NATIONAL ECONOMICS UNIVERSITY

_____***_____

Commercial Banking
Presentation Topic:

THE DEVELOPMENT OF FINTECH IN

VIET NAM: OPPORTUNITIES AND
CHALLENGES FOR BANKING SECTOR

HA NOI - 2020

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 MEMBERS OF GROUP 3

Lương Thị Ngọc Ánh – 11180588

Lê Thị Diệu Bình - 11180667
Ngô Thị Khánh Linh - 11182726
Phan Ngọc Minh - 11183376
Mai Vũ Minh Ngọc - 11183654
Vũ Hà Trang - 11185260
Phạm Thu Trang - 11185207
Trần Minh Thu - 11184736
Nguyễn Mai Linh – 11182768
Nguyễn Thị Hồng Vân - 11185535

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 OUTLINE

A. An overview of Fintech............................................................................................................5
I. Definition..................................................................................................................................5
II. Different Types of FinTech.................................................................................................5
1. Payment................................................................................................................................5
2. Deposit and Lending............................................................................................................6
3. Enterprise Financial Software............................................................................................6
4. Market Provision.................................................................................................................6
5. Capital Raising.....................................................................................................................6
6. Investment Management.....................................................................................................7
III. FinTech in Vietnam.............................................................................................................7
1. Introduction..........................................................................................................................7
2. FinTech Activities and Business Models............................................................................7
B. Comparison of Fintech and Banks.........................................................................................9
I. Similarities...............................................................................................................................9
II. Differences............................................................................................................................9
1. Purpose.................................................................................................................................9
2. Personalisation:..................................................................................................................10
3. Communication Pattern....................................................................................................10
4. Potential Coverage:...........................................................................................................10
5. Key Functioning:...............................................................................................................10
6. Technology Perspective.....................................................................................................11
C. Opportuinities.........................................................................................................................11
I. Reaching the unbanked through Fintech............................................................................11
1. What Is an “Unbanked”?..................................................................................................11
2. How many Vietnamese are Unbanked?...........................................................................12
3. Bank-Fintech Collaborations............................................................................................12
II. Applying Big Data for Credit Scoring.............................................................................14
1. What is Big Data?..............................................................................................................14
2. How does big data analytics apply to lending?...............................................................14
3. Effective sources of alternative data................................................................................15
III. Win – Win cooperation.....................................................................................................16
IV. Providing a wide range of financial products in the banking and finance sector in
Vietnam..........................................................................................................................................19
D. Challange...............................................................................................................................20
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 I. Legal corridor........................................................................................................................20
II. Strategic risks.....................................................................................................................22
III. Market share......................................................................................................................22
IV. High operational risk:.......................................................................................................24
E. The development Fintech trend and experiences of Asian countries..................................25
I. China.......................................................................................................................................25
1. How The Government of China do to trigger the boom of Fintech ?...........................25
2. Lessons learned from China.............................................................................................25
II. Singapore............................................................................................................................26
1. Overview.............................................................................................................................26
2. Experience access...............................................................................................................26
III. Indonesia.............................................................................................................................27
1. Overview.............................................................................................................................27
2. Experience access...............................................................................................................27
IV. Potential and application of Fintech to the banking system in Vietnam......................27
1. Trend of Fintech in Vietnam............................................................................................27
2. The movement of banking system....................................................................................28

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 A. An overview of Fintech
I. Definition
Financial technology (abbreviated fintech or FinTech) is the technology and
innovation that aims to compete with traditional financial methods in the delivery of
financial services. It is an emerging industry that uses technology to improve activities
in finance. The use of smartphones for mobile banking, investing, borrowing services,
and cryptocurrency are examples of technologies aiming to make financial services
more accessible to the general public. Financial technology companies consist of both
startups and established financial institutions and technology companies trying to
replace or enhance the usage of financial services provided by existing financial
companies.
After reviewing more than 200 scientific papers citing the term "fintech," a
study on the definition of fintech concluded that "fintech is a new financial industry
that applies technology to improve financial activities." Fintech is the new
applications, processes, products, or business models in the financial services industry,
composed of one or more complementary financial services and provided as an end-to-
end process via the Internet. Fintech can also be considered as “any innovative ideas
that improve financial service processes by proposing technology solutions according
to different business situations, while the ideas could also lead to new business models
or even new businesses."

II.Different Types of FinTech

1. Payment
This domain is the largest in terms of interest from investors. Payment is about
money related services including:
- Payment back-end and infrastructure refers to payment processing providers,
solutions for accepting electronic payments, a point of sale terminals, card providers
and also mobile payments.
- Consumer payments include mobile wallets and seamless payment solution to
enable payers to pay on the go and p2p money transfers.
- Cryptocurrency provides access to digital cryptocurrency markets such as
Bitcoin. So users can pay by accepting crypto money.

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 2. Deposit and Lending
Deposit and lending focus on personal services in the area of loans and
management of their finances and saving. It consists of three subdomains.
- Personal Finance which focuses on supporting individuals and households in
budgeting as well as managing their financial decisions and activities.
- Digital banking is an interactive online service for customers to do their
banking services such as paying bills, transfer funds and access to checking and
savings accounts.
- Alternative lending which complements the other by focusing on providing
customers with credit scores and peer-to-peer loans without going to traditional
financial institutions.
3. Enterprise Financial Software
Enterprise software is IT solution made for the financial sector. It includes tools
for handling accounts, invoices, taxes payroll, and shareholder management. It can be
divided into three areas as well:
- Collaboration and workflow software is cloud-based solutions that enable
better communication and efficiency of internal processes.
- Accounting and invoice software helps financial institutions to improve the
time and resources spent on the bookkeeping and invoicing processes.
- Data and analytics software helps financial institutions to fight off fraud
security issues and cyber crimes.
4. Market Provision
Market provision goal is to improve the transparency, connectivity, and
accessibility of information on the market. This allows buyers and sellers to more
easily connect with each other. Thereby allowing them to compare different financial
products and services. It consists of two sectors:
- Comparison & matchmaking which is an online aggregator platform that
allows customers to identify and compare financial products and services.
- Financial social networks that focus on the use of the social networks to
facilitate interaction between buyers and sellers.
5. Capital Raising
Capital raising is about providing customers with access investments and raising
capital either in exchange for equity or in return of interest rates. This domain can be
further broken down into two areas:
- Crowdfunding focuses on helping companies and entrepreneurs to raise capital
for the business products, projects, and social courses.
- Alternative financing refers to innovative ways to raise capital without going to
traditional incumbent financial institutions. It is focused on small and medium
enterprises.

