■ According to Asia-Pacific-focused consultants Solidiance, Vietnam’s fintech market was worth $4.4 billion in 2017 and is predicted to reach $7.8 billion by 2020, for a 77 per cent increase over three years. What factors lie behind this growth?

There are a number of important key dynamics driving the growth of fintech in Vietnam. Here are just a few that come to mind:

1. Vietnam has a tech-savvy population.
2. The country benefits from a rapid proliferation of smartphones and internet connectivity. 
3. There is a large population of unbanked and under-banked individuals and small and medium-sized enterprises (SMEs) that fintech firms can service.
4. Forward looking policies have been adopted by the government aiming to reduce the amount of cash transactions in the country. 
5. An expanding ecosystem to support digital entrepreneurs.

■ Does the rise of new fintech products and services put pressure on traditional banks? 

The user experience at traditional Vietnamese banks is antiquated. Many of the recent fintech-related developments are highly customer-focused and contrast with the traditional product orientation of banks.

So, the younger, tech-savvy generation is gravitating towards branded fintech companies that provide the best user experience and the best value and that can ultimately help them reach their financial goals.  

Solidiance’s research shows that digital payment leads the fintech services market share in Vietnam, with 89 per cent.

This doesn’t mean that Vietnamese banks will go the way of Kodak. Banks will remain widely used, profitable, and cash-rich businesses.

But they’ll need to upgrade themselves to compete.

Already, we’ve seen a number of Vietnamese banks embracing these new concepts of customer-centric services and adopting new technologies to better serve clients. 

■ What are the challenges facing Vietnam’s fintech industry?

The greatest challenges are the regulatory environment in which fintechs operate and the increasing competition. 

■ There has been some degree of cooperation between banks and fintechs in recent times. What are your thoughts on this trend?

Information technology and fintech will change the competitive landscape.

Though banks will continue to play a leading role in the financial ecosystem, the traditional bank-customer relationship will need to evolve.

I believe more cooperation is a win-win for banks and fintechs.

As enablers, fintech companies can help Vietnamese banks reduce friction in service delivery or enhance the customer experience.

Banks, meanwhile, allow fintech firms to locate clients easily and serve them better.

■ What should local banks do during digital transformation?

Not only banks but also insurance companies need to embrace new financial technologies and even try to accelerate innovation from within by setting up their own corporate incubators.

To deal with the challenges and uncertainties ahead, these financial institutions will need to become agile and flexible.

Financial institutions with a large client base will have many development areas to explore, such data mining, blockchain technologies, microfinancing as a product, and pay-as-you-go (PAYGO) insurance models.

Financial institutions trying to launch a successful innovation program should focus on a concerted approach.

Established players have an advantage in that they can leverage existing data to identify new revenue sources.

However, they will have to decide relatively quickly which type of app and service to launch and to how to best leverage existing human resources and consultants to get there.

■ What should the government do to support the development of fintech in Vietnam?

The government should support technology and innovation. The current legal framework is unclear on certain areas of fintech and, in some cases, it completely bans the development of innovative solutions. It will take a coordinated effort from many stakeholders within government to solve some of these issues. 

To support the fintech ecosystem, the government should create a regulatory sandbox to help fintech companies test their products, discover real challenges, and find scalable solutions.

One area I am particularly interested in is equity crowdfunding. Equity crowdfunding is the online offering of private company securities to a group of people for investment, and therefore it is a part of capital markets.

In other countries, it has enabled innovative startups to access much-needed capital to support their growth and development. 

Because equity crowdfunding involves investment in a commercial enterprise, it is often subject to securities and financial regulation.

In Vietnam, this type of activity would be regulated by the State Securities Commission under the Law on Securities, and would be considered a public offering.

However, the Law on Securities’ requirements for a public offering in regards to capital structure, size, and profitability are too restrictive for private innovation companies.

These requirements are far too restrictive for startups to raise funds from capital markets, and force them to rely on friends and families, angel investors, and venture capitalists (VCs).

Under Vietnam’s current Law on Securities, a company like Amazon would never have been able to launch a public offering of its shares.

If the country wants to promote innovation, it must empower the way innovation gets funded.  

Linh San

VN Economic Times