The ASEAN Fintech Census(3) reports that the financial sector landscape in the Association of Southeast Asian Nations (ASEAN) with its underserved SMEs and consumer markets, complimented by increased mobile and internet penetration has paved the way for the disruption of traditional financial institutions. On the back of strong fundamentals and with FinTech adoption on the rise, the ASEAN region’s potential has attracted global investors, with investment in the region’s Fintech sector increasing 45% year-over-year to US$366 million in 2017, according to Tracxn.
Financial Technology companies or fintech have become the new interface between consumers, businesses and the financial industry, changing the way money is accessed and opening up new avenues which facilitate financial inclusion. According to Solidiance(1), rising bank penetration is providing an avenue for fintech to provide value-add financial services while also providing alternative payment solutions to the unbanked population, where only 26.5 per cent of adults have formal bank accounts, according to Ernst and Young.(3)
Vietnam’s fintech market, which achieved USD 4.4 billion in transaction value in 2017, is expected to grow to USD 7.8 billion by 2020. Solidiance(1) cites some of the growth drivers of fintech transforming Vietnam’s financial industry as follows:
- Government’s drive towards a cashless society, aiming to reduce cash transactions to 10% of all payments by 2020
- Providing solutions to key pain-points of time and money experienced by consumers with traditional financial services is strengthening fintech’s position and role in the sector
- Fintech services facilitate capital sourcing and support investment decisions, catering for Small-to-Medium Enterprises (SMEs) in Vietnam – a sector which is currently underserved by traditional financial institutions with limited capital, complexity, and gaps in services
- Aligning global financial trends in digital payment as well as in personal and corporate financial management applications
According to Solidiance’s report on Unlocking Vietnam’s Fintech Growth Potential, the main fintech investment sources are private equity and venture capital funds, as well as other investors seeking to participate in this growth through acquisitions. Additional investments come from traditional financial institutions looking to fill current gaps, expand service offerings, and avoid becoming legacy institutions.
The Vietnam Investment Review(2) categorises the country’s banks as being in the first phase of their digital revolution. This involves collaborating with fintech firms in order to provide a selection of digital service offerings such as high-quality online banking websites and mobile apps. Oher digital initiatives include services such as loan origination, front-end customer acquisition and payment processing.
Examples of collaborations which have aimed at enhancing customer service, providing new offerings and driving greater productivity as follows:
- VIB (Vietnam Investment Bank) collaborated with Vietnamese fintech start up, Weezi to launch an embedded social keyboard that allows their customers to transfer money and to check account balances on their smartphones, changing to the app within social networks such as Facebook Messenger, Viber, Zalo, Whatsapp, Twitter and Snapchat without having to open up any other application.
- Another partnership is seen between VietinBank and Opportunity Network(2), a UK fintech, collaborating to create a digital small and medium sized enterprise (SME) platform, providing SMEs with access to acquire funding.
- The collaboration of TPBank and local fintech, Instant.vn has developed an SME lending platform
According to the Vietnam Investment Review, with forecasted compound annual growth rates of 31.2-35.9 per cent between 2017 and 2025, they believe that more banks will look to build their own fintech products and that more fintech M&As or acqui-hires could follow in the near future. Mergers between fintech firms are another possible outcome, since out of the current total of 77 fintech firms, only half of them are active.
Vietnam Investment Review also reports that country’s rapidly growing fintech sector is drawing increased interest from foreign banks who may collaborate with local fintech firms in order to circumvent the currently regulated cap of 30 per cent foreign ownership in banks. Sources say Shinhan Ban, headquartered in Seoul, South Korea and Korean KEB Hana are exploring opportunities for investment in local fintech firms.
The ASEAN Fintech Consensus 2018(3) reports that about 80 per cent of respondents operate on B2B or B2B2C business models. 47 per cent of the B2B respondents derive their revenue through big banks and corporations whereas 46 per cent of B2B2C respondents derive their revenue through retail and start ups or SMEs. Banks and financial institutions form the biggest group of end customers (51%) representing strong collaboration between incumbents and start-ups.
Going forward, both local and foreign banks are looking for more diversified fintech products which go beyond the current focus of payments. According to Vietnam Investment Review, P2P lending, the second-biggest fintech investment sector according to a CB Insights report on Vietnamese fintech together with other fintech areas such as credit scoring, wealth management and personal finance are in the developmental state with high potential to grow, opening up new opportunities for collaboration and investment in the country