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 6. Investment Management
Investment Management is services that help private and institutional investors in
the process of buying, selling and managing assets and securities. This can be divided
into:
- Private investment management which refers to automated processes and
trading algorithms to private algorithms other tools to manage trade manage their
investments.
- Institutional investment management which focuses on tools and technologies
for institutional clients.

III. FinTech in Vietnam

1. Introduction
According to “ASEAN FinTech Census 2018” from Ernst & Young, Vietnam
currently ranks second amongst ASEAN member states in the number of incubators,
accelerators, and innovation labs in the region. The Vietnamese Fintech market was
worth $4.4 billion in 2017, and is predicted to reach $7.8 billion by 2020, equalling a
77% increase over three years. Fintech development in Vietnam is accelerating with
companies in the sector attracting US$117 million in startup capital, surpassing e-
commerce at US$104 million and other sectors which makes Fintech the most funded
sector for start-ups in 2018.
The Vietnamese Fintech start-up ecosystem is now 154 companies and brands
divided into main segments: electronic payment, digital banking, wealth management,
peer to peer lending, blockchain/cryptocurrency, crowdfunding, credit scoring, SMEs
Financing, Comparison, POS and Insurtech.

2. FinTech Activities and Business Models

FinTech in Vietnam mostly focuses on payments with 47 % of Vietnamese
companies working on payment services, the highest rate in the region. Cashless
payments are booming in Vietnam, more than doubling in value over the first three
quarters of 2018. In particular, payments through mobile banking services have surged
to 144% per year over the past five years; transactions over mobile apps and digital
wallets rose by an impressive 126% and 161% respectively.

a) Peer-to-peer lending (P2P)

Peer-to-peer lending (P2P) is the second largest Fintech segment in Vietnam with
over 20 start-ups. Major players in the area include:
 Tima: a consumer financial marketplace and peer-to-peer lending platform.
The company has signed partnerships with financial institutions, including VietinBank
and Nam A Bank, and claims to have disbursed about US$1.7 billion in loans to 2.8
million borrowers and over 30,000 lenders on its platform. Tima claims to have raised
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US$3 million Series B funding round in October at a near US$20 million valuation
and recently beganthe process of raising a Series C investment.

 Vay Muon: Vay Muon Joint Stock Company - Vaymuon.vn was first launched
in late 2017. Up to now, VayMuon.vn is one of the leading peer-to-peer lending
platforms in Vietnam connecting more than 2 million customers with nearly 400
thousand investors and growing over 20% per month. Vaymuon.vn has received seed
investment capital from NextTech Group, a strategic investor currently holding 20% of
the startup shares. In 2019, the company will raise capital from Series A from 5 to 10
million USD to go abroad.

b) Digital banking
Digital banking is a bank that can perform most banking transactions online
through the Internet. Digital bank transactions do not have to go to a bank branch and
minimize the related paperwork. At the same time, the feature of digital banking can
be implemented anytime, anywhere, regardless of time and space, so customers are
completely proactive. This segment has 5 startups, notably:
 Timo: Digital banking is developed on the basis of using the internet
connection to operate through 2 channels: Mobile Banking and Internet Banking
applications. Timo is guaranteed and co-developed by VPBank. Recently, Timo has
switched partners to Ban Viet Bank.

c) Wealth management
One of the fintech business models for asset management, most commonly robo-
advisors, offers advice on investment in financial products. They work by using
algorithms to suggest a set of assets to invest in based on a client's investment
preferences and style. This business model benefits from changing demographics and
consumer behavior who love automatic and passive investing strategies, simple and
transparent fee structures, and attractive economics for minimum or almost no
investment. This segment includes 9 companies, notably:
 Money lover: personal financial management application managed by Finsify
company. This application applies the Freemium model. Users will be able to use this
application with the most basic features. After that, you will pay if you want to use the
version with more advanced features if needed.

d) Blockchain and cryptocurrency

Blockchain and cryptocurrency is another area that has witnessed significant
tractions in recent years. Since the launch of Bitcoin Vietnam in 2014, several
companies have emerged to tap into the blockchain and crypto frenzy. Notable
companies include:

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  TomoChain: a public blockchain promising faster and cheaper transactions
designed to support decentralized applications. The start-up raised US$8.5 million in
its initial coin offering (ICO) last year and is backed by several well-known investment
firms such as Signum Capital, Connect Capital and 1KX.

 Kyber Network (KNC): a reliable new decentralized trading platform that

allows for virtually instant transactions and the transition between any digital asset.
Kyber Network started an ICO on September 22, 2017 in Singapore. After just a few
hours, this project has raised 200,000 ETH, equivalent to about 52 million USD (about
1,200 billion VND), turning Kyber Network back into into the largest fundraising deal
in Vietnam's startup history and on par with the world's top 10 startups in terms of
money raised in 2017.

B. Comparison of Fintech and Banks

The financial services sector is in the middle of a digital revolution that represents
the most significant change in banking for centuries. In most markets, FinTech start-
ups present a credible threat to incumbent banks. Using a combination of technology,
consumer-centric service and flexible business practices, these new companies are
reducing the cost of doing business, extending their customer base and taking market-
share. So what they have in common and what make them different?

I. Similarities
- Providing some banking activities such as lending, financial services,…

II.Differences
1. Purpose
- The most significant difference between FinTech firms and the traditional
banks is the purpose. Fintech products are created by identifying a gap in the
marketplace whereas legacy institutions like banks cater to the wider audience.
- Legacy banks majorly focus on the management of risk whereas FinTech firms
focus on managing the overarching customers’ experience.

