Doing Business

Vietnam fintech ecosystem and the ultimate guide to starting a fintech business here

Trường Lăng

September 23, 2021

Vietnam fintech has emerged as a rising star in the ASEAN region lately. Why should you choose the fintech market and how to start a fintech business here? Let’s explore.

An introduction to the fintech landscape of Vietnam

Within the context of a robust digital transformation wave covering every aspect of the economy, fintech is definitely on the top list of potential and high-return investments. CSIRO (2019) has considered Vietnam one of the rising stars in the global fintech industry. The fintech ecosystem in the country grew from 44 startups in 2017 to over 130 companies in 2021, as cited by the Vietnam Fintech Report 2020, a remarkable growth rate of 173% within three years. The revenue of the industry was estimated to be $7.8 billion in 2020 (Vietnam Briefing), fueled by the rising adoption of digital transactions, a growing e-commerce sector, and the support of the government in promoting fintech as part of the bigger national plan on pursuing a digital economy by 2030 (Fintech News). The majority of investors in Vietnamese fintech startups are foreign investors, including financial institutions and venture capital funds. For example, Momo’s latest series D funding round was co-led by Warburg Pincus and Goodwater Capital at over $100 million USD. 

In recent years, fintech has grown to a multi-disciplinary industry that includes e-wallet payment services, financial literacy, fundraising and crowdfunding, peer-to-peer lending, wealth management services, mobile money, and even the trending sub-sector of cryptocurrencies. Among the 130+ fintech startups, the top 5 most active sectors are digital payments solutions (31%), P2P lending (17%), blockchain (13%), and wealth management and POS services tying at 7.5%. In terms of payment methods providers such as digital wallets, Vietnam ranked high in terms of usage density owing to a young demographic, the rising smartphone users, and the upward development of e-commerce sites according to EY’s ASEAN Fintech Census 2018. Along with the increasing trend of digital payments, the total transaction value of this sector is expected to reach nearly 30 million dollars in 2025. Listed in the top fintech companies in Vietnam are Momo, Nextpay, Zalopay, VayMuon, and Kilimo Finance, among others, specialized in various fields. Consistent with Fintech Singapore’s report on the Vietnam fintech market, whilst B2C sub-sectors dominated in terms of both quantity and investment amount, B2B sub-sectors such as SMEs financing, digital banking, and data/credit/scoring management only amounted to an insignificant number. This helps predict the potential fintech trends in the near future, with new startups perhaps filling in the gap.

However, the past years have also witnessed positive expansions of the digital banking system, signifying cooperation between fintech businesses and traditional commercial banks. As noted by the Digital Banking in Vietnam by Austrade (2020), the banking sector in Vietnam is driven by trends of digital transformation as the Vietnamese government is initiating a strong push towards a digital economy. Innovations in mobile banking, QR code payment, and the cooperation with other e-wallet enterprises have been applied by many banks such as MBBank, BIDV, and Techcombank, which have become even more important in the context of Covid-19. The most recent prominent case is the partnership between Shinhan Financial Group and Grab to develop new payment applications. 

Opportunities for FDI investors in the Vietnam fintech industry

Photo by Tron Le on Unsplash

Noted as one of the fastest-growing industries, fintech has been an attractive destination for many investors. According to CB Insights, one out of every five dollars invested in venture capital up to now has been for fintech. Looking at Vietnam’s foreign investment market, between 2019 and 2020, the Vietnamese fintech market attracted 435 million USD in funding, which was the second-highest in the ASEAN region. The increase in e-payment as well as online commerce due to the Covid-19 pandemic has brought confidence to investors in the fintech industry in Vietnam. Undoubtedly, this sector has been on the top of the most attractive investment sectors recorded from the beginning of 2021 up to now. 

How to start a fintech company in Vietnam?

Fintech regulations in Vietnam

At present Vietnamese laws provide neither a definition of fintech nor a single comprehensive regulatory framework for fintech activities, which is a bottleneck for the ecosystem. Current regulations are mostly concerned with fintech activities in the payment industry. Fintech products in the form of Intermediary Payment Service Provider (IPS) are governed by Decree 101 on non-cash payments and Circular 39 on IPS. IPS includes financial switching services, electronic clearing services, payment gateway services, supporting services for money collection and payment, supporting services for electronic money transfer, and e-wallet services. Following this Decree, IPS providers must be locally established enterprises that have obtained a license to provide IPS (“IPS License”) from the SBV. Therefore, foreign investors can invest in fintech in Vietnam through a legal entity. Currently, the government is drafting a new decree that will replace Decree 101 on non-cash payments. One of the new policies mentioned in the Draft Decree amending and replacing Decree 101 is the proposed regulation of IPS agent activities which can be assigned by banks to fintech businesses. If this Decree is passed, the market will be fiercely competitive in terms of service quality and fees.

