NOTE: This article series was inspired by the book Fintech in a Flash: Financial Technology Made Easy by Agustin Rubini. A great read for anyone who looks to explore the potential of the fintech industry and its current state!
NOTE 2: Thank you Huy Nghiem of Hello from Finhay for advising me on this series! For those who don’t know them yet, Finhay is a robo-advisory service for Vietnamese millennials to easily invest in financial products, starting with mutual funds. They’ve been invested by Australia-based H2 Ventures.
“In its broadest sense, we define fintechs as high-growth organisations combining innovative business models and technology to enable, enhance and disrupt FS. This definition is not restricted to start-ups or new entrants, but includes scale-ups, maturing companies and even non-FS companies, such as telecommunication providers and e-retailers.” EY: UK FinTech — On The Cutting Edge — February 2016
Historically, the development of fintechs has begun since the 1950s. In personal finance, the creations of credit cards, ATMs, electronic stock trading, banking databases, Internet and e-commerce business services, etc were all part of this evolutionary process. Between the 1950s and the 1990s, one should also notice that alongside the infrastructural growth of this sophisticated system that we now benefit from, there was also the rise of enterprise-level tools for banks and financial institutions, such as risk management platforms, data analysis software, and treasury management frameworks, that facilitated this drastic metamorphosis. Companies that provided these data-driven, enterprise-focused platforms, such as Bloomberg Terminal and Thomson Reuters Eikon, played an important part in building out this initial fintech infrastructure. The evolution in corporate finance in turns generated further growth for the retail/personal sector.
The digital age, however, poses new problems and, consequently, opportunities for a new wave of fintech solutions. Retail financial services, for example, now become open to new, more consumer-friendly players, in a variety of sub-verticals, such as mobile wallets, e-payment services, robo-advisors, and peer-to-peer (P2P) lending. In certain cases, fintechs have completely replaced traditional banks in financing the consumers, such as PayPal. In corporate finance, the introduction of new terminologies, such as Big Data, Blockchain, and the Internet of Things (IoT), has open new doors for data collection and analysis, risk management, as well as treasury management. This drives corporates to invest in either internal R&D or into startups that focus on these fields, in order to to get caught up with the new technologies.
Making the case of Vietnam’s fintech industry
The development of fintechs in Vietnam, nevertheless, is quite different, as it remains largely focused on the personal/retail finance sector. As in many regions and countries in Asia and Africa, where there exists a large unbanked and under-banked population, people often don’t use banking services, but rather prefer going through cash-based channels for retail needs. A recent research by Solidiance pointed out that the level of banking sector penetration in Vietnam only reached 59%, as compared to 86% in Thailand and 92% in Malaysia. This means a staggering 41% of Vietnam’s population is unbanked, creating a huge window for fintech companies to jump in and compete with traditional banking; consequently, it also put the pressure on banks and financial institutions to innovate internally to adapt and explore this potential customer audience.
This opening of opportunities for fintech has been powered also by the growth of mobile penetration and Internet economy in Vietnam. Per a report by WeAreSocial, Vietnam grossed 64 million Internet users and 70 million unique mobile users, with 72% of which converted into smartphone users. This level of penetration has helped Vietnam’s Internet economy almost triple between 2015–2018, reaching $9 billion in 2018, according to a recent Google/Temasek report on Southeast Asia’s Internet economy. With this fast pace of mobile and Internet adoption, consumer behaviors are changing quickly. Mobile- and Internet-based transaction processing has become the new norm in banking and payment, especially among the younger population.
Southeast Asia’s Internet economy GMV as a percentage of GDP in 2018. Source: Google/Temasek.
Another key differentiation for Vietnam is the rising number of small-and-medium enterprises (SMEs). The ASEAN SME Transformation Study conducted by United Overseas Bank (UOB), EY and Dun & Bradstreet earlier this year stated that SMEs in Vietnam account for nearly 99% of all enterprises and employ over 70% of the workforce. The study also showed that Vietnamese SMEs are highly tech-savvy and open to investments into digitalization: 58% surveyed SMEs would invest in technology, of which 71% indicated they would invest in software such as mobile applications or digital marketing as they believe these will create better customer experiences and increase customer loyalty. Fintech solutions, such as point-of-sale (POS) technologies, gifting platforms, and digital marketing tools, will empower SMEs and open new customer onboarding channels for them. Other segments like digital lending and crowdfunding open new channels of fundraising for SMEs to grow their businesses.
In terms of frontier technology, blockchain is leading the way in Vietnam’s fintech landscape, with its main applications in cryptocurrencies. The skyrocketing rise of Bitcoin and Ethereum in the past two years also draw a lot of attention from local businesses and individuals alike. According to the Global Cryptocurrency Benchmarking Study, the Vietnamese Dong was used by 15% of surveyed cryptocurrency payment companies worldwide in 2017, comparing to 6% use by the Singapore Dollar and 10% by the Indonesian Rupiah. Businesses, especially early-stage startups, have also found useful applications of cryptocurrency in fundraising through initial coin offerings (ICOs) or securities token offerings (STOs) based on blockchain technology. According to ICORating’s ICO Market Research Q2 2018, in the 2nd quarter of 2018, ICOs have already raised $11,690,981,663 of investments, which is 10 times bigger than the cumulative sum of investments from ICOs of Q1–2 2017, with Vietnamese ICOs such as Kyber Network or Tomochain participating in this rising trend.
Bitcoin’s awareness level across selective countries, recorded in Jan 2018. Source: Jana Mobile/Statista.
Fintech innovations in corporate finance, however, remain fairly limited. Banks, insurance firms, and securities companies are leading this trend, with the development of internal cloud-based platforms that assist their customer-centric data tracking and collection. There is also a limited number of startups working in this field, mainly focusing on the aggregation and providence of business intelligence data and credit scoring information based on social activities. Nevertheless, the lack of public infrastructure for financial data access remains a challenge for data-driven fintech development.
Finally, one cannot overlook other emerging sectors in fintech market. These sectors include a wide range of prototype- to early-stage startups and projects that are yet to achieve significant growth but hold plenty of potentials. Robo-advisory, overseas remittance, and eKYC are only a few examples representing this growing segment of fintechs.
Conclusion
As such, one can divide the local fintech landscape into the following segments: Digital Payment, New Banking, Consumer Interfacing, Lending & Crowdfunding, Blockchain & Cryptocurrencies, Big Data, and Emerging Fintechs.
Up next: Part II: Digital Payment