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 2. Personaliation:
- In terms of improving user experience, banks are now toeing the line of new-
age FinTech companies. Traditionally, banks had been lagards,a regulated institutions
that supply credit, the lifeblood of economic growth and have got sovereign insurance
for their liabilities of the deposits and have a very resilient business model which
focuses more on trust and security, significant capitalization and customer
indifference.
- FinTech usually focuses on mobile functionality, big data, accessibility, agility,
cloud computing, contextuality, personalization and convenience. They accelerate and
prefer a change in the customer preference around mobiles platforms, smartphones and
social media.

3. Communication Pattern
- The core premise of FinTech firms has been ‘user experience’ and the
implementation of good user experience. This is the aspect where banks fell behind
and are only integrating good UX practices to ensure customers have a seamless
interaction. Case in point, 2018 went down as the year of chatbot launches by major
banks.
- Whereas FinTech’s communication pattern is such that other than this their
focus is on innovations that promulgates faster transactions, 24×7 permanent access,
immediate consultation and remote account opening which gives much more
significance to their communication with the customers.

4. Potential Coverage:
- Market distribution of Fintechs is higher due to higher penetration of mobile
phone connectivity in comparison with the physical distribution of banks. For
example, in India, mobile penetration stands at 80 percent in comparison to the bank’s
35 percent distribution which gives FinTech an uncanny advantage over banks.

5. Key Functioning:
- Banks are more process-oriented. The legacy systems and regulatory
framework they carry restricts their ability to quickly leverage new technologies and
roll out new products and services which can address the customer issues.
- Banks legacy infrastructure and disengaged workforce showcase an
asymmetric risk profile for innovation. Within legacy banks scores of assets
accumulated over time add little incremental value as a major portion of these
assets drains on productivity, innovation, corporate energy and profitability because of
which banks have a severe potential downside reputation and operations.

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  Whereas FinTech’s new-age data native companies are more customer-
oriented asset and have lean operating models are free of legacy system issues and
have better regulatory arbitrage. FinTechs have flatter organzational structures with
fewer barriers to change. This structure encourages not only innovation but the ability
to tear down and rebuild its non-performing structures.
- This allows them to leverage new technologies like cloud and artificial
intelligence to offer a highly unique customer experience centred on personalization,
speed, relevance, and seamless delivery. FinTech streamlines complex financial
processes, making it more accessible to people. This is an area that is led by data-
native companies such as Google, Amazon and Paypal which have all rolled out niche
products targeted for millennial segment.

6. Technology Perspective
- FinTech companies depend heavily on technologies like automation, artificial
intelligence, and machine learning which is the reason for the faster rate of
functioning.
- Traditional banks are still grappling with legacy infrastructure.
- Incorporating such technologies like these leads to lesser mistakes, ensures the
quality of service and provides any quick service on a shorter notice.
 Outlook
- Banks have dramatically evolved in the way it functions under the influence of
new age technologies such as analytics, AI and machine learning. And FinTech
startups too are fast picking up in the adoption of technologies .
- Some of the banks are even acquiring FinTech startups to enhance their
services. Many financial institutions including Barclays, Citibank, Goldman Sachs
have accelerator programs for FinTechs whereas BNP Paribas, HSBC, UBS and
Deutsche Bank have invested into FinTech firms which offer solutions across personal
finance, wealth management, lending, payments, settlement blockchain, data analytics
and other regulatory technology.
So with these differences mentioned above, should banking sector cooperate or
vie with Fintech? This question will be solved in the following part.

C. Opportuinities

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 I. Reaching the unbanked through Fintech
1. What Is an “Unbanked”?
An unbanked is a person who does not have a savings or checking account with a
bank or credit union. People who are unbanked don’t have access to savings or
checking accounts and don’t use other traditional banking services, such as loans or
credit cards.
In addition to people who are unbanked, some are “underbanked.” Underbanked
individuals or households might have a bank account through a traditional financial
institution - but they often use alternative financial services such as money orders,
check-cashing services, and payday loans rather than on traditional loans and credit
cards to manage their finances and fund purchases.
The reasons why a household or individual might not use a traditional bank or
financial institution can vary. Some common reasons people cite for being unbanked
or underbanked include:
- Not having enough money: A 2017 survey by the Federal Deposit Insurance
Corporation (FDIC) found that the most common reason people didn’t use traditional
banking services was that they didn’t think they had enough money to put into an
account. More than half of the unbanked cited a lack of funds as a reason for being
unbanked. More than one-third of respondents stated that it was the main reason for
not having a bank account.
- Having worries about fees and costs: Having a checking or savings account can
cost money, depending on the financial institution. Two commonly cited reasons for
avoiding bank accounts were concerns that the fees were too high or concerns about
the unpredictable nature of fees.
- Finding banks inconvenient: In the past, hours of operation at many banks
weren’t exactly the most convenient. Banks were traditionally open on weekdays only
and usually only until the late afternoon. If a bank was open on the weekend, it was for
very limited hours. Also, in the past, people would need to visit a bank in person to
take care of their financial needs. While that has changed in recent years, thanks to
online and mobile applications, many unbanked or underbanked people still believe
that banks are inconvenient.

2. How many Vietnamese are Unbanked?

According to Director General of Payment Department – Mr. Pham Tien Dung, in
2019, approximately 37% of adults in Vietnam are unbanked and thus depend on cash
to buy or sell goods and services. These folks are from both the low-income and
middle-income sectors of society. People living in rural and remote areas are the most
financially underserved. These people have been ignored by financial institutions for
the simple reason that settling branches in these areas would be loss-making
investments for banks. This is sad reality because in fact, residents, small and micro

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businesses in rural areas are still in need of basic financial services such as money
transfer, insurance and remittance

