Formalising the regulatory framework to boost fintech growth

Formalising the regulatory framework to boost fintech growth

The fintech industry in Vietnam has grown exponentially over the last five years, mainly thanks to the rising popularity of e-wallets and digital payment in everyday life. However, a solid regulatory framework is needed to match this fast development.

Vietnam has witnessed a nearly five-fold increase in the number of fintech companies from 39 firms in 2015 to 188 firms in September 2021 (according to Statista 2021). Despite this exponential growth, the Vietnam fintech industry is still in its infancy. Compared to ASEAN-6 countries such as Malaysia, Philippines and Thailand, Vietnam is still lagging, leave alone giant tech markets like Singapore or Indonesia.

E-wallet and digital payment, for instance, is the leading segment and takes up about a third of the Vietnam fintech market (according to Fintech News Singapore 2021). Vietnam also ranks 3rd among the ASEAN-6 in terms of digital payment users with approximately 59% of the Vietnam population exposed to digital payment, only behind Singapore and Indonesia. This achievement is thanks to the effort from the Vietnamese government in pushing non-cash payment, e-government and financial inclusion.

news-1-formalising-the-regulatory-framework-to-boost-fintech-growth Dr Huy Pham, Senior Lecturer in Finance, Founder of RMIT FinTech-Crypto Hub, RMIT University Vietnam

However, the total transaction value of this sector in Vietnam is only higher than that of Malaysia (Vietnam is expected to be overtaken by Malaysia in the next 5 years) and falls quite far behind the Philippines and Thailand. In addition, although almost 60% of the Vietnamese population has some exposure to digital payment, the transaction value of this sector is relatively low leading to a low average transaction value per user. A relatively similar trend is observed in other segments such as digital assets, digital investments, neobanking or alternative financing.

One important thing to note here is that the smartphone penetration rate (73.6%) in Vietnam is the lowest in the ASEAN-6 country indicating a huge room for potential growth (data from Statista, 2022). Moreover, Vietnam is leading the crypto adoption in the world and the Vietnam blockchain industry is drawing a lot of attention from foreign investors. However, the crypto/blockchain market faces several obstacles such as scams with no investor protection leading to a decrease in investor confidence. The current unregulated environment may potentially discourage firms in this industry to establish their headquarters in Vietnam and set up their bases in countries that provide more incentives such as Singapore or the United Arab Emirates. The Vietnamese government is also missing out on an enormous amount of tax collection from cryptocurrency trading activities.

Despite an active fintech market, there is still a lack of a proper regulatory framework and several actions are required to boost the growth of the fintech market further. First, an initiative from the State Bank of Vietnam was launched in 2017 to come up with a fintech regulatory framework and sandbox but it has not materialised until now. Therefore, there is an urge for the Vietnamese government to fast-track the fintech regulatory sandbox. The sandbox should not only provide a clear guideline for fintech activities in Vietnam but also incentivise firms to operate in the country. If Vietnam does not have a sandbox soon enough (mid-2023 at the latest), we might lose the opportunity to become a leading fintech-blockchain hub given stiff competition from other countries.

Second, the government needs to ensure that Vietnam has a proper ICT infrastructure that can accommodate the rising demand from the fintech industry. Finally, technological and financial education will play an important role in increasing Vietnamese citizens’ awareness and helping them become more knowledgeable to avoid possible scams or threats in the fintech-blockchain space as well as the digital economy. Hence, investments should be made to ensure essential equipment, training materials and human resources are available not only to schools and universities but also to the public for the upcoming decade.

Story: Dr Huy Pham, Senior Lecturer in Finance, Founder of RMIT FinTech-Crypto Hub, RMIT University Vietnam

This story is based on an original article published on ICT News, part of Vietnamnet.

02 November 2022

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