Billion-dollar fintech market awaits sandbox for breakthrough

Fintech and other new business lines make the creation of a regulatory sandbox necessary

Pham Xuan Hoe, deputy director of the Banking Strategy Institute under the State Bank of Vietnam (SBV), at the workshop on “Deploying sandbox to strengthen the foundations of the sharing economy” at the headquarters of VIR estimated that fintech revenues will reach about $9 billion by 2020.

Mobile financial transactions in Vietnam are booming, becoming a fragrant piece of cake to mining, from payment, lending, or money transfer.

The SBV Governor's report to the National Assembly recently showed that the number of financial transactions via mobile channels increased by 104.9 per cent in number, and by 155.3 per cent in transaction value, double the growth rate of the region.

Besides, the country's population is nearly 97 million people (ranked 15th in the world) with 51 million using phones, half of which are smartphones. In addition, 50 million people use the internet regularly. The percentage of the adult population having bank accounts is still low, which sets ideal grounds for fintech.

This is also the reason why a series of fintech firms in the country and abroad have recently made landfall in Vietnam, especially in the e-wallet segment. Statistics from the SBV showed that in the past three years, the number of fintech companies has nearly quadrupled. Currently, the country has more than 150 fintech companies, while three years ago, this number was only 40.

Duong Dung Trieu, chairman of the Members' Council of FPT IS, said that the difficulty for fintech development in Vietnam is not technology. "Vietnam's technology level is not inferior to the world, the difficulty lies in the mechanisms," Trieu said.

Meanwhile, Nguyen Hoa Binh, president of Next Tech, said that building a sandbox mechanism to test policies for new business models and technology solutions will promote development.

"In order to promote innovation, the policy itself and the mechanism must be open and creative," Binh emphasised.

One of the biggest obstacles currently for fintech is to enable electronic identifiers (eKYC) and open e-wallets without a bank account.

“The first key for banks and fintech companies to provide digital services is to allow customers to identify themselves digitally, which means they need to get digital customers. However, current regulations still require customers to go directly to the bank to open an account or to link their e-wallet to a bank account. This makes it difficult not only for fintech companies but also for banks to expand operations and find customers,” said a chairman of a bank.

Fortunately, the SBV's stance on fintech is quite open now. In 2017, the Governor of the SBV signed a decision to establish a fintech steering committee. In 2019, the SBV was also the first authority to propose the government to set up a sandbox for regulatory testing.

Nghiem Thanh Son, deputy director of the Payment Department of SBV, said, “For the sandbox, we set the requirements and scope to meet certain criteria, the management agency will monitor the profile of businesses that apply to control risks as well as avoid impacts to the last users,” Son said.

In addition to launching the sandbox, the SBV has also been actively removing obstacles for fintech. Accordingly, the SBV is revising regulations to allow the application of eKYC, allowing e-wallet users to top up cash with a certain limit.

Sharing international experience, Varun Mittal, vice president of the Singapore Fintech Association, director of Fintech Consulting Services of E&Y Company in Southeast Asia said that many countries have been very flexible in devising a fintech testing mechanism. For example, from January 2020, Singapore will launch a new payment service. Accordingly, depending on each transaction and the size of the e-wallet, the management agency will use different methods.

Mittal said that Vietnamese management agencies should both implement and adjust policies. In fact, it took Singapore nearly two years to come up with the current fintech management model, after many revisions, with the goal of both promoting the creative economy, protecting customers, and taking precautions against money laundering and tax evasion.