3. Bank-Fintech Collaborations
Fintechs are definitely disruptors in a market that has long been dominated by
banks and credit card companies. In recent years, fintechs have achieved huge strides
in integrating the unbanked to the financial system. These companies provide
alternatives to savings accounts and traditional bank products. Though the integration
is incomplete at times, the fact that people can now receive and send money outside
the traditional banking system is a huge leap to making lives easier for the unbanked.
Financial institutions and banks that are interested in connecting with unbanked
or underbanked consumers have multiple options for banking the unbanked and
increasing the number of people who have accounts. One of them is to collaborate with
Fintech companies.
 As e-commerce grows and online shopping is becoming familiar to modern
people, banks and Fintech together will run sales promotions to encourage consumers
to go cashless. This will contribute to promoting an increase in the number of bank
accounts in Vietnam. Airpay, for example, is an electronic wallet used to pay when
shopping on Shopee app. Customers will often receive a lot of special offers when
paying with Airpay wallet money or money in the bank account linked to Airpay
wallet. These offers include getting a Shopee voucher of 20%, 50%, 100% when
paying with Airpay wallet for the first time; getting free Shopee shipping codes, etc.
Consumers can also use Airpay to pay bills and many other services and receive
special offers. However, from January 20, 2019, customers must link their bank
account / ATM card with AirPay e-wallet in order to use and continue to make service
payment transactions in accordance with Circular 39. / 2014 / TT-NHNN of the State
Bank. Airpay are now linked with 17 banks: AB Bank, AgriBank, Bac A Bank, etc.
Therefore, unbanked consumers who want to get a discount on their goods and
services will open an account from one of these banks to make online payment via
Airpay. There is no doubt that Fintech is a partner who bring customers to the banks.
 The problem for unbanked people is more pronounced in the rural areas, where
mobile connectivity is poorer, and the financial industry’s presence is insufficient or
simply absent. To bank the unbanked, financial institutions need to shift people’s
perspectives on what a traditional financial institution is and what it offers. Banks and
Fintech collaborate to develops digital banking to provide much-needed services to the
unbanked and the underbanked at lower cost with higher level of convenience.
In Vietnam: Military Commercial Joint Stock Bank has developed a digital
banking model called Viettel Pay based on cooperation with strategic partner Viettel.
- Most mobile applications are intended for smartphone users. However, Viettel
Pay application can be used immediately on a regular phone or when there is no

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network connection. Through the command * 998 #, users can still activate, deposit,
withdraw, etc. easily.
- Customers wishing to use Viettel Pay service will not have to pay account
opening fees (saving about 50,000 - 100,000 VND / time) and monthly account
maintenance fees (savings about 11,000 VND / month).
- Customers can enjoy all ViettelPay money transfer services completely free of
charge; free instant money transfer to 40 domestic banks in Vietnam (saving 7,700 -
22,000 VND / transaction). Users can transfer money by sending to account number,
phone number, card number, cash transfer at home.
- Unlike other e-wallet or internet banking applications, ViettelPay does not
require users to have a bank account. Customers can deposit money directly into
ViettelPay account from nearly 200,000 transaction points, covering 63 provinces. A
ViettelPay account is a bank account that Viettel cooperates with the Military Bank as
well as some other banks. When opening a Viettelpay account, you will automatcally
have an account number in the Military Bank in the form of a card number. So you do
not need to link bank accounts, you can still use Viettelpay comfortably.
Viettel Pay provide alternative options to ensure everyone, including those living
in remote isolated areas still has the opportunity to access to banking and financial
services.

II. Applying Big Data for Credit Scoring

1. What is Big Data?
The term “big data” refers to data that is so large, fast or complex that it is
difficult or impossible to process using traditional methods. Big data analytics is the
study of huge amounts of stored data in order to extract behavior patterns. Big data is
characterized by three primary factors: volume (too much data to handle easily);
velocity (the speed of data flowing in and out makes it difficult to analyze); and variety
(the range and type of data sources are too great to assimilate). With the right
analytics, big data can deliver richer insight since it draws from multiple sources and
transactions to uncover hidden patterns and relationships.
- There are four types of big data analytics that really aid business:
- Descriptive – Describing or summarising what happened in the past based on
data presented through graphics or reports.
- Diagnostic – A look at past performance to determine what happened and why.
The result of the analysis is often an analytic dashboard.
- Predictive – An analysis of likely scenarios of what might happen. The
deliverables are usually a predictive forecast.
- Prescriptive – This type of analysis reveals what actions should be taken.

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 - Big Data analytics help companies or public administrations to understand
their users better, find unnoticeable opportunities, provide a better service and
prosecute fraud.

2. How does big data analytics apply to lending?

Such advanced analytical models have huge potential in the world of finance and
creditworthiness. Lending is a business based entirely on calculated prediction.
Lenders try to use borrowers’ information in an attempt to identify whether or not they
are at risk of defaulting on their loan repayments.
Big data take an "all data is credit data" approach, combining conventional credit
information with thousands of data points mined from consumers' offline and online
activities. Big-data scoring tools may now base credit decisions on where people shop,
the purchases they make, their online social media networks, and various other factors
that are not intuitively related to creditworthiness. This enables lenders to accurately
predict borrower payment behavior, helping then make informed and more profitable
credit decisions in real time.

3. Effective sources of alternative data

The basic information to be assessed for determining creditworthiness includes
past borrowing and repayment patterns. A bank often relies on data directly showing
the customer's financial ability, including account statement, labour contracts, or
historical records which are collected from the CIC. However, this method still has
many drawbacks. First, an individual may not have a credit history at all because they
never apply for a loan or issue a new credit card. This should not preclude them from
being viewed as creditworthy, but often does. Second, a past default may make an
individual an unattractive choice to lend to. However, there may be an entirely
reasonable explanation, such as being laid off at work. At the same time, in many
professions, the borrower does not have a labor contract or salary certificate that
reflect real income…
But with internet and mobile banking upping the game, it is possible to
document customer’s various transactions such as utility payment cycles, monthly
statements, e-commerce transactions, mobile recharge/bill payments, and so on.
Analysing these can provide an all-round view into their financial behaviour and
repayment capacity. For instance, the young individual might be paying his postpaid
mobile bills on time and the blue-collar worker might be paying the electricity and
other utility bills on time. Such data points can provide important information about
how people handle their financial obligations and how disciplined they are in making
payments on time.

