While some experts in the international banking industry fear the “Uber moment” as advanced technologies disrupt the conventional ways in the finance sector, that moment might not arrive very soon for the Vietnam’s infant fintech sector.
That said, fintech is still one of the hottest investment trends for startups in the country with total transaction value in the fintech market estimated to reach over $2.9 billion in 2015; and is projected to reach $7.8 billion by 2020.
Apart from the increased funding to fintech companies, the recognition of the sector’s importance came from the business community through the first ever Vietnam Fintech Club launch in September 2015.
A spate of Vietnamese fintech startups have raised substantial funds, including Payoo (reportedly $2 million), OnOnPay (seed funding from Captii Ventures), MoneyLover and especially MobiVi. According to the latest venture capital report by local-based incubation programme Topica Founder Institute, Unitus Impact’s investment in MobiVi’s iCare Benefits is rumoured to amount to over $20 million in a series C round.
Prior to Unitus Impact, MobiVi had also raised funds from Experian Asia Pacific, Vietnam-based wealth fund Kusto Tiger and Sumitomo Mitsui Banking Corporation. It is currently the only fintech company that offers both payments and personal finance services and is considered as the largest player.
Also seen in Topica report, fintech was the third hottest area of investment into startups in Vietnam, after media and e-commerce.
As technology has been attached to any industry to help businesses grow, Vietnam is undoubtedly adopting global trends. However, a clear definition of fintech is still lacking even within the industry. When fintech is mentioned, most of the people often think of online payment or how Vietnamese banks are threatened by competition with new tech companies if they do not change towards more digitalised banking.
Why it’s not there yet
Fintech products are still very primitive in the country where banks nominate the financial sector. While some startups do not compete with banks and are actually using technology to help connect banks, merchants with users, developers are facing little trust from users, who often fear of scams through online transactions.
This has made many startups hesitated to venture in fintech, while some that already joined the area have not seen big traction.
A variety of reasons for the weak fintech market in Vietnam lie in the laws, which have not had particular provisions on fintech yet. The legal practices are just limited to the fields of currency trading (bitcoin excluded) and credit institutions.
Due to the lack of legal support, major risks and barriers to fintech businesses may include the aspects of online trading scams, confidence building, data hacking and direct competition with commercial banks when it comes to transfer and payment processing, according to Nguyen Van Loc, attorney at LP Group.
The legal system itself is another big risk if it is not carefully regulated. Peer-to-peer lending, for example, has not been fully monitored by the law. LoanVi has the advantage of being the pioneer in this segment. However, the young startup’s business may be endangered as it grows bigger, because basically, only banks and other credit institutions in Vietnam are allowed to do lending business.
The current state of fintech in Vietnam
The total transaction value in the fintech market is estimated to reach over $2.9 billion in 2015 and is projected to amount to $7.8 billion by 2020, with more spending in the business and consumer finances starting to appear from 2019 in addition to spending in digital payment, seen data from statista.com.
While revenue figures of most local fintech startups are not shown, sources said MobiVi’s, the largest player, revenue could hit some $200 million.
Among 28 fintech startups compiled in the first Vietnam Fintech Report, more than half are mobile payment companies, while LoanVi is alone in the P2P lending category. Mobivi and MoneyLover were categorised as personal finance service. There are also the fields of bitcoin blockchain, POS management, data management and crowdfunding.
Meanwhile, the report also shows that banking accounted for the smallest portion of online activities in Vietnam (less than five per cent).
Events organised for fintech startups have been mostly meetups by Fintech Vietnam and Bitcoin Saigon groups. The most recent major event was the UK Fintech Roadshow hosted by the UK Trade and Investment department.
The roadshow represented seven fintech firms from the UK, which are looking for partnership opportunities and market entries in Vietnam or have already shaken hands with local entities, such as State Street Global Exchange and Misys International Financial System.
More UK fintech businesses started to be interested in the Vietnam market last year when Prime Minister David Cameron visited the Southeast Asian country. The Vietnam Fintech Club was also initiated after his trip, by Standard Chartered and investment fund Dragon Capital, which has become a big hit for the fintech space.
Members of the club include several leading fintech names such as M_Services (the developer of mobile payment startup MoMo), LoanVi, Fundstart, 1Pay, Mymoney.vn, NextTech incubator and investment fund, FPT Ventures and IDG Ventures Vietnam.
“There is no ecosystem here. And Standard Chartered and ourselves decided to stand behind the idea of setting up the fintech club,” said Dragon Capital’s CEO Dominic Scriven.
“I think it’s interesting because digital revolution is surely going to impact the financial sector, and therefore it’s important for us to understand how it will adjust the business model,” he told DEALSTREETASIA in an interview.
According to him, the young, highly digitalised and underbanked population of Vietnam is the thing that offers the opportunities for fintech. But Scriven acknowledges that it is a long term play and is not without risks. “The right technology, working in the right way with the right protection of consumers and the right level of support from regulators, is not a simple thing.”
Dragon Capital looks at involving in the fintech industry as a sponsor for the club but also possibly as an investor in the future. At the moment, the club is a meetup place, but it aims to become an accelerator for fintech startup, to build an agenda for needed points such as government regulation, physical infrastructure, sources of capital and exposure to international company.
British Ambassador to Vietnam, Giles Lever, has emphasized the important step forward to “establish the UK as Vietnam’s number one partner in the area of financial service technology” during the UK Fintech Roadshow. He believed London is one of the world’s leading financial centres, with the financial service sector overall contributing 140 billion pounds to the UK’s GDP, while Vietnam is a great place to develop the fintech market rapidly thanks to its 90 million people, Internet demography and exponential growth of e-commerce.
Increasing support and interest
After all, stakeholders should not be over-skeptical about the fintech space in Vietnam. Even the government has started to realize the inevitable changes technology has made to the financial service sector. During the Vietnam Business Forum hosted later in 2015, the banking working group of the forum said they wanted to see more fintech products. The legislation system should be revised to support such kinds of new service like peer-to-peer lending, they suggested, adding that Vietnam could consider bankrolling a fintech ecosystem.
Fintech, initially with online payment, can be bolstered by the young consumer demography of Vietnam. The middle class will increase by nearly three times to reach about 33 million people in 2020 – the highest growth in Southeast Asia, according to a Nielsen Vietnam research.
“This will be the key driver to change the way Vietnamese buy things, creating the trend of applying and experiencing technology in consumption,” said Tran Tuan Anh, deputy minister of industry, during a December conference on e-payment.
While cyber payment has a key role in fostering e-commerce as well as other relevant sectors, cash-on-delivery method still accounts for the majority part of 64 per cent in the country. Tuan Anh said Vietnam is working hard to develop online payment and increase the use among people.
As fintech has not developed comprehensively, Vietnam is taking gradual steps firstly with strengthening payments.
A spate of payment service providers from abroad have forayed into the country, including some UK firms mentioned above, and Paymentwall, a Silicon Valley startup. It was among the earliest international companies to eye the burgeoning fintech market of Vietnam and has recently aimed at expanding business in the country by hiring more local talents.
In addition, it would be incomplete without mentioning bitcoin, although the cryptocurrency is still “basically non-existent”, according to Dominik Weil, co-founder of Bitcoin Vietnam. However, he believes bitcoin is the currency of the future and is persistent with his business.