Following in the footsteps of regional financial powerhouses Hong Kong and Singapore, in March 2017 the State Bank of Vietnam (SBV) announced the launch of the “Steering Committee on Financial Technology”.
Tasked with “improving the ecosystem” and cultivating a positive legal framework to facilitate the growth of fintech businesses throughout the country, this move has been seen as a largely positive and proactive step to accelerate the development of the sector.
Coupled with the fact that the fintech sector raised US$129 million in 2016, 63% of the total $205 million poured into startups last year, there is a great deal to be optimistic about when assessing the potential for growth.
In this post we’ll take a closer look at some of the greatest opportunities for fintech investment in Vietnam, as well as considering how Vietnam could become a best practice example of fintech development in an emerging economy.
Fintech can be seen to serve two distinct economic groups. For the first, those who are prosperous enough to save but who are not investing in great enough volumes to gain from the traditionally exclusive benefits of wealth management and private banking, fintech is helping democratise financial investment information and platform access. These customers are often found in developed markets, which is why we have seen companies like Nutmeg, Betterment and Cashboard were established in the UK, the US and Germany respectively.
The second group are those who do not have access to traditional financial services, and who are the focus of the growing financial inclusion movement. With KYC restrictions becoming ever tighter, it is becoming even more difficult for many in the region to open their first bank accounts and become formally banked. Into this gap steps fintech, providing both additional tools to banks to allow them to assess the risk of the unbanked, as well as offering basic financial products to the unbanked directly including micro-insurance, micro-savings and micro-lending.
With just 31% of the adult population in Vietnam in possession of a bank account, versus 70% in Thailand, Vietnam is an ideal opportunity for financial inclusion-focused fintech businesses. At the same time, with Ho Chi Minh City’s GDP per capita growing at some 12.9% per year, there is also a growing segment that can begin to benefit from more of the investment focused fintech tools, with fintech businesses able to secure early mover advantage in place of established wealth management institutions.
One of the reasons why Vietnam should be considered such an exciting opportunity for fintech growth is the dominance of the mobile device throughout the market. Mobile penetration stands at 147%, with smartphone penetration at 35%, versus 22% in the Philippines and 21% in the Indonesia.
As we can see from this graph by Pew Research Center, Vietnam sits well above the trend line when it comes to the comparison between internet usage and GDP, with much of that usage taking place on the mobile device.
This eagerness to access the internet, plus the growing penetration of smartphone devices which will only continue to expand as cheap handsets from markets like China become available, is creating a significant user base for fintech businesses offering financial inclusion solutions.
One of the key challenges that stands in the way of future growth is the development of the prerequisite infrastructure to support the growth of mobility. With a recent IFC survey suggesting that there is unmet need for mobile financial and e-commerce services, the audience is there for the taking once the infrastructure can be improved.
Despite the lack of clear guidance from SBV up until the recent Steering Committee launch, we have still seen a significant number of promising fintech startups launch in recent years. With primacy of the mobile device as mentioned above, many of the most interesting fintech businesses have been focused upon mobile payments, mobile financial management and, perhaps most excitingly of all, one of the first digital banks in the region in Timo Bank.
These startups, split between both Ho Chi Minh City and Hanoi, have benefited both from the ability to establish themselves in a relatively unregulated environment, as well as having the opportunity to work with the new Steering Committee to guide regulation from the startup perspective.
With the announcement from SBV we expect to see a more formal fintech association form within the coming months in order to represent the sector effectively, as exists in countries like Indonesia and Singapore.
It has been interesting to keep an eye on the reactions of central banks across Southeast Asian emerging markets to the growth of fintech. Whilst more established markets like Singapore have of course taken a proactive approach to fintech regulation, with a dedicated Fintech Office set up in April 2016, we have seen some interesting examples of central banks in markets like the Philippines, Indonesia and Thailand taking the initiative too.
In the Philippines we have seen Bangko Sentral ng Pilipinas (BSP) talking about the opportunity as well as some of the drawbacks relating to fintech since at least 2015, rhetoric which is now being translated into a series of new fintech rules. In Indonesia, a new regulation passed at the end of 2016 has laid out some basic positions on fintech growth with focus including minimum capital requirements, foreign investment and consumer protection. And in Thailand, a regulatory sandbox as in Singapore and Indonesia has provided ideal conditions within which fintech startups can experiment without putting consumers at undue risk.
Whilst the SBV has been somewhat of a laggard when it has come to both pronouncements and hard legislation on fintech, their move to set up the Steering Committee can be seen as benefiting from a “wait and see approach” that could now pay dividends. With the opportunity to draw on the early experiences of similar economies across the region, and with many of the factors listed above creating favourable conditions for fintech growth, the SBV has a unique opportunity to make Vietnam a regional fintech leader.