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 Big data has the potential to iron out some key challenges faced by the credit
sector. Inclusion of algorithms, data science, and AI will fuel the growth of big data.
Having enough understanding of the concept will promote financial inclusion and
encourage institutions and individuals to come forward and improve their credit
scores. With appropriate regularization, alternative data combined with the expertise of
analytics can empower the credit ecosystem checking fraudulent activities and driving
smart lending.
Financial institutions are now applying advanced analytics, artificial intelligence
(AI), and machine learning techniques to expand the creditworthy envelope beyond
traditional credit payment history. Sumitomo Mitsui Banking Corporation has been
very successful in developing credit card products using big data technology, which
has helped them cut operating costs by 7.5 million USD. Vietnam International Bank
(VIB) has officially announced to be the first bank to successfully apply Big Data &
AI into credit card technology with an upgrade to fast online approval within 30
minutes. This is a product of cooperation between VIB and Trusting Social - a fintech
company using leading machine learning and AI technology in Vietnam on the basis of
the relevant laws. This technology has been successfully applied for VIB Online Plus
credit card. This is a credit card specialized for online shopping with up to 6%
cashback on online transactions and free insurance for fraudulent card transactions up
to 105 million / year.

III. Win – Win cooperation

Due to being developed on the basis of information technology and
telecommunications systems, not requiring large capital resources and not requiring as
many branch networks as traditional banks, Fintech has attracted many startups over
the past decade with 2 main segments in the market:
1. Fintech for consumers: Provides digital tools to improve the way individuals
borrow, manage money, sponsor finance startups, and assist with payments.
2. Fintech back-office company: Technology support for financial institutions. It
means technology support for organizations that connects those with capital and those
in need.

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 - With the strong development of Fintech startups, realizing the potential
benefits of Fintech, “The trend of cooperation between banks and Fintech (financial
technology) companies is becoming more and more clearly because it is a mutually
beneficial relationship. This partnership helps maintain and develop a modern banking
and financial system with innovative financial products and services, meets the
increasing expectations of customers. "- according to the Governor State Bank of
Vietnam Le Minh Hung. => This has created many opportunities for the banking -
finance industry, specifically:
 Saving costs and taking advantage of new and modern technology platforms to
meet the increasing demands of customers. Instead of investing a sizable amount of
money in information technology infrastructure systems, banks can cooperate with
Fintech companies to deploy those platforms for their operations.
 Promoting product and service distribution channels by traditional banking;
expanding online transactions through Internet Banking, Mobile banking, social
networks, paperless banking ...
 “Banks select Fintech companies in accordance with their strategic directions
to help banks achieve their set goals, as well as maximize the synergy benefits

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relationships between banks and Fintech.” According to Ms. Nguyen Thuy Duong,
Deputy General Director of EY Vietnam's Financial Services Division.
- According to Capgemini's 2017 Global Fintech Report, the fact that banks see
Fintech firms as collaborating partners rather than as competitors has become a clear
trend, which is shown in the table below:

The Bank Managers' Perspectives on Fintech Companies

- - The most typical example is the successful cooperation between VP

Bank and large and reputable Fintech companies in Vietnam such as VNPAY
(Vietnam Payment Solutions Joint Stock Company); NAPAS (National Payment Joint
Stock Company); PAYOO (Joint Stock Company Vietnamese Community Online
Service - VietUnion); BANKPLUS - electronic application for payment solution and
online banking of VIETTEL; MOMO - electronic wallet, products of Online Mobile
Services Joint Stock Company - M SERVICE; MOCA - payment application on smart
mobile phones, exploits groups of customers using domestic and international debit
cards from cooperating banks.
 In 2016 and 2017, Fintech's partnership with VPBank contributed
significantly to the company's new product development and growth in the value and
number of transactions on VPBank's digital channels. That can be shown through the
numbers:
 More than 30,000 new customers are the result of the positive cooperation
between VPBank and 2 Fintech MOMO and MOCA in 2016.
 More than 5,000,000 service bill payment transactions, e-top-ups and e-
commerce payments after VPBank cooperated with VNPAY, PAYOO, NAPAS and
some other Fintech.
 Besides, Timo – a new sales channel of VPBank:

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  Target customers are young people, skilled in using technology and want to
have banking experiences.
 Allowing customers with just one click to register to open an account and
transact online on the core banking system platform.
 After its launch in May 2016, the digital banking service TIMO has received
positive feedback, the user growth rate is over 58% monthly.
 The simplification of procedures, transactions by applications and websites to
save time and costs for users is the outstanding advantage of TIMO: Timo Hangout
model - where the combination between cafes and transaction offices The service is
designed very nicely and modernly, customers can come to experience the service, at
the same time drink coffee and chat with friends, no transaction branches, no
complicated papers.

IV. Providing a wide range of financial products in the banking and finance
sector in Vietnam
- In Vietnam today, the three most influential areas of the banking and finance
industry of Fintech are electronic payment, consumer lending, personal finance
management.
 Electronic payment: Fintech helps develop financial services such as: Internet
Banking, Mobile Banking, e-wallet,... to facilitate customers in using modern banking
services and saving costs. Specially:
 Payment by e-wallet: Consumers must own e-wallets such as Momo,
VCash ... from there they can make payments online on some websites that have
accepted this e-wallet. E-wallets can be linked to a bank account to transfer money
between the e-wallet and the account. In addition, consumers can top up their wallets
by cashing, transfer with relatively low costs.
 Online payment: To use online payments, consumers need to have an account
on an intermediary service and link that account to the bank, there are some good
payment gateways now such as: OnePay, VTCPay .
 Payment by phone: Built on the model of the link between banking service
providers, telecom providers, consumer systems, consumers.
 Consumer lending: Technology application simplifies processes, procedures
and paperwork. It is the technological breakthrough in the context of technology 4.0
that has helped shorten the distance of borrowers, especially consumer loans with
financial products through CR (Intelligence Character Recognition) technology, OCR
(Optical Character Recognition). For example: Currently P2P lenders (directly
connecting borrowers with lenders on the Internet) are quite effective, helping to
shorten loan approval times from a few weeks at banks down to only a few hours.

