Opportunities and Challenges in the Development of Fintech in Vietnam

June 4, 2024

1. Overview of Fintech Development in Vietnam

In Vietnam, Fintech is still in its early stages and underdeveloped due to the lack of a cohesive ecosystem among key stakeholders such as the government, financial institutions, Fintech companies, investment funds, and financial-telecom infrastructure. However, Fintech activities in Vietnam have seen rapid growth.

The number of Fintech companies has nearly quadrupled in recent years. By the end of 2016, there were about 40 Fintech companies nationwide, but by the end of 2021, this number had risen to over 150. Vietnamese Fintech companies operate in various fields, with 37 payment intermediaries and e-wallets (24%), 25 P2P Lending companies (16%), and 22 companies in blockchain, cryptocurrency, and remittance (14%). The rest are involved in areas like internet, mobile technology, cloud computing, and open-source software, primarily as startups. Currently, about 70% of Fintech companies in Vietnam are startups. Overall, 48% of companies participate in payment activities, offering online payment services or digital payment solutions such as 2C2P, VTPay, OnePay, VTCPay, BankPlus, VinaPay, VNPay, Senpay, NganLuong, ZingPay, BaoKim, 123Pay…

2. Fintech Development in the Banking Sector

Alongside the aforementioned companies, commercial banks (NHTM) in Vietnam have focused resources on researching, investing in, and developing new technologies to apply to their services, such as card tokenization, contact and contactless chip card payments, mobile payments, QR codes, and eKYC. By early November 2021, 16 Vietnamese commercial banks had implemented eKYC with over 900,000 active accounts, achieving 32 million transactions worth more than 92,100 billion VND. The initial implementation results show that eKYC account opening has been effective, especially during the Covid-19 pandemic. The eKYC application is a technological advancement in the development of banking services in Vietnam, contributing to promoting non-cash payments. From March 2021 to mid-November 2021, more than 18 million customer payment accounts were opened online using the new eKYC method out of a total of over 100 million active customer payment accounts at commercial banks in Vietnam.

In the first nine months of 2021, compared to the same period in 2020, interbank electronic payment transactions increased by 414% in value; transactions through the financial switching and electronic clearing system increased by 99% in number and 1398% in transaction value.

To promote Fintech in the banking sector and attract customers to use digital banking services over the past two years (2020-2021), Vietnamese commercial banks have implemented policies to reduce payment service fees to support businesses and individuals in overcoming difficulties caused by the Covid-19 pandemic. Specifically, commercial banks have reduced interbank electronic payment system fees by 50%, reduced switching and clearing fees by 70-100%, and waived public service payment fees. In 2021 alone, commercial banks reduced service fees for people by approximately 1,557 billion VND. Including the fee reductions in 2020, the total amount of service fees reduced for people so far is over 2,000 billion VND, with over 80% of individual payment transactions on electronic channels being free of charge.

Currently, nearly 95% of credit institutions (TCTD) in Vietnam have developed or are planning to develop a digital transformation strategy. Approximately 80 commercial banks offer Internet banking services, 44 provide mobile banking services, and 45 offer payment intermediary services, with over 90,000 QR payment points and nearly 298,000 POS. In the first nine months of 2021, compared to the same period in 2020, mobile payments increased by 762% in number and 883% in value; internet payments increased by 512% in number and 291% in value.

3. Potential for Fintech Development in Vietnam

Vietnam is a country with a high proportion of young population, quick to grasp trends, and attractive to international investors. Fintech operates in various fields, creating significant opportunities for domestic Fintech to grow rapidly. In recent years, financial technology sectors have been growing quickly.

Vietnam has significant potential for Fintech development, with major technology companies like FPT, Viettel, and VNPT investing heavily in supporting Fintech startups. With the current growth rate, it is forecasted that by 2022, the transaction value of the Vietnamese Fintech market will reach 10-11 billion USD and grow even more in subsequent years.

4. Challenges for Fintech in Vietnam

Currently, Vietnam lacks large-scale Fintech companies and favorable tax policies for angel and venture capital investors, unlike some global Fintech centers. This presents challenges for the high-profit potential of financial investment.

The legal framework is still primitive, mainly consisting of some macro-level proposals and payment regulations that are not yet synchronized. Vietnam lacks a clear legal framework defining the nature of Fintech products/services, product/service standards, operational models, legal status, establishment, and operational conditions for Fintech companies, as well as consumer protection and personal information protection.

Vietnam is still a developing country with a young workforce that is quick to adapt to new fields, but with an underdeveloped economy, technological infrastructure remains weak and cannot meet the demands of modern technology, especially security technology. Additionally, users of the system often lack awareness of personal information security, such as names, ID numbers, passports, addresses, dates of birth, and account numbers.

5. Recommendations for Improving the Fintech Ecosystem in Vietnam

First, improve state management institutions for Fintech activities. There is a need to quickly supplement and enhance the state management functions of some regulatory agencies in the financial and banking sector, specifically: the State Bank of Vietnam (NHNN) for the banking sector and the Ministry of Finance (specifically the State Securities Commission and the Insurance Supervisory Authority) for the securities and insurance sectors. The government needs to specify the management institutions and the rights and responsibilities of regulatory bodies in dealing with Fintech-related issues in the two aforementioned decrees.

Second, establish a legal framework for Fintech.

  • Controlled experiment mechanism for Fintech: Develop a management mechanism for the experimental activities of Fintech companies, enabling regulatory bodies to manage and supervise limited activities of Fintech companies to minimize legal violations while protecting user interests.
  • Legal framework for specific Fintech services/fields: Review and complete the legal framework for Fintech in the payment sector, especially intermediary payment services. This needs continuous review and improvement to match practical needs and ensure effective state management.
  • P2P Lending: There are no specific legal regulations for this sector, so it’s necessary to review and amend related laws (Enterprise Law, Investment Law, Electronic Transactions Law, Cybersecurity Law…) with the involvement of relevant ministries and sectors.
  • e-KYC solutions: Implementing e-KYC with diverse identification sources requires building a unified e-KYC process for financial and banking services. This includes regulations on information sharing and verification between credit institutions and allowing sharing of electronic customer identification information to establish a unified customer identification database.
  • Open API: To implement Open-API, amend current legal regulations to exclude certain information from state secrets, classify it as personal information, and regulate its protection accordingly. Allow third parties to access information with customer consent, expanding the scope of information to include customer deposits and assets.

Third, build and complete a support network for startup innovation in general and Fintech startups in particular. Fintech Innovation Hubs play a crucial role in developing a Fintech ecosystem. International experience shows that countries with advanced Fintech ecosystems, such as the USA, UK, Singapore, and Germany, have established Innovation Hubs with government and private sector collaboration (corporations, angel investors…), like CyberPort – Fintech Hub in Hong Kong, Fintech Innovation Lab “Looking Glass” in Singapore, and Tech Quartier in Germany.

In Vietnam’s context, establishing a Fintech Innovation Hub is essential for developing a competitive and sustainable Fintech ecosystem. This would support Fintech startups at various stages, drawing on international experience to provide practical benefits and support for the Fintech startup community.

Original article is here (Vietnamese version)

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