In Vietnam, there are currently 154 financial technology companies (fintechs) operating in many different fields, of which the majority are related to payment. This causes a considerable pressure on payment activities of banks. In the context of rising competition, what do banks and fintechs need to do to improve their efficiency?
From international market developments
The emergence and quick development of fintechs are putting pressure on traditional banking models.
Research of Bunea, Kogan & Stoline (2016) clearly pointed out three tasks that banks need to do in order to compete with Fintechs.
The first task is to invest in technology and transfer operational model to streamline the bulky apparatus and cut operating costs.
The second task is to change lending process, while ensuring compliance with the regulations of the supervisory authority on lending activities.
At present, banks often require a lot of procedures and documents and time to process loans, while the lending and disbursement process of fintechs is much simpler and faster. However, this task is not easy and cannot be solved in a short time.
The third task is that banks need time and costs (investment and operating costs) to build credit scoring models through the use of big data to increase competitiveness.
According to Vives (2018), the strategies of fintechs and banks depend on whether the investment helps them enhance their competitiveness or not.
Alternatives or complementary products will be created from the competition between banks and fintechs. At that time, the opponents’ actions will directly affect their actions. Thus, depending on the industry characteristics, each bank can make a decision to support or prevent the penetration of fintechs.
In general, banks’ response to fintechs’ market penetration can be as follows: to stand still, to prevent the penetration of fintechs, to self-develop fintech products, to cooperate with fintechs, to merge and acquire fintechs, to use cross-sale strategy, to set up digital banking.
The reality in Vietnam
Vietnam has about 154 fintechs (data collected by the writer) operating in many different fields such as payment, crowdfunding, blockchain, personal finance management, POS management/mPOS, data management, lending, information comparision, etc.
In particular, fintechs operating in payment and electronic wallets (e-wallets) take the lead with 37 companies, accounting for 24 percent; followed by lending which accounts for 16 percent with 25 companies; Blockchain, Crypto & Remittance) with 22 companies, accounting for 14 percent. Among operating fintechs in Vietnam, about 70 percent of them are startups of Vietnamese.
In addition, many investors participating in fintechs are from developed countries such as Japan, US, Canada, Australia, UK, Denmark, Scotland and some neighbouring countries like Singapore, China, Thailand and Malaysia.
Most fintechs with foreign investor participation in Vietnam operate across all sectors, but most focus on Blockchain, Crypto & Remittance (12 foreign companies and 10 domestic companies), analysis and credit rating (six foreign companies and six domestic companies), payment and e-wallets (eight foreign companies and 29 domestic companies).
In general, there is a similar trend in Vietnam to countries around the world, in which banks are facing competition from fintechs in the potential retail market, especially products for individual customers which offers high profitability and less risks.
P2P lending, e-wallets, virtual currencies, payment solutions and mobile point-of-sale (MPOS-acquiring), T-commerce have been penetrating strongly into daily life.
Customers do not necessarily come and use banking services directly, they can also borrow and make payment for services through fintechs’ applications, typically Tima (P2P lending) and MoMo (payment).
As of September 2019, Tima has disbursed a total of nearly 82 trillion dong, while MoMo has reached more than 11 million customers and is accepted for payment at over 100,000 transaction points.
In fact, in Vietnam, banks tend to cooperate rather than confront with fintechs. Although most fintechs in Vietnam are operating in payment field, Vietnamese banks are still making links with fintechs to provide better services, bringing more convenience to customers and reducing costs for users, such as QR Code scanning, performing payment transactions via e-wallets, link with P2P lending activities.
Regarding linkage, for fintechs, VTPay is linking with 30 banks, BankGo and Gobear are connecting with 29 banks, ViettelPay is connecting with 23 banks, MoMo is connecting with 13 banks, etc. For banks, Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank) takes the lead with connection with 30 fintechs; while this number is 26 companies for Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank) and Military Commercial Joint Stock Bank (MB), and 25 companies for Vietnam International Commercial Joint Stock Bank (VIB), Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank) and Vietnam Prosperity Commercial Joint Stock Bank (VPBank), etc.
Which strategy for banks in Vietnam?
In competing with fintechs, banks may have reactions as mentioned above.
However, since the legal framework in Vietnam is not yet complete, Vietnamese banks may carry out a self-development strategy combining product cross-selling to enhance the competitiveness with fintechs.
Vietnamese banks should take advantage of their existing network and available infrastructure to combine with fintechs’ technology development capabilities, promoting market acquisition, being ahead and competitive, etc. in order to put pressure on foreign fintechs.
Banks’ fintech companies can benefit from the long operating history and available foundation of banks.
At the same time, banks can also take advantage of the existing innovative network of associated fintechs to develop their products and services through outsourcing some services, rather than developing by themselves at high investment costs.
In addition, in the near future, Vietnam’s commercial banks may perform mergers and acquisitions with fintechs. Vietnamese banks have the advantage of network, capital resources, as well as strict internal control and experience in financial field.
Meanwhile, Vietnamese fintech startups have the advantage of technology, innovative business models and the ability to analyse big data to provide more accurate forecasting models.
On the other hand, startups in Vietnam in general and fintech startups in particular are almost hardly able to break through to become big businesses with independent exist and development, because the digital ecosystem in Vietnam is still limited.
According to the writer, the trend of mergers and acquisitions in Vietnamese fintechs is expected to take place strongly in the near future. However, this activity can only be performed when the regulatory authority has specific policy and regulations.