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   Personal financial services: One of the services that Fintech companies
are providing is the ability to advise and compare interest rates on deposits and loans
of active banks. From this comparison result, users will take less time to choose the
bank to provide the service and can schedule a consultation directly with the bank with
the applications: MoneyLover, Timo, F88 ...

 Fintech products offer a variety of new financial services that can replace
traditional financial services, which ensures continuous service delivery even when the
system of traditional financial institutions meets problem

D. Challange

I. Legal corridor
Currently, the development of Vietnam's Fintech market still has many obstacles,
especially legal gaps. In Vietnam, FinTech companies appeared around 2015 and
gradually received the attention of users and a number of corporations, banks and state
management agencies. According to research published in May 2018 by Solidiance
Consulting Company, the FinTech Vietnam market could increase the transaction
value from $ 4.4 billion in 2017 to $ 7.8 billion by 2020.
Although Vietnam has nearly 100 FinTech enterprises, only about 24 of which
are licensed by the State Bank (SBV) in the payment sector and mainly operate in the
mode of cooperating with banks to provide services together. FinTech in other
segments such as fundraising, asset management, lending, credit rating, insurance,
blockchain, ... are operating mainly based on basic regulations from Enterprise Law

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and Civil Law, VND Time has to face with many activities that have not been
regulated by law.
In fact, Fintech is making financial and monetary transactions more convenient
and faster, but at the same time, it also means being used for illegal activities and
transactions. Therefore, the policies and regulations governing Fintech often focus on
preventing Fintech from being used for illegal activities. It also means that it reduces
the convenience of the majority of users
The State Bank said that at present, there is no legal basis to regulate the activities
of the majority of companies in the Fintech sector, while the activities of these
companies are mainly associated with Conditional business activities are finance -
banking activities.
"Fintech operations without an adjustable legal basis can cause potential risks to
the market and customers," the draft report stated.

According to the State Bank, the lack of legal and regulatory regulations will
likely lead to an increase in the number of small businesses, startups that do not have
enough experience and knowledge to participate in providing Fintech products and
services.
At the same time, it will lead to an openness in the inspection and supervision of
regulators, leading to these businesses being able to commit violations, negatively
affecting consumers and society. .
Further, the State Bank is concerned about liquidity risks and wobbling bank
capital flows brought by Fintech. The use of new technology creates opportunities for
customers to automatically change savings accounts or mutual funds to increase

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profits, but also impact customer loyalty and increase uncertainty. on deposits,
negatively affecting the liquidity of the bank.
II. Strategic risks
In terms of strategic risks, the tendency to expand banking services from
businesses outside of the banking system and large fintech firms, the potential risk to
income and capital arising as a result of wrong management decisions and improper
implementation of decisions have increased the profit risk of each bank. Existing
financial institutions can lose most of their market share and marginal profits, given
the possibility that new fintech businesses will increase the adoption of advanced
technology with high efficiency and low cost services. , in accordance with the needs
and expectations of customers.
Currently, a decline in profits resulting from a loss of good customers or a
decrease in the net interest income margin (NIM) can reduce the predictability of
organizations that are operating on future business cycles.
According to estimates of many experts, about 10-40% of the revenue and 20-
60% of the profits of retail banks in the world will be threatened by fintech within the
next 10 years. Another figure shows that about a third of loans in the informal market
are held by fintech businesses. But there are also many experts who are not pessimistic
to say that banks can afford to acquire these competitors, thereby improving the bank's
productivity and efficiency.

III. Market share

The market share of banks tends to decrease due to the share of market share with
Fintech companies.
Fintech can be described simply as the use of technologies to simplify financial
products and services and create supply channels in a digital environment,
conveniently meeting customers' needs. The appearance of Fintech changed the
landscape of the financial services industry with the advantages of speed, simplicity,
efficiency, respect for privacy and potential that allowed Fintechs to share with
customers more, giving them control and discretion in financial transactions and
investment practices.

In today's society, customers always expect to be able to simplify daily

transactions, save time and money. For example, it is normal for a customer to own
and use a credit or debit card every day without carrying cash. However, to use it,
customers still have to bring the card to an issuing location for activation. To
overcome this weakness, Fintech companies have developed a new payment method,
which is electronic wallets - allowing users to store their financial information on their
mobile phones instead of means of payments like cards and cash.

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 In addition, the pioneering role in developing updated digital-banking ideas on
the most advanced technology platform has made the development trend of Fintech not
only focusing on providing financial products and services, old banks follow a new
method that tends to be more and more diverse. According to many researches and
surveys of international organizations. Nowadays, Fintechs are focusing strongly on 3
segments of financial services, namely payment, credit provision and personal finance.
These market segments are currently "delicious cakes" in the fee collection and are
also activities to promote the application of digital technology, in which peer to peer
payments are outstanding; Artificial Intelligence (AI); technology Mobile Tech with a
Twist - (a new version of Mobile technology, allowing users to better manage their
cash flow); Automatic consulting - Robot Advisory.

The appearance of these new products brings more advantages for Fintech
companies compared to traditional banks in developing highly innovative products,
providing customers with interesting and convenient experiences. Most importantly, it
is to expand opportunities to access financial and banking services for those who have
never been a bank customer or a sub-standard bank customer group thanks to their
risky appetite. higher than that of Fintech companies.

Not only that, Fintech's applications are affecting almost all areas of the bank's
operations such as deposits, payments, credit, ... affecting market structure, product
structure, and development strategy of banking activities. Fintech companies have
changed the distribution channels and traditional banking products and services
through the strong development trend of online transaction channels such as internet
banking, mobile banking, social networks, paperless banking. For example, in Vietnam
in 2018, the two internet payment channels and mobile banking had an impressive
growth rate of 19.5% and 169%. The market share of banks will tend to decrease for
Fintech companies. According to an analysis report of McKinsey, by 2025, Fintech
could affect a downward trend of 10-40% in banking sector profits.

