Vietnam’s Fintech Opportunities and Challenges


Vietnam’s Fintech Opportunities and Challenges

Vietnam’s Fintech Opportunities and Challenges

Fintech (Financial Technology) has been a global presence since banks went online many years ago. Fintech refers to technology that improves the delivery of financial services. It can take various forms, such as money transfers, non-cash payments, EKYC (electronic know your customer identity checks), raising money for a start-up, or managing investments, generally without the assistance of another human.   In Vietnam, fintech is on the rise. 

The History of Fintech in Vietnam 

In 2017, fintech began a major expansion in Vietnam. The State Bank of Vietnam proposed that the government introduce a Sandbox – an experimental legal framework – for fintech in the country. The government then discussed proposals for developing a new decree until the beginning of 2020. When that agreement was approved one year later, it marked a commitment to fintech in Vietnam.   

Most world-class business leaders understand the importance of adapting to the times. To stay relevant, businesses must evolve to keep up with customers’ expectations, and fintech is the essential tool of evolution for financial service companies. The State Bank of Vietnam (SBV) and the Vietnam Fintech Market Report 2021 state that the number of fintech companies has quadrupled, from 39 companies at the end of 2015 to more than 154 companies at the end of 2021. More than 70% of those are start-ups. 

Fintech’s Market Development and Opportunities 

COVID-19 was a game-changer for many industries that had an overall negative impact on the global economy. Fintech, however, was one of the few winners.  

Fintech companies in Vietnam provide services in many fields, but they focus primarily on P2P lending and payment intermediaries. The market is improving quantitatively and qualitatively, with lockdowns and social distancing periods kick-starting the need for digital transactions and e-commerce.  

In recent years, investment in the fintech sector has also seen significant growth. According to a report by the Singapore Fintech Association in 2019, Vietnam ranked second in the ASEAN region for Fintech investment. Investment in fintech in Vietnam accounted for 36% of the total investment capital in this field for the region (only behind Singapore at 51%) that year, up from 0.4% in 2018. However, the number of fintech companies in Vietnam is still significantly lower than in other ASEAN markets like Singapore, Indonesia, and Malaysia. This is due to a few primary factors: the incomplete fintech ecosystem, lack of cooperation between authorities and businesses, and a shortage of regulatory frameworks. 

Vietnam has a population of 99 million, with an average age of 33.3, according to the latest data from the UN. More than 70% of Vietnamese have a smartphone, and the recent boost to e-commerce has made Vietnam a favorable environment for fintech businesses. Although fintech in Vietnam is still in the early stages of development, it has received attention and active support from the government, the Prime Minister, and relevant ministries and sectors. Everyday life in Vietnam is still predominantly cash-based, but since 2017, the government has been implementing initiatives to move towards electronic payments. The Financial Technology Steering Committee (established based on Decision No. 328/QD-NHNN dated March 16, 2017, of the Governor of the State Bank of Vietnam) focuses on solutions to improve the ecosystem and perfect the legal framework for the fintech sector. 

On September 6, 2021, the government issued Resolution No. 100/NQ-CP, approving the proposal to develop a decree on a regulatory sandbox for fintech activities in the banking sector. Accordingly, the State Bank of Vietnam (SBV) is the unit assigned by the Government to assume the prime responsibility for the Sandbox, coordinating with relevant ministries and agencies in fully absorbing the opinions of Government members during the formulation of this Decree to ensure compliance with regulations.  

That decree is limited to the banking sector, so it will be necessary for future regulatory actions to expand to other fields like insurtech or proptech. . Indeed, much work is still needed for fintech companies to have a favorable and transparent playground, but the current loose policy framework leaves room for market players to contribute practical knowledge that may help the government develop policies that reflect the reality on the ground.  More good news is that the Law on Insurance Business 2022, just passed by the National Assembly, has dedicated space for the digital transformation of the insurance industry, including insurtech, just passed by the National Assembly, has dedicated space for the digital transformation of the insurance industry, including insurtech.  

Challenges of Fintech in Vietnam 

At this stage, the fintech market in Vietnam represents both an opportunity and a challenge for market players. The young market means that early adopters have a primary advantage.  

The under-developed regulatory framework is one of the biggest challenges, but it is also an opportunity for businesses to share their experience and voice opinions on drafted regulations in ways that might influence policymakers.  

Infrastructure could also be problematic for new fintech players. Vietnam is a developing country that has limited technology infrastructure which can be below modern standards, especially in terms of security. And the fact that fintech is so new means that the environment is highly subject to change, making it difficult to build reliable business and governance models and plan medium and long-term development strategies.  

On the brighter side, macro and micro support from the government should give businesses the confidence to continue building a solid fintech community in Vietnam and help it catch up with top-tier countries. The people of Vietnam have already joined the world in ideating around Big Data, AI, Cloud Computing, Blockchain, and IoT; the market will surely catch up in time.