Google has announced that its Google Wallet mobile application will now be available in Vietnam.
The announcement sees Google Wallet join a long line of fintech apps all vying for a piece of Vietnam US$14 billion fintech market.
And it’s not just in payments that fintech solutions are taking off. A range of mobile apps targeting stock trading and investing, as well as money lending, have all come online in recent years.
Fintech is undeniably booming in Vietnam and the momentum with which it is propelling itself, for a relatively nascent industry, shows few signs of slowing down.
Vietnam’s fintech industry in numbers
A Robocash Analysis in May this year, found that the market is expected to reach US$18 billion by 2024. This represents huge demand for fintech services in the booming Southeast Asian nation.
Along with this discovery, Robocash also reported that of the venture capital invested in Vietnam, 93%, in 2021, was directed to digital payments.
He also found that between 2016 and 2021, fintech companies in Vietnam skyrocketed. In five years, the number of operators has increased by 84.5%.
There has, however, been a marked drop in the number of entrants to the market, from 11 per year to just two. This could be a sign that the market may be reaching peak saturation. However, it could also be a sign that big industry players have firmed up their understanding of what Vietnamese fintech users want and need. New entrants, as such, will need to be savvy operators with a good understanding of how Vietnam’s fintech sector works.
What is driving the growth of the fintech sector in Vietnam?
Vietnam is a huge growth market for fintech. More than 75 percent of the population has access to the Internet and this should increase to 82% by 2025 i.e. almost 7 million additional people.
On top of that, Vietnam has a relatively young and tech-savvy population. According to the Ministry of Communication, 73.5% of People in Vietnam currently use smartphones. He estimates that number will climb to just over 82% by the end of 2022.
Moreover, a digital transformation of the Vietnamese economy is high on the government’s agenda. The National Digital Transformation Program launched last year, sets out key digital banking goals to be achieved by 2025. These include:
- 50% of banking operations will be entirely online,
- 50% of the population has a digital checking account, and
- 70% of customer transactions must be conducted through digital channels.
That said, despite the adoption of digital banking, few regulations have been developed to manage the fintech sector.
Fintech regulations in Vietnam
Vietnam’s approach to the proliferation of fintech and digital assets has been consistent and cautious. So to speak, there are very few regulations specific to fintech. There are, however, a number of regulations in other sectors that may be relevant to fintech operators.
Developing a fintech sandbox
To take advantage of the opportunities presented by fintech, the government is taking steps to create a fintech sandbox.
This sandbox would be a test credit organizations and financial institutions to develop new technologies, regulators to assess the risks and benefits of fintech for the consumer, to reduce the risks that consumers face when using fintech products and to determine which authorities regulators will be responsible for regulating the sector.
It would look like sandboxes in other Southeast Asian countries like Singapore, Thailand or Malaysia.
That said, while a draft executive order outlining a possible fintech sandbox program has been circulated, it may still be some time before it is approved.
The status of cryptocurrencies and digital assets
Cryptocurrencies, for all intents and purposes, are not legal in Vietnam.
The State Bank of Vietnam (SBV) has been very clear about this, in a official dispatch in 2017 indicating that:
“Virtual currency in general, and Bitcoin and Litecoin in particular, are not currencies and are not legal means of payment under the provisions of Vietnamese law. The issuance, supply and use of virtual currency in general and of Bitcoin, Litecoin in particular… as currency or means of payment are prohibited.
The letter goes on to point out that using cryptocurrencies as an offer may constitute an “administrative violation” and perpetrators may be fined.
Loan between individuals
Peer-to-peer lending is also, for the most part, unregulated. Although it has been suggested that this could be considered credit activities in which case a license may be required from the SBV.
Notably, in the aforementioned draft decree for a sandbox mechanism, a provision is made to explore peer-to-peer lending services.
Foreign investment in fintech in Vietnam
Although there are significant restrictions on foreign direct investment in financial institutions and credit organizations in Vietnam, there are none specific to fintech. That is as long as fintech functions are not covered by other laws.
To be clear, an application like Google Wallet only acts as an intermediary between a financial institution or a credit agency. It does not actually provide credit.
In light of this, foreign investment has been pouring into the sector in recent years – this could also be part of the reason why Vietnam’s fintech sector has grown so rapidly.
The future of the fintech sector in Vietnam
Despite increased competitiveness in Vietnam’s fintech sector, Google Wallet shows that there is still room for new entrants.
Although there is a lack of regulation, with a government keen to digitally transform the economy, any regulation that develops in Vietnam is likely to be favorable to the sector.
Moreover, as the population of young, tech-savvy Vietnamese continues to grow and smartphone penetration proliferates even further, the fintech sector is also expected to continue to thrive.
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Dezan Shira & Associates providing business intelligence, due diligence, legal, tax and advisory services throughout Vietnam and the Asian region. We have offices in Hanoi and Ho Chi Minh City, as well as throughout China, Southeast Asia, India and Russia. For assistance with investing in Vietnam, please contact us at [email protected] or visit us at www.dezshira.com