to manage cryptocurrency scams while also developing strategies to control cryptocurrencies’ legal and illegal uses and their role in cross-border currency flows. The State Bank of Vietnam (SBV) has warned that owning, trading and using cryptocurrencies are risky and not protected by law. 

On the other hand, the Insurtech market in Vietnam is driven by the Covid-19 pandemic and the trend of digital transformation. In particular, insurance products that are heavily invested in technology to increase customer access and optimize user experience are gaining attraction in the eyes of investors. Many foreign investors are increasingly interested in the Vietnam Insurtech space, apart from the domestic funds. Currently, the Vietnamese Insurtech market is booming with several start-ups being established, Inso, Insurance App, Papaya, Miin, Opes, SaveMoney, to name a few. Moreover, according to Morgan Stanley, the P2P lending model will become a worldwide trend in the near future. As 79% of the population in Vietnam has not had access to loans from banks (MB bank, 2020), and the P2P lending market in Vietnam is still in its early stages, this cluster is considered an extremely fertile ground for development. 

Regulation

To help with the development of the Fintech market, the Vietnamese government has issued various programs and projects related to fintech development. The policies mainly focus on perfecting and creating a legal framework, creating a favorable environment for the development of a variety of products and services, building and developing infrastructure and electronic payment system, building start-up portal with financial support, and training. Additionally, in early June 2020, the government issued a draft decree providing a fintech regulatory sandbox (the “Draft Sandbox Decree”) in the banking sector. Generally, the Decree provides for the sandbox’s purpose, conditions and application procedures, test run requirements and extension/exit scheme, and the obligations of related parties. On the whole, the government’s current focus is on developing a regulatory sandbox for Fintech in the banking sector. Hence, it is expected that there will be more regulatory development for Vietnam to welcome fintech investors from more diverse financial subsectors.

Non-cash payment

However, Fintech is a broad industry; therefore, at present, Vietnamese laws provide neither a definition of Fintech nor a single comprehensive instrument for regulating fintech activities. Current regulations mostly evolve around Fintech in the payment industry.

Fintech intermediary Payment Service Provider (IPS) is governed by Decree 101 on non-cash payment and Circular 39 on IPS. Following the Decree and the Circular, IPS includes financial switching service, electronic clearing service, payment gateway service, support service for money collection and payment, support service for electronic money transfer, and e-wallet service. Besides, IPS providers must be locally established enterprises that have obtained a license to provide IPS (“IPS License”) from the SBV. Hence, foreign investors can invest in Fintech in Vietnam through a legal entity. 

Currently, the government is drafting a decree that will replace Decree 101 on non-cash payment. This is expected to provide more details on IPS, allow outsourcing of certain functions to agents, and release or remove specific licensing requirements to facilitate market access to fintech investors. One of the new policies mentioned in the Draft Decree amending and replacing Decree 101 is the proposed regulation of IPS agent activities. The Draft suggests that the bank assigns the agent to provide a part of payment services such as depositing/withdrawing cash into/out of an account paying bills for goods and services. Allowing fintech companies to act as banking agents (payment, money transfer) will help these companies expand, providing a one-stop-shop experience for customers. At the same time, the bank also increases the number of actual transactions. There is another possibility that fintech companies will connect with many banks to act as agents and vice versa. A bank can also have many different fintech agents. In this way, the market will be fiercely competitive in terms of service quality and fees. 

Thanks to the supporting regulations mainly on digital payment and lending, nearly half of the fintech companies focus on payments and P2P lending, giving rise to many investments and many deals actively flowing into two segments. In particular, Momo – the most significant player in digital payment with 94% of the market share – raised $100 million in Series D in 2021. Meanwhile, its competitors VNPay raised $250 million in Series B with leading investors, namely US investors, including General Atlantic and Dragoneer Investment Group. 

Nevertheless, with the development of technology and in the context of global integration, regulations on non-cash payment need to be supplemented to meet the requirements of practice and improve efficiency. Remarkably, there are some highlights focused on:

• Introducing the definition of electronic money and entities who are allowed to provide electronic money;
• Non-bank entities are permitted to provide foreign payment and international money transfer services. In particular, banks licensed to provide foreign exchange services on global markets may cooperate with foreign payment service providers; payment intermediaries may only cooperate with foreign payment service providers to support banks permitted to conduct international payment transactions. This cooperation must be approved in writing by the SBV, and the written approval must comply with the SBV’s regulations.
• Especially introducing regulations on the ownership ratio of foreign investors in payment intermediary service providers. Accordingly, the Draft indicates that the foreign investor may invest in intermediary payment service providers in the form of capital contribution, share purchase, capital contribution. In addition, the transitional provision of the Draft allows existing intermediaries with foreign ownership exceeding 49% to continue its operation until the expiration of its Provision Licenses issued by the SBV or there is a change of shareholders, whichever is earlier.

Mobile money

In other respects, Decision No. 316/QD-TTG on approval of the pilot application of telecommunications accounts to pay for small-value goods and services was issued by the Prime Minister on March 09, 2021. This Decision has accelerated the implementation of the cashless payment process.

Under the Decision, subjects of the pilot application of using telecommunications accounts to pay for small-value goods and services (Mobile Money) are enterprises. Those firms have to acquire licenses for providing e-wallet services and permits to establish public terrestrial mobile telecommunications networks. 

