Banks and fintech race

The banking sector and commercial banks in particular should innovate to adapt to the forth industrial revolution (Industry 4.0) and the wave of fintech companies if they wish to maintain the role as a trusted and comprehensive financial service provider.

Banks must innovate to adapt to the wave of fintech firms (illustrative image)

Industry 4.0 has gradually changed the face of Vietnam's digital payments market. Commercial banks no longer hold a monopoly in the payment market but have to compete with a large number of fintech (technology used to support or enable banking and financial services) companies.

It is an unsolved problem for banks as fintech companies have met almost all financial services provided by banks, such as deposits, cash withdrawals, money transfers, and payments. In particular, clients can get access to almost financial services with lower costs and simpler procedures without commercial banks.

A number of foreign fintech firms have set foot in the Vietnamese market including powerful firms such as Alipay, Wechat Pay and Apple Pay, which are formidable opponents to domestic fintech firms as well as commercial banks.

According to Director of Payments Department under the State Bank of Vietnam (SBV) Pham Tien Dung, despite the potential and growth of the fintech market in Vietnam, the number of Vietnamese fintech firms operating stably is modest.

Nearly all licensed fintech firms in Vietnam currently can't survive based on their transactions as only five out of 25 fintech firms in Vietnam have reported profits.

According to Varun Mittal, Ernst & Young (EY) ASEAN fintech leader, start-ups in Vietnam are promoting investments in the fintech sector with a total investment of approximately US$129 million. Vietnam has become one of the highest potential markets for fintech development thanks to the golden population structure with a large number of population using smart phones, as well as high consumption growth and low unemployment rate, among others.

Foreign investors also pay significant attention to the fintech area in Vietnam and have expressed their wish to participate in or buy several fintech firms due to the high market potential.

According to experts, the market segment is currently seized by domestic banks and fintech firms. However, with a comprehensive and perse approach strategy by foreign fintech firms, the segment may be usurped by foreign fintech firms if domestic firms fail to compete with foreign ones.

At the Vietnam Financial Technology (Fintech) Forum held by the SBV in Hanoi, on May 30, SBV Governor Le Minh Hung said that since 2008 the SBV has allowed a number of fintech firms to provide pilot payment services to meet the market's demand. After the establishment of a clear legal framework, 27 institutions acting as payment intermediaries have been licensed by the SBV, Hung noted.

The tendency of cooperation has become more visible in the past few years as the relationship benefits both sides. The partnership between banks and fintech firms helps to maintain and develop a modern fininancial-banking system with innovative financial products and services, meeting increasingly demanding requirements from customers.

The development of fintech firms and the fintech-bank coordination are considered the premise for the enhancement of access to banking-financial services for Vietnamese customers.

Photo for illustration (source: Vietnam Finance)

However, at the forum, fintech firms and banks all agreed that a completed legal framework for fintech is a crucial factor for the effective operations of the alliance of fintech and banks in the race with foreign fintech firms.

According to the SBV Governor, fintech firms play an important role in the financial - banking system of Vietnam in the digital era. The partnership between fintech and banks may contribute to the target of promoting finance universalisation, hunger eradication, poverty reduction, social equality, and sustainable economic development.

“The SBV has been holding dialogues with fintech businesses in order to timely address their difficulties and help them join the market,” Hung said. The SBV will focus on building and perfecting the legal framework for fintech firms, while supplementing and revising regulations on the banking sector in order to adapt to the development trend of the fintech industry.

Regarding solutions and new knowledge of Fintech firms which are not subject to any regulations of the current law, the SBV will apply management methods on a pilot basis in conformity with the reality and international practice to advance to the promulgation of official legal and management framework.

Senior country economist at the Asian Development Bank (ADB), Dominic Mellor, said ADB has always been ready to support SBV to achieve the targets of encouraging fintech development and completing the necessary legal framework for the industry’s development.

Vietnam currently has considerable advantages, particularly information technology, to serve as a foundation for fintech development toward the goal of financial universalisation, he note./.

( VNF/NDO )