Risks from Vietnamese fintech companies identified

10-Nov-2017 Intellasia | DTCK | 6:00 AM Print This Post

In 2014, the market was heated up by the investment deal worth 28 million USD from Standard Chartered Private Fund and Goldman Sachs Global Investment Bank in M_Service the provider of MoMo e-wallet service.

In fact, although fintech companies in payment sector just started their presence in Vietnam in 2008, according to experts, Vietnam possesses many favourable conditions and potential for the development of fintech. Accordingly, foreign investors have constantly been pouring into Vietnamese fintech companies.

For example, WeChat a product of Tencent Group, the largest application developer in China as well as in the Asia-Pacific region, began to invest in Vietnam in April 2012, but it was boycotted in late 2013. However, other investments of Tencent in Vietnam via acquisition of corporate shares are very successful, such as the “back up” for Garena (based in Singapore, now renamed as Sea) the distributor of many major games titles in Vietnam, and the purchase of VNG shares the father of two applications Fintech Zalo Pay and 123Pay.

In its report to shareholders in 2011, Tencent announced having contributed capital in an unlisted online game company in Southeast Asia with a stake of 31.25%, up by the 30.02 percent posted in 2010. This report did not name the company but according to data and revenue figures, many experts in this field confirmed that it is VNG.

Most recently, many investments in Vietnamese fintech companies have been realised. In late November 2016, VMG Communications Group said to transfer all its shares (62.25%) in VNPT Epay to UTC Investment Fund of South Korea. The deal is expected to be completed in 2017. In late 2016, Credit China Fintech Joint Stock Company (CCF) announced that it will spend 12.73 million USD to own 51 percent additionally issued shares of Amigo Technologies.

According to statistics of Tropica Founder Institute, in 2016, the total value of the investment deals involving fintech startups in Vietnam was 129 million USD, accounting for 63 percent of the total investments in startups in different fields.

Information from the Steering Committee on fintech sector of the State Bank of Vietnam (SBV), there are 40 fintech companies operating indifferent fields, most of which focus on payment area (accounting for nearly 60%). Currently, two third of fintech startups in Vietnam are providing online payment tools to users (such as 123Pay and MoMo), POS/mPOS digital payment solutions (such as iBox and Moca), and money transfer (such as Matchmove and Cash2vn).

In addition, some startups in Vietnam’s fintech market are operating in other fields such as crowd-funding (such as FundStart and Firststep), online loan service (LoanVi and Tima), personal financial data management (Moneylover and Mobivi), customer data management (CircleBi and Trusting Social), digital banking (Timo), financial services comparison (BankGo and GoBear), online pawn (F88), etc.

At present, the legal and regulatory framework of Vietnam has just basically met a part of the needs for fintech sector in payment. There is no complete legal framework for other financial sectors such as Peer-to-Peer (P2P Lending), money transfer, payment, trade finance, and crowd-funding.

Talking to Dau tu Chung khoan, SBV’s Head of Legal Agency Doan Thai Son shared that the current legal framework in fintech field still has many gaps, especially for new technology financial services. The operation of fintech companies still contain many risks for the financial system as well as financial service users.

Since most of the fintech fields are not currently managed by the state management authorities, there is a lack of control over the operation procedures (technical requirements, capital, risks during operations, etc.). Thus, the lack of a firm basis in terms of legal responsibilities for the loss that fintech companies could cause a loss of confidence in the system.

Furthermore, since fintech is applied on technological platform, the possibility of encountering technological risks is very high. The widespread use of technological and digital solutions in the transmission of customer data (especially in the payment field) increases the risks of technology attacks. If there are no modern technology solution to prevent technological risks, the impact on financial market will increase.

Some fintech operations can increase the degree of dependence on the third party of financial system. For example, consulting robot technology and fintech companies in the lending industry must rely entirely on a third-party data provider, or financial institutions are increasingly dependent on cloud computing companies to carry out financial activities involving this technology (instead of having to self-invest in the needed infrastructure). This may lead to systematic risks when the entire market or many large organisations in the market depend on a small number of service providers.

At the same time, the reputation risk is also a big problem for fintech companies, especially when the operational field has direct impact on households and companies. For example, a large and unforeseen loss of a certain peer-to-peer lending platform may lead to serious loss of users’ confidence on all companies in the platform, thereby causing loss on the financial market.


Category: Finance, Vietnam

Print This Post