The cooperation between banks and financial technology (fintech) was fundamentally changing the way the financial sector operates.
Without fintech, the Mobile Banking of banks would not be able to develop as recent days, said Pham Tien Dung, director of the State Bank of Vietnam (SBV) Payment Department, assessing the cooperation between banks and fintech. About 10 years ago, banks used to equip the Mobile Banking project but then had to stop. However, when the collaboration between fintech and bank started, Mobile Banking and Internet Banking became different. Thanks to fintech, banks had a whole digital ecosystem, Dung said.
In a survey with the Institute of Banking Strategy, 84 percent of bank leaders said they would like to cooperate with fintech to develop based on the strengths of each party. Credit business processes such as grading, asset pricing, etc, could also be shared with fintech.
The rise of fintech
Fintech was present in many financial products, from products for end-users such as electronic wallets, cryptocurrencies, capital mobilisation tools, etc, to products supporting the operation of financial institutions, such as smart technology services, blockchain. These systems helped reduce the cost of financial services, eliminate intermediaries and promote financial services reaching the most effective level. Especially, the data control stages, ensuring safety and security for customers and financial institutions were also greatly upgraded thanks to fintech. According to a joint study by Google, Temasek and Bain & Company, digital payments were expected to exceed $1 trillion, and e-wallets would reach $114 billion in 2025. While most of the modern technology products and services started and surpassed first in the US, fintech had little difference.
Fintech companies and fintech products were still the most active in the US, namely in Wall Street financial centre and Silicon Valley, but China was the leading market in using fintech services. More than 60 percent of Chinese people had access to fintech, while this percentage in the US was just over 30%.
That was because many fintech services were associated with mobile phones, an indispensable means of young people these days. At the same time, young people also tended to be open to newer technology, including in the field of money. Therefore, in the first phase, most of the countries with developed technology and with a large young population were the countries using most fintech, such as China, India, England, Brazil, Australia, and even Vietnam.
Vietnam was considered a potential market for fintech development, because there were nearly 100 million people, with 60 percent using smartphones and 143.3 million subscribers. Moreover, the number of internet users was also up to 66%, including 64 percent of social network users. Taking advantage of technology, innovative ideas, flexible organisation, infrastructure, but fintech companies lack the ability to regularly replicate customers, lack of brand reputation to be able to quickly deliver market development. Banks, on the other hand, had extensive customer data, long-standing brands, sufficient financial resources and operational experience, but could not easily exploit the most advanced technological know-how in their elder operation cycle.
Therefore, the cooperation between fintech and banks could bring strength to both sides and help promote both fintech and the financial system to new heights. Facing this trend, Reet Chaudhuri, a senior expert in payment and transaction division of McKinsey & Company, also said that the banking industry should link with fintech companies to develop together.
Shaping the future for the fintech industry in Vietnam, there was no better way than cooperating with banks. It was also the fastest and most effective way, according to Pham Xuan Hoe, deputy director of the Banking Strategy Institute of SBV.
New power from the cooperation of bank and fintech
In the world, most successful fintech companies focused on niche markets or segments that traditional financial markets could not serve. Fintech was once considered a rival of the bank when many financial technology companies had built up a high level of reliability, which previously belonged to traditional banks and credit institutions. The ability to shift the flow of revenue from other sectors to the banking and finance industry could completely change the horizontal balance of competition.
Because fintech made hinge changes to financial activities, it was almost sure that financial institutions that do not use fintech would be excluded from the game. According to SBV, 72 percent of fintech companies had partnered with banks in Vietnam, only 14 percent developed new services, and 14 percent were willing to compete with banks.
Although most were still struggling with sales, market share and many other difficulties but new fintech startups were continually being born. The budgets of investment funds, banks, financial institutions, even non-core companies participating in fintech were increasing each year. A survey of Hochiminh City Computer Association showed that 70 percent of fintech companies in Vietnam were start-ups with foreign investment.
Since the beginning of the year, banks and financial institutions around the world had continuously poured capital into fintech companies. Typically, in Vietnam, there had been two deals worth hundreds of millions of dollars, which were MoMo with Warburg Pincus and VNPay with SoftBank. Recently, several domestic and foreign banks, such as Vietnam Prosperity Joint-Stock Commercial Bank (VPBank) or Shinhan Bank of Korea, had started supporting training programmes and raising capital for fintech startups in Vietnam.
According to Solidiance Consulting, the Vietnam fintech market reached $4.4 billion in transaction value in 2017 and was expected to reach $7.8 billion in 2020. Fields of Vietnam’s fintech ecosystem currently were quite broad, including payment intermediaries (e-wallets), personal finance, peer-to-peer lending (P2P lending), insurance technology, digital banking, credit scores, community funding, and so on. In particular, the two sectors that attracted the most investment were e-wallets and P2P lending with 28 members (licensed, except NAPAS) and more than 70 unofficial members.
Nguyen Dinh Thang, Chair of Lien Viet Post Joint Stock Commercial Bank (LienVietPostBank)’s Board of directors, affirmed that developing a digital banking model was an inevitable trend that the banking industry would look forward in the near future. To do so, banks needed to upgrade and transform their core banking systems, apply high technology, and digitise assets. In the process of deploying digital banking, banks were also required to cooperate with large technology companies and fintech companies in providing banking services and developing new products, said Thang.
Despite that, fintech startups still faced many legal hurdles. Tran Viet Vinh Chief Executive Officer (CEO) of Fiin Financial Technology Innovation Company, said that Vietnam needed to have appropriate state management policies and orientations to promote companies like Fiin to operate in a healthy environment to promote comprehensive financing and sustainable financing.
In fact, there had not been a standard legal framework for fintech companies. Therefore, although the fintech market had started to grow and flourish in the past five years, there were only about 150 businesses, most of which were small businesses, start-ups, few services, mainly focusing on the payment and electronic wallet segments. Sharing Singapore’s experience, Koh Noi Keng, director of Fintech Academy Singapore, said that Singapore had a SandBox mechanism (an area for testing new business models and ideas) that enabled fintech startups to try their experimental operation. As these startups proved their effectiveness, the state and large banks quickly licensed then acquired these solutions to market.
Europe had also launched many influential support projects to develop fintech. For example, the UK Financial Management Agency launched a project of innovation supporting and developing fintech ecosystem and establishing its base in Amsterdam, London, for fintech companies. Swedish NFT Ventures and Israel’s venture capital funds mainly focused on fintech.
In Vietnam, on October 31, the Hochiminh City Computer Association established the Fintech Institute and the AI Institute to train and improve the quality of fintech and AI human resources for organisations and businesses. SBV had also submitted to the government the Scheme of the Regular SandBox testing mechanism for fintech activities in the banking sector.
However, according to Pham Xuan Hoe, this project would still take a lot of time to take legal effect, especially when the bank management included the management of risks related to payment and credit functions. He also advised fintech companies not to wait but start working and choose a model of cooperation with banks from the beginning, which was the shortest, fastest way to develop.
The story of regulatory was not the sole task of fintech or the bank. Building the foundation and operating was the future people looking forward to. If successful, it would be leverage for policymakers to speed up the legalisation of fintech management, Dinh Thang said.