Regarding the future development of fintech, the government has issued many programs and projects. Among them is the legal framework for virtual assets such as cryptocurrencies as this sector bears a huge potential to the future payment services and the finance industry as a whole and a regulatory sandbox for the fintech sector particularly. As the government has newly issued a draft decree on regulatory sandbox for the banking sector in 2020, it will provide fintech businesses a rigorous legal environment to test their services and products.

Key legal issues when setting up a fintech business

When thinking about establishing a fintech business, here are some key legal issues that you should pay attention to:

  • Entity formation and registration
  • Licensing and sublicensing, as some fintech activities require a special license, for example, the IPS license – Intermediary Payment Services or a Non-Bank Credit Institution – NBCI
  • Registration of appropriate business line
  • Special ownership arrangements: stock options, preferred shares, employee stock options, etc.
  • Technology contract
  • Intellectual property protection and cybersecurity issues

Market access and operational conditions for foreign investors in the fintech industry

As stated above in terms of the regulations focused on electronic payment gateway services, here are some market access and operational conditions for the foreign investors to keep in mind. The most popular form of investment for foreign investors in Vietnam fintech is to license authorities to perform intermediary payment services under their approved business lines. The 6499 VSIC code, interpreted as “Other financial service activities not elsewhere classified (except for insurance and social insurance”, has been the most common for companies providing Payment Intermediary Service at the time being. Additionally, non-bank institutions can only be allowed to undertake the payment intermediary service after attaining a Provision of Payment Intermediary Services (“License“) from the State Bank of Vietnam (SBV). The prime condition for the attainment of this License is a minimum charter capital of at least 50 billion VND. In addition, the company must satisfy the following criteria: a comprehensive business scheme, a legal representative and technical infrastructure, and IT systems appropriate to the requirements of intermediary payment services. As of October 2020, there are 41 licensed service providers in Vietnam approved by the SBV, including Napas, Viettel Pay, and FPT.

You can refer to our ultimate guide to establish a representative office in Vietnam HERE

However, peer-to-peer lending is a special case when it is not included as “Banking Services and Other Financial Services” under WTO commitments between Vietnam and other members. P2P Lending companies in fact, unlike companies in the financial services business, provide a digital technology platform instead of providing money/loans. An Official Letter No. 5228/NHNN/CSTT dated 8 July 2019 of the SBV stated: “In Vietnam, some companies have registered their business lines as financial advisory, financial brokerage, and self-introduction as P2P Lending companies providing services to connect investors and borrowers; however, the current Vietnamese law is yet to have regulations on P2P Lending activities”. Hence, at present, there is no specific business line for P2P Lending Companies to register under the Vietnamese laws and foreign investors have to apply for investment approval from the relevant Ministries and follow the process to obtain the investment license to start a P2P lending business in Vietnam.

Entry strategy for foreign investors in the Vietnam fintech market

The potential of the Vietnam fintech industry is undeniable and foreign investors could choose from a wide array of market entry modes. Here are some of the most notable cases with success entering the Vietnam market. 

In August 2021, Vietnam’s fintech ecosystem welcomed an Indonesia-based fintech startup – Kredivo through a joint venture deal. The startup offers “buy now, pay later” solutions, and has partnered with Phoenix Holdings – a company with a diversified portfolio of financial services to establish Kerdivo Vietnam JSC. “The launch of Kredivo in Vietnam, our first market outside Indonesia, is another key achievement and milestone for the business this year,” said its COO Valery Crottaz. This is because the country has low penetration of credit cards and a rapidly growing middle class, together with the booming e-commerce market, he added.

In terms of merger and acquisition (M&A) deals, activities are becoming more robust as a massive number of large deals were made in the last few years according to Vietnam Fintech Report 2020. For example:

  • In September 2018, Grab acquired a Moca – a Vietnamese mobile payment startup
  • In December 2019, Ant Financial acquired a substantial stake in e-wallet eMonkey, and in November 2019, Lazada Vietnam integrated eMonkey into its platform.
  • September 2020, Indonesia’s Gojek has acquired a controlling interest in WePay

In conclusion, there are inevitable opportunities for the fintech ecosystem in Vietnam and other fund-raising organizations and investors in the world. The growth of this sector is also well-aligned with government direction towards a digitalized economy and society in the near future. Although the fintech sector in Vietnam still remains a major challenge related to a holistic regulatory framework, a well-trained human resource, and the rapid development of advanced technologies, the Vietnam fintech market is expected to take huge leaps in the future. 

How can Viettonkin Consulting help you?

If you still wonder how to start your fintech business in Vietnam, contact us and our professional consultants will accompany you on the journey to navigate the market, make the right investment decisions and ensure legal grounds on which to start your business operations.

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