ENABLING FINANCIAL INCLUSION THROUGH FINTECH ĐH NGÂN HÀNG TP. HCM

MINISTRY OF EDUCATION TRAINING STATE BANK OF VIET NAM BANKING UNIVERSITY HO CHI MINH CITY TRẦN THIÊN PHÚC ENABLING FINANCIAL INCLUSION THROUGH FINTECH GRADUATION THESIS MAJOR: FINANCE - BANKING CODE: 7340201 HO CHI MINH CITY, 2021 MINISTRY OF EDUCATION TRAINING STATE BANK OF VIET NAM BANKING UNIVERSITY HO CHI MINH CITY TRẦN THIÊN PHÚC ENABLING FINANCIAL INCLUSION THROUGH FINTECH GRADUATION THESIS MAJOR: FINANCE - BANKING CODE: 7340201 SUPERVISOR HẠ THỊ THIỀU DAO Assoc Prof, PhD HO CHI MINH CITY, 2021 ABSTRACT Financial is anpolicymakers issue of global concern with the goal ofmobile developing system abill, that serves all society members, providing appropriate services convenient at an affordable cost for all individuals and businesses, contributing country's sustainable to the development Indeed, Decision No 149/QD-TTg highlights goal "at least the 80% of adults will have bank accounts." dated on 22 January Vietnam 2020 New in financial technologies (fintech) are seen as key enablers of inclusion financial This study uses probit regression to examine the impact of financial on inclusion by using the Global Findex database The study uncovers evidence new that fintech is arelationship key to enable financial inclusion The main findings fintech (proxy are via mobile phone used to use of specific services, phone pay utility used to mobile phone used to receive the payment, mobile phone and ownership) other determinants such as the education and income, which have positive statistically and significant with financial inclusion offer Overall, recommendations the study's results to in Vietnam COMMITMENT This thesis is the author's study The research results are honest in that there is no previously published content or other content done by someone else except fully cited citations in the thesis Ho Chi Minh City, Author Trần Thiên Phúc ACKNOWLEDGEMENTS After four years of studying at the Banking University of Ho Chi Minh City, I achieved a lot of knowledge and experience from talented, devoted, and enthusiastic lecturers, who always support students and improve academic development Firstly, I would like to express my gratitude to my family, who always encourage and care for me My sister has been my wonderful caregiver since starting my project, and I want to thank her for all the supports she has given me Secondly, I cannot thank my supervisor, Hạ Thị Thiều Dao, Assoc Prof, Ph.D., enough for the efforts you have given me to support me to finish the project successfully Finally, last but by no means least, thank you to all my colleagues who has shared their valuable feedback to complete my publication TABLE OF CONTENTS 5.1 LIMITATIONS AND FUTURE RESEARCH 50 V i LIST OF ABBREVIATIONS AFI Alliance of Financial Inclusion AI Artificial Intelligence Australian Securities & Investments Commission Automated Teller Machines ASIC ATM eKYC electronic Know Your Customer EVN Electricity of Vietnam FI Financial Inclusion Fintech Financial technology GDP Gross Domestic Product GPFI The Global Partnership for Financial Inclusion GSMA Global System for Mobile Communications ICF Information & Communication Technologies IFI Index of Financial Inclusion IMF International Monetary Fund PCA Principal Component Analysis SBV State Bank of Vietnam SFA Singapore Fintech Association SME Small and Medium Enterprise SMS Short Message Services UK United Kingdom USA United States of America LIST OF FIGURES AND TABLES CHAPTER INTRODUCTION Chapter 1- Introduction, the thesis will present the research motivation, research justification, research question, determine objectives, scope, method and give a basic view about the research problem and research structures 1.1RESEARCH MOTIVATION 10 Park, C Y., & Mercado, R (2018) Financial inclusion: New measurement and crosscountry impact assessment Available at SSRN 3199427 Rojas-Suarez, L., & Amado, M (2014) Understanding Latin America's financial inclusion gap Center for Global Development Working Paper, (367) Ryu, H S (2018) What makes users willing or hesitant to use Fintech?: the moderating effect of user type Industrial Management & Data Systems Saraswati, B D., Maski, G., Kaluge, D., & Sakti, R K (2020) The effect of financial inclusion and financial technology on effectiveness of the Indonesian monetary policy Business: Theory and Practice, 21(1), 230-243 Sarma, M (2012) Index of Financial Inclusion-A measure of financial sector inclusiveness Centre for International Trade and Development, School of International Studies Working Paper Jawaharlal Nehru University Delhi, India SBV (2017), “Quyết định số 637/QĐ-NHNN ban hành Kế hoạch triển khai thực Quyết định số 2545/QĐ-TTg ngày 30/12/2016 Thủ tướng Chính phủ phê duyệt Đề án phát triển tốn khơng dùng tiền mặt Việt Nam giai đoạn 2016- 2020.”, Available from https://thukyluat.vn/vb/quyet-dinh-637-qd-nhnn- 2017- thuc-hien-de-an-thanh-toan-khong-dung-tien-mat-tai-viet-nam-5b9fd.html [20/12/2020] SBV (2019a), “Dự thảo Nghị định quy định tốn khơng dùng tiền mặn", https://www.sbv.gov.vn/webcenter/portal/vi/menu/fm/ddnhnn/lykdtvbqppl/ctlyk dtvbqppl?leftWidth=20%25&dID=407000&showFooter=false&expired=true&s howHeader=false&dDocName=SBV402149&rightWidth=0%25¢erWidth= 80%25&_afrLoop=2787320356775852#%40%3F_afrLoop%3D278732035677 5852%26centerWidth%3D80%2525%26dDocName%3DSBV402149%26dID% 3D407000%26expired%3Dtrue%26leftWidth%3D20%2525%26rightWidth%3 D0%2525%26showFooter%3Dfalse%26showHeader%3Dfalse%26_adf.ctrlstate%3D6g5we0fjq_95 [20/12/2020] SBV (2019b) “Danh sách tổ chức ngân hàng NHNN cấp giấy phép hoạt động cung ứng dịch vụ trung gian toán" https://www.sbv.gov.vn/webcenter/portal/vi/menu/trangchu/tk/hdtt/ctccudvtt7_a frLoop=2266021140876852#%40%3F_afrLoop%3D2266021140876852%26ce nterWidth%3D80%2525%26leftWidth%3D20%2525%26rightWidth%3D0%25 25%26showFooter%3Dfalse%26showHeader%3Dfalse%26_adf.ctrlstate%3Dq4376gv1y_224 [20/12/2020] Senyo, P K., & Osabutey, E L (2020) Unearthing antecedents to financial inclusion through Fintech innovations Technