What is Fintech? The market of fintech in Vietnam in 2020 | FinFan

What is Fintech? What makes fintech be a giant in such a short time. This is a very detailed article on fintech concepts and issues relating to the market of fintech in Vietnam. Let’s read it to learn about financial technology, and find out which fintech companies are appreciated!

What is Fintech

The truth of Fintech

The origin of Fintech: In the early 21st century, most developments are associated with information technology and the internet. Information technology has crept into every profession and field all over the world. As a result of this, almost all difficulties in distance and technology have been solved.

Following the general trend of social development, finance - banking also chose the trend of industrialization and modernization by applying information technology to the original business model. A smarter operating system, more diversified and optimized products are the results of this breakthrough.

A series of startups were founded in the 2008 economic crisis, they sparked a technological revolution in the financial sector, changing the whole "cumbersome apparatus" of the bank in particular and the financial market in general. That achievement has created a new term in the fintech industry.

→ Fintech = Finance (finance, currency) + Technology (technology) 

So, What is Fintech?

Fintech stands for "financial technology". Fintech is understood exactly to be the application of innovative and intelligent information technology in financial services.

Previously, the concept of fintech was only used to talk about data processing systems (back-end) of commercial financial institutions in the establishment of end-user networks. But the term was extended in the late 21st century to refer to any technological innovations that drive the development of the financial sector, including retail banking, investment, or even virtual money - crypto money.

What is fintech in Vietnam?

Fintech's main products

A technology company that builds a technology platform in digital finance, fintech or a company or bank applying digital tools and technology to their financial operations is known as fintech. These two companies, however, are different in terms of functions and objects, so fintech is divided into two groups:

The first group - serving consumers: products, services for consumers, digital solutions, technology to improve payment transactions, consumer loans, sponsor or investment.

The second group - Back-office: is the technology companies that play the role of supporting the back-office of financial institutions.

Since then, fintech is divided into many basic services and products such as payment, lending, money transfer, peer to peer lending, crowdfunding, personal finance advice, digital currency (Crypto Blockchain), insurance technology (Insurance-Tech), data management, etc.

What makes Fintech explode

Fintech 4.0 is leading

Being the most perfect combination of technology 4.0 and fintech, fintech 4.0 is the most advanced solution for the banking and finance industry. Bringing many smart financial benefits to consumers through comprehensive technology development.

Eliminating geographical distance, time, remitting money anywhere faster and safer. Fintech companies choose a solution of strong investment in information technology instead of infrastructure. This has brought the best results to serve the needs of consumers everywhere.

  • Serving consumers’ demands in the most comprehensive way: reduced costs, reduced times, reduced risks and increased performance.
  • Financial enterprises benefit greatly from the people who are savvy and like to use smart mobile devices and computers.
  • Supporting investment for promising startups, especially fintech startups.
  • The Government supports fintech companies with good conditions for development, reducing barriers on legal.

The great potential of fintech companies

The development of 4.0 technology is also a step for fintech companies to be expanded. Many innovations in fintech have substantial influences on related industries such as e-commerce, banking or financial products.

The rise of fintech marks an important turning point for the financial sector, reshaping the industry while creating new, superior solutions.

Using new advanced technologies such as artificial intelligence (AI), big data, analyzing and predicting consumer behavior, analyzing data, simulating habits to make decisions on people make the value of financial technology more and more increasing. Fintech not only attracts users by helping them manage their spending, reducing transaction time but also helps them make savings unconsciously better. Therefore, artificial intelligence (AI) is the core of most Fintech platforms and will continue to drive innovation in this area. Making the right decisions about data and automating workflow will be the top targets of financial companies (fintech) in 2020.

→ In 2018, Fintech companies, which were backed by venture capital, raised more than $ 40 billion in the capital and nearly half of these were in China.

This high rate of growth will continue not only in Asia but also across the world, where newcomers like Fintech will have a good chance of breaking out. The combination of the government’s open policy and the banking sector will bring many innovations that change the current reality of finance.

The big impact of Fintech after the resurgence

After breaking out, fintech brought many great impacts on financial markets, especially banks. Most of them are positive effects, but in another segment, fintech is the risk of destruction for industries and sectors including banking.

Bank "paperless"

The popularity and replication of the fintech trend is a huge challenge to the traditional financial industry. Fintech is built on a "no branch" infrastructure. On the other hand,  banks or other financial institutions need great support from the branches. Traditional services always have to be stressed with the two options of eliminating or retaining branches and at the same time promoting the technological foundation in each product or financial institution.

"Remove the old shirt", fintech products are getting smarter and more diverse

The banking system is still anxious when fintech "booms". Trends change, digital products such as social networks, digital banking, mobile banking, internet sales platforms, ... are increasingly prioritized. Choosing the right products for the trend will be an important decision of the banks.  

Market shares of banks fell sharply

The most obvious is the image of "banks standing out of the world's largest virtual money game, a scale-virtual currency has become the hegemon of the digital currency day".

Transfer of labor

Instead of prioritizing employees from banks, financial institutions, insurance or securities companies, fintech prefers to recruit candidates specializing in IT. Whether the high-quality labor force is appreciated or not, based on personnel structure of IT.

High technology application

Using Big Data-intelligent technology to analyze customer behavior, help financial institutions gather more sources of user information, their behavior, and their financial habits. Fintech helps cut unnecessary costs, improve service quality through artificial intelligence (AI).

Risks and challenges of fintech

Capture the risks that fintech companies bring

  • There are many doubts about the fintech industry that it cannot replace the position of traditional banking. Because Fintech still has many limitations:  
  • The stock prices of fintech companies worry many people when they often go up and down erratically. The risks of fintech also appear more clearly from there.  
  • Although fintech offers a variety of financial products and services, its convenience and intelligence are so much that make many clients have doubts about it. Because they do not understand this industry or do not get their own obligations as well as interests. 
  • Although the World Bank has verified the safety and reputation of fintech in the Vietnamese market and around the world. However, how much confidence users need to put in the safety and accuracy of fintech's transaction information processing system.
  • The more developed the fintech market does, the more likely it is that the bankruptcy of some traditional services and companies increases.

Implicit challenges of the fintech industry

Besides bringing more benefits, fintech also contains inevitable risks. Moreover, the fintech industry also encounters challenges that the results of the financial market:

  • Many low-income families cannot afford to use the bank's payment services.
  • Many fintech companies definitely need to prepare to face the problem of competition when the "hotness" of this industry causes many giants of technology and finance to jump in.
  • Because the development is too fast leading to the lack of manpower in the market. Additionally, fintech recruits workers who are knowledgeable in both finance and technology. However, people who are savvy in technology rarely know about finance and vice versa.
  • The loan market still has many hidden risks. Interest rates, payments, liquidity or bad debts increased each year according to reports from banks, causing "Peer-to-Peer Loans" to suffer similar pressure.
  • Although it has been recognized, fintech still faces many legal barriers that limit the development environment.

So what is remarkable about fintech in Vietnam, is it the same as what the world is doing, following and like the above comments?

The fintech market in Vietnam

As of September 30th, Vietnam ranked second in ASEAN is calling for fintech funding, attracting investment in fintech Vietnam, accounting for 36% in the region in 2019, just followed Singapore (51%), according to a joint report by PricewaterhouseCoopers (PWC), United Overseas Bank (UOB) and Singapore Fintech Association.

Startup scene of fintech Vietnam

The start of a bright future when the fintech industry in Vietnam has witnessed two of the biggest deals with extremely familiar names, VNPay with an investment of $300 million and Momo of $500 million. These are the largest and the third funding round deals in the region as of September 30th, 2019, according to the research.

In Vietnam, venture capital funds prefer fintech businesses operating in payment, which often happens in developing economies and is the first state of fintech's prosperity. Payment companies account for 98% of the total amount of fintech funding in Vietnam by 2019.

The Fintech Vietnam report also shows that Vietnam is the top country being paid attention to by venture capital funds. Especially Vietnam’s fintech companies doing business in the payment sector, they are boosted by the economic potential of a populous country, without digital banks. Also, the rate of internet and mobile usage is increasing strongly.

At the same time, this is also a great opportunity for fintech companies in Vietnam when the government is promoting Vietnam to become a country of cashless economy and piloting the construction of digital banking in fintech enterprises and Vietnam's banking market. According to the State Bank of Vietnam, the number of financial transactions, currency exchanges, and mobile payments has doubled compared to the same period in 2018 as of March 31st, 2019. The mobile payment market is expected to reach $ 70.9 billion by 2025, up from $ 16 billion in 2016, according to Allied Market Research. There were 154 fintech companies established in Vietnam as of September 30th, 2020, behind countries such as Singapore with 1157 enterprises, Indonesia with 511 enterprises and Malaysia with 376 enterprises, turning Vietnam into the smallest fintech industry.

Fintech Vietnam ecosystem 

Vietnam fintech ecosystem 2020

Fintech companies Vietnam ecosystem

The above-gathered image is a diagram of fintech in Vietnam companies in 2020. It's not surprising that the payments segment is at number one, with around 37 payment fintech firms. The most prominent among those platforms include Momo, Zalo Pay, Moca, VNPay, etc.

See more in Vietnamese: https://finfan.vn/News/phat-trien-cong-nghe-san-pham-muc-tieu-lau-dai-cua-fintech-viet-nam-592

Momo, Several fintech companies in Vietnam are being appreciated

Momo, the leading fintech company in Vietnam, an online mobile payment platform of M_Services.

Inspired by Alipay and WeChat Pay of China, MoMo, Vietnam's newest e-wallet platform, constantly attracts new users as Momo has reached 20 million users in September 2020. Licensed and permitted by the State Bank of Vietnam, customers can directly perform transactions without cash.

However, what makes MoMo so attractive is the range of services. A nationwide network of transaction points facilitates not only young customers in urban areas but also rural customers to access and use the service easily. Momo became the leading payment company in Vietnam thanks to its large transaction points and wide coverage. With $500 million raised in three rounds of fundraising, MoMo's growth rate shows no sign of stopping. Its popularity among young Vietnamese also continues to demonstrate fintech's position in Southeast Asia's tech future. 


Moca, Grab's strategic partner

Moca, a free mobile payment application for Vietnamese consumers. The company was granted a payment service business license by the State Bank of Vietnam (SBV) in 2016. It also has partnered with 11 domestic banks. Last year, Grab signed a strategic partnership contract to provide digital payment services with Vietnam's Moca.


Zalo Pay, an e-wallet 

Recently, Zalo Pay has released a new feature “transfer money directly via chat application Zalo". Although Zalo Pay has been behind many e-wallets in China or some countries around the world, it is a pioneer in this service in Vietnam. Zalo Pay operates based on Zalo, a popular messaging platform of the parent company-ZION. Zalo Pay allows users to link payment cards to make P2P payments, payments via NFC, QR codes, as well as buying products and services online, recharging their mobile devices, and paying for their utilities through its platform.

Peer-to-peer lending (P2P) is another popular segment that includes more than 20 companies. Among them have to be mentioned as Tima, a consumer finance market and P2P lending platform; Growth Wealth, a P2P lending platform for small and medium enterprises (SME) in Vietnam, as well as TrustCircle and Vay Muon.


Tima, a peer-to-peer lending platform in Vietnam

Tima is a consuming financial fintech firm based on a peer-to-peer lending platform. The company has signed partnerships with financial institutions, traditional banks, including VietinBank and Nam A Bank, and announced that it disbursed about $ 1.7 billion for 2.8 million borrowers and investment place for more than 30,000 lenders on its platform. Tima stated that it raised $ 3 million in Series B funding in October from venture capital funds with a corporate valuation of nearly $ 20 million. They are also in the process of raising investment in Series C.


VayMuon

VayMuon has expanded to become the fintech Vietnam's largest P2P lending platform since securing the seed funding round less than a year ago.

This peer-to-peer lending platform allows individuals to receive loans from others without requiring a bank's financial services or procedures in advance, eliminating intermediaries. Initially, VayMuon only operated with 5 co-founders in 2017. Currently, the company has more than 200 employees at 4 branches in Vietnam, Myanmar, Thailand and Cambodia. VayMuon's P2P business model is clearly on momentum, reflected in steady monthly growth of 20%. Besides, the application has successfully connected 2 million borrowers with 400,000 unique lenders. VayMuon is making efforts to popularize the process of processing high-speed and paperless loan procedures in Vietnam. They have also started a partnership with Vietnam's largest payment gateway - Nganluong to penetrate more fintech sectors, by expanding VayMuon's reach into e-commerce, salary-based loan management and supply chain financing.

Vietnam’s fintech ecosystem network shows a bright and promising future for this industry, without under shadow and no fear. These hopes will bring a competitive, quality market and be gradually expanded when ventures capital choose Vietnam as a place to pour money.