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 IV. High operational risk:
Risks associated with the performance of a bank's business functions, including
fraud risk and external incidents, forming very large IT interdependencies. Market
participants (banks, payment intermediaries ...) and market infrastructure, which can
cause IT risks and erupt into a systemic crisis , especially if the services are provided
primarily by one or more dominant members. The activities of Fintech companies in
banking activities increase the complexity of the entire banking system and attract new
members who may lack experience in IT risk management. So outdated banks' IT
systems may not adapt well and banks will have to seek help from third parties or
outsource, or Fintech companies, so the more they do increase complexity and reduce
the transparency of final transactions. The widespread use of third parties increases
risks related to data safety, security, money laundering, and cybercrime.
Given the risk of money laundering and terrorism financing, banks and Fintech
solution providers are allowed to meet the strict regulations and constant scrutiny of
the regulator. However, unregulated Fintech businesses will easily miss these
processes due to not being subject to strict control.
In addition, in some activities such as P2P Lending, crowdfunding, the lack of
transparency can lead to the loss of investor money through inadequate information
about an investment product or transaction insider.

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 E. The development Fintech trend and
experiences of Asian countries
Asia is now the fintech center of the world. In 2018, Asia became the most active
region in the world for fintech inventions, in which China, India, Japan, Korea and
Taiwan contributed about 72.6% license of fintech invention all over the world.
In Southeast Asia, Fintech investments in 2018 exceeded 30% from $ 5.7 billion
in 2017 (via: Deloitte). This area also has a huge influx of investment in technology:
40% of total equity investment in 2017 is a technology company.
One of the factors to be able to fully exploit fintech in Vietnam is to learn from
another countries. Below are developments and experiences from some of the
strongest Asian countries of Fintech.

I. China
China is seen as a pioneer in Fintech. By the end of 2015, China had 500 million
FinTech users, and the total market cap exceeded $ 1.87 trillions; Four companies:
Tencent, Alibaba, Baidu and JD are among the top 10 public internet companies in the
world. Peer-to-peer (P2P) credit has been particularly booming in China.

1. How The Government of China do to trigger the boom of Fintech ?

A few years ago, the Government of China required all big technology companies
to solve the problem: people had no access to E-payments. Chinese tech giants like
Baidu, Alibaba and Tencent have responded. As a result, Alibaba's payments company
- An Financial is now the 10th largest bank in the world.
The problem that this country chooses to solve is access to financial services for
people and businesses, customer-centricity, and improved openness and transparency.
The absence of traditional financial services infrastructure has allowed China to start
building technology-assisted operating models, rather than transforming existing ones.
The country's fintech market has attracted $ 100 billion in investment and this
figure is expected to rise to $ 400 billion by the end of last year, including investments
in young, high-potential companies and also subsidiaries that are spun off from big
tech corporations. Mobile payments reached 38 trillion yuan ($ 5,500 billion) last year,
more than five times the size of the US market.

2. Lessons learned from China

- Continuously optimize the policy environment .. Promote a conducive policy
environment for FinTech's development with integrated monetary, credit, financial and
tax policies.
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 - Increase support for innovation. Encourage traditional financial institutions and
emerging FinTech businesses to take advantage of their own
- Improve infrastructure. Build and improve infrastructure such as statistics, risk
monitoring and credit information systems to reinforce the foundation for FinTech's
sustainable development.
- Strengthen consumer protection.Take advantage of traditional means to
systematically deliver accurate education on financial knowledge, and improve
consumer skills at FinTech

II.Singapore
1. Overview
In the Asia-Pacific region, Singapore is a leading country in the technology space.
In particular, Singapore's fintech industry is successful thanks to an open environment
and extremely dynamic country operators. Singapore - ranked fourth in global Fintech,
also one of the pioneers to bring a sandbox experience to Fintech - will be very useful
for Vietnam.
The Monetary Authority of Singapore (MAS) has been voted the “Central Bank
of the Year” (2018) for its fintech initiatives as well as its oversight and financial
stability efforts. Singapore has more than 500 fintech businesses, including: P2P,
money lending service for crypto trading and crowdfunding.

2. Experience access
Since 2016, the Singapore government has launched many initiatives and created
an environment for banks and fintech startups to test new technology in a safe space.
In October 2016, the government established a specialized agency for Fintech,
including the Central Bank of Singapore (MAS), the Bureau of Economic
Development (EDB), the Department of Information and Communication
Development and the Department of Business Development. Singapore (ES).
Purpose: To advise on fintech related government capital assistance programs, to
help them understand and share with the business community about up to date fintech
regulations and regulations in the banking and finance sector.
Next, in August 2016, MAS opened another fintech Innovation Lab to create a
common space. MAS then published fintech guidelines with more flexible
mechanisms to encourage fintech companies to pilot financial products without having
to worry about legal risks if they violate existing regulations.
In order to change Singaporeans 's habits in using traditional banking services and
switching to fintech adoption, many banks have introduced many measures to limit
customers' transactions at the counter by charging extra fees or having information
channels and transaction processing portals over the network, over the phone or on
application platforms.

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 III. Indonesia
1. Overview
Indonesia has 167 fintech companies that offer payment, lending, personal
finance, crypto and blockchain, crowdfunding, insurtech, and PoS services. The
fintech industry is regulated by two entities – Bank Indonesia and Otoritas Jasa
Keuangan (OJK). While Bank Indonesia oversees the monetary policies, OJK takes
care of P2P lending, crowdfunding, digital banking, data security, insurtech, and
consumer protection.
As the Government pushes for financial inclusion among its citizens, Indonesia is
also a witness to the growth story of fintech companies. With over 167 companies
operating in Indonesia, the fintech market has grown by 16.3% with total investment in
fintech companies reaching $176.75 million in 2017 alone.

2. Experience access
Here are a few factors that are responsible for the growth story of fintech in
Indonesia.
 Technology-enabled population: With a population of 261.12 million, the
majority below the age of 35, technology is a key enabler for Indonesians. Over 143.2
million people have access to the internet, and mobile subscriptions are as high as
415.7 million. 
 Topography: As banks face a challenge in reaching the most remote areas,
fintech companies are helping the Government meet its financial inclusion goals by
offering financial solutions in every nook and corner of the country.
 Easy loans for small-medium businesses: According to financial regulators of
Indonesia, banks and other financial institutions can only grant up to Rp600 trillion.
Fintech companies have simplified the process for the businesses by not asking for
collaterals and enabling the debtors to submit the documents from anywhere, anytime.
 Convenience: While cash is still the preferred mode of payment, cashless
transactions and e-money products provide convenience to the users.