For example, VNPT pays special attention and constantly invests and applies new technology solutions to meet the strict requirements in the process of implementing Mobile Money services such as eKYC electronic identification technology with high accuracy, artificial intelligence (AI) – based solutions, big data analysis through machine learning, contactless payment solutions: NFC, sound waves, QR Code, biometrics. All aim at maximizing customer experience and ensuring safety in service use.

Cryptocurrency

Though developing cryptocurrencies in the future is an inevitable trend, it will not replace fiat money in physical forms, or cash equivalent assets yet will develop in parallel. In addition, there are also central banks in many countries, although acknowledging the benefits of digital currencies, who are still cautious and consider the supervision and management of transactions to prevent fraud and risks from allowing the issuance of this form of money.

Before giving appropriate regulation on digital currency issuance by the SBV, the regulator still needs time to do more in-depth research, propose more specific steps, and a roadmap to the Prime Minister. Moreover, it requires the participation of many technology experts in execution. Yet, the current transition of Vietnam’s economy offers a particularly favorable context for cryptocurrencies as payment methods are increasingly cashless.

At present, Vietnam’s Prime Minister Pham Minh Chinh has asked SBV to begin working on a pilot project on cryptocurrency. The blockchain-based project is implemented sometime between 2021 and 2023 to achieve legislative reform for the industry in the near term. 

Infrastructure 

Vietnam has a high percentage of smart devices with internet connections globally. Statistically, the country has 45% smartphone penetration and 57% internet penetration. Additionally, Vietnam has developed telecommunications infrastructure. Specifically, the 4G network has covered the whole country, and 95% of the population uses 4G. Plus, band resources and terminals are ready to construct 5G networks. This opens a vast potential for the development of mobile money and digital payments. According to Vietnamese telecom operators, it is not until 2023 – 2025 that 5G will be as popular as 4G. Because the coverage of 5G is still minimal, it is necessary to build more stations to ensure connection. Thus, 5G will initially be deployed in developed areas with high population density, such as large cities or high-tech industrial parks. However, most mobile stations now have a great deal of 2G, 3G, 4G equipment, so 5G infrastructure construction and installation lack space. As a result, costs will be incurred, which will increase the investment capital of communication enterprises.

Despite tremendous support from the Vietnamese government, the Fintech market of Vietnam has still revealed perceived shortcomings. Most notably, information security is lax, which results in severe consequences. According to Colonel Nguyen Ngoc Cuong, Deputy Director of the Department of Cybersecurity and High-Tech Crime Prevention (Ministry of Public Security), in the first six months of 2021, the Ministry of Public Security detected 2,551 cyberattacks, 5.4 million IP addresses of State agencies were attacked with 15 variants of malicious code. Even though the government has adopted policies to protect personal data, namely The Law on Cyber Security 2018 Law on Network Information Security 2015, consumers are not fully aware of the importance of data security. This requires the government to strictly regulate the policies and legal framework and entrepreneurs and individuals to raise their awareness and employ comprehensive and practical solutions.

Besides, the digital infrastructure is still underdeveloped. Though a few businesses have implemented and gained particular success in the application of big data in data management and protection, a considerable number of Vietnamese enterprises have not had access to the technology because it requires a robust information technology platform, huge repository, and government support in exploiting the data warehouse. Therefore, the Vietnamese government should draft and approve more projects and connect knowledge bases with the most advanced technology such as AI, blockchain, and big data to upgrade the digital infrastructure. At the same time, perfecting regulations and completing legal frameworks also creates a favorable environment to attract more investors in the Vietnam Fintech market. 

Perspectives of Viettonkin

In the viewpoint of Viettonkin, fintech is becoming the spotlight in the Vietnam market! 

Information technology (IT) has developed at an increasing rate with a significant number of Internet users, creating a digital ecosystem. Thus, digital infrastructure and a synchronized system will improve the transparency level, along with boosting the quality and quantity of financial service transactions, especially Fintech transactions. 

With the growth of technology-related stakeholders, the birth of fintech has played an important role, creating resonance for digital businesses, and businesses in the process of digital transformation. In addition, the Vietnamese government has made a great effort to push digital trends among businesses with an aim to reach 100,000 digital enterprises in the near future. This enables the emergence of the blockchain industry, and AI applications to construct a digital economy in Vietnam. In this way, the adoption and deployment of blockchain at a high level will contribute significantly to the whole economic growth of Vietnam. 

Moreover, the government has been progressive and fully aware of the importance of blockchain technology, so they are exploiting and implementing optimally with a backup plan to anticipate all challenges. Besides, methods for reducing damage and risk of technology are designed to ensure a favorable environment for foreign investors. Therefore, it is a huge catch for investors to have a close structured B2B and B2G cooperation in Vietnam, seizing the fintech market opportunities. 

The Vietnamese government has prioritized the fintech market. Viettonkin is well-positioned to assist customers in creating solutions to mitigate and anticipate issues and leverage opportunities thanks to a strong network partner and connection worldwide in an effort to promote B2B and B2G collaboration. 

Conclusions

Challenging as it may seem to invest in Fintech sectors in Vietnam, the Fintech market still appears to be lucrative in the future. The question is “whether the investors are ready to take risks to harvest the fruits?”. If you are interested in investing in the Vietnam Fintech sector, don’t hesitate to 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 the legal processes of setting up business in Vietnam.