Fintech businesses in Vietnam will face a great impediment to growth if the country imposes its proposed foreign ownership limit in the sector, according to industry experts.
The government has proposed a revised regulation on cashless payment, which plans to put a cap on overseas investment in a fintech company at 30 per cent.
Vietnamese fintech startups are still heavily dependent on overseas capital for expansion, as domestic resources are not sufficient to support their development. In addition, by receiving external capital, startups are also exposed to global big data and AI technologies, which are critical to developing fintech products, opined Varun Mittal, associate partner at EY, who leads global emerging markets fintech practices.
“Vietnam has great potential to catch up with the fintech development of more advanced economies. However, if governing bodies keep a too cautious approach, Vietnamese fintech will come back to the medium growth and cannot unleash all its potential,” he said while addressing a fintech policy workshop on Tuesday.
Such protection will not carry practical governing effects, said Phung Anh Tuan, vice-chairman of the Vietnam Association of Financial Investors. He reasoned that overseas investors are allowed to invest through local entities, and Vietnam has also committed to free trade agreements to open up the local financial sector, including financial technologies.
“Vietnam has been quite open in terms of allowing foreign financial groups to set up their wholly-owned subsidiaries in the country, such as securities and insurance firms. Therefore, we do not need to be overcautious,” independent economist Vo Tri Thanh said at the workshop.
He asserted that if the government was still concerned about risks, it could mitigate those through implementing fintech sandboxes, which are seeking approval.
From the government standpoint, Nghiem Thanh Son, deputy head of the central bank’s payment division, said he expects Vietnam to have the next unicorn born out of the fintech sector.
“The State Bank of Vietnam, as well as other authorities, will examine flexible policies in order for fintech businesses to grow and compete,” he said.
Internet major VNG Corporation is known as a Vietnamese unicorn (a term used for a technology company valued from $1 billion). It was said that VNPAY has become the next one following its big funding round in which SoftBank’s Vision Fund and GIC participated.
VNLIFE, the parent firm of QR-code payment company VNPAY, has confirmed the investment. However, it did not comment on the amount.
We reported that the Japanese magnate’s fund had committed $200 million, while the Singapore sovereign wealth fund put in another $100 million.
GIC’s unit Ardolis Investment Pte Ltd had a 15.7 per cent stake in VNLIFE, according to a business registration document we acquired last month. Based on the reported invested capital by GIC, VNLIFE’s valuation could reach about $1.5 billion.
According to our data at the end of 2018, about half of the licensed Vietnamese payment startups were backed by overseas investors. Since then, international funds and corporates have even increased their interest in the entire fintech market.
While dealmakers have been mainly foreign firms, Vietnam started to see some local consolidation, with Vingroup acquiring MonPay, and NextTech Group merging its two payment units to form NextPay, which is seeking funding for Southeast Asia expansion.
With over 95 million people, the portion of Vietnamese population getting access to financial services has increased from only 30 per cent a couple of years earlier to 47.6 per cent currently, which is anticipated to reach the 70 per cent target by 2020, according to the latest update by the central bank.
Buoyed by this exciting demographic factor, fintech in 2018 became the most funded tech sector in Vietnam, with $117 million infusion across eight deals out of the total $890 million investments.