IV. Potential and application of Fintech to the banking system in

Vietnam
1. Trend of Fintech in Vietnam
In terms of quantity, companies participating in Fintech in Vietnam are still small
compared to other countries in the region (as of the end of 2019, there are all 154
companies operating in the Fintech sector). While other countries such as Singapore
has about 490 companies, Indonesia has 262 companies….
In terms of scope, Fintech Vietnam companies focus mainly on payment and
money transfer. Various fields such as property management services, account

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management, investment management, insurance, financial consulting, are almost
absent.
In terms of the regime policy, the corridor is incomplete and synchronous for
Fintech activities. Time updates, legal amendments and supplements are still slow
compared with the fast speed of technology development. Currently, the policy
basically only partially meets the financial technology field in payment, is incomplete
and synchronous for other areas of finance.
In terms of technology infrastructure, the financial market infrastructure of
Vietnam has not met the requirements of high technology, especially security
technology of customers.
In terms of population's intellectual level, most of them are not popular with
private knowledge about confidential information and knowledge bases on the use of
technologies in general and fintech in particular. This thing is create an hole in an
account information of user and of all the groups service providers.
In terms of the quality of human resources, Vietnam lacks human resource
training facilities for Fintech without the coordination between training information
technology specialists and banking and financial experts. This is doing missing the
source of serious human resources answered by Fintech to develop.

2. The movement of banking system

- Positive effects of Fintech on the banking system
First, Fintech creates new business models that change distribution channels and
traditional financial service products, especially banking services, for example:
Internet banking, Mobile banking, QR code, banking. digital goods, electronic
wallets ...
Second, the development and application of new technologies such as Big data,
blockchain, personal biometric format systems, electronic customer identification ...
will help financial institutions collect data, simplifying the process of analyzing
customer behavior, improving service quality, reducing technical infrastructure
costs, ... but still ensuring safety and efficiency, especially in banking transactions.
added value as well as greater customer satisfaction.
Third, Fintech attracts many startups in the past decade because it is developed on
the basis of information technology and telecommunications systems, so it does not
require large capital and does not need as many branch networks as Traditional
banking.
Fourth, Fintech creates financial solutions for customers in remote areas or
customers who have difficulty accessing financial services due to procedural or
geographic barriers. In particular, Fintech better supports groups of individual
customers, small and medium enterprises, and micro enterprises. These customers are
often rejected by banks for not meeting capital and asset requirements.

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 Fifth, Fintech helps provide a diversified portfolio of financial products to
customers thanks to the development of technology, helping to ensure 24/7 service
delivery in both space and time.

- Negative impact of Fintech on the banking system

Firstly, the risk of being attacked by technology itself. Fintech products are
created on the basis of technology, so it is inevitable to encounter the dangers of
technology attacks. The more modern an information technology solution is, the more
risky the risk will occur, one incident can lead to risks for the whole system.
Enterprises face many potential risks from financial fraud, system error, technology
crime stealing data, spreading malicious code ...
Secondly, Fintech is developing too fast compared to the current legal system.
Fintech products are based on continuous innovations and innovations of technology,
so in many cases the current legal regulations have not kept up. This is one of the
causes of a series of fintech-related scams over the past time, such as scams to
contribute capital to buy virtual money miners, fraud ICOs, electronic money
trading ...
Thirdly, the convenience of Fintech makes customers sometimes use it without
really understanding the product, have no basic financial knowledge, or even know
how to secure personal information. This is a loophole for financial criminals to attack.
For example: setting up fake websites to make users expose their accounts and
passwords to appropriate property ...
Fourthly, the market share of banks tends to decrease due to the share of market
share with Fintech companies.
Fifthly, the strong development of technology that can replace a large number of
banks' employees working directly at traditional transaction counters. The trend of
"paperless banking", "paperless financial institutions", artificial intelligence, and
robots will be increasingly popular. Branches and transaction offices of banks are
increasingly narrowed both in size and quantity.
- Some proposals for banks and fintech to develop together in Vietnam
 Supplement and complete mechanisms and policies for Fintech activities
 Training human resources, especially focusing on IT
 Diversify Fintech products
 Building an ecosystem for Fintech activities
 Strengthening cooperation and investment between Fintech - Bank
 Promote communication

 Using Regulatory sandbox

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 Regulatory sandbox - "Pilot legal framework" is a new and fairly flexible
approach to legislative engineering, allowing for direct, time-limited testing of
innovations under regulatory supervision. The Sandbox allows testing in a practical
environment, but with a definite scope and timing, along with appropriate protections
to prevent any consequences of failure without unduly affecting the system. national
financial system.

Some recommendations when using sandbox:

- Innovation in Industry 4.0 is very diverse in many fields, including fintech,
technology, AI, Bigdata, Agriculture, Land Administration or Health ... it is impossible
to have a versatile Regulatory Sandbox for all problems. . Each problem will be in a
specific set of rules, so each innovation will need a separate Regulatory Sandbox.
Regulatory Sanbox itself is also a legal tool.

- Sandbox is also just one method to support the legal system to promote
innovation, in fact, there are also many other methods. Therefore, it is necessary to
evaluate and understand correctly to choose the problem as well as the suitable
Sandbox.

- From the experience of developing and developing countries, Regulatory

Sanbox shows that it is necessary to select specifically each problem to set up the trial
Sandbox, on that basis, to build a suitable implementation roadmap.
In summary, "Paperless Bank" and "Paperless Financial Institution" are the
inevitable development trends of the banking and finance industry in the 4.0
revolution. Fintech has brought a new paradigm in financial services, changing the
customer experience in financial transactions by the convenience of space, time and
cost. However, there are still many challenges ahead such as the legal corridor,
products, investment capital, market, and customer approach that Fintech Vietnam
enterprises need to overcome to develop and create a market. Financial school has
developed in a healthy, safe and effective manner in the 4.0 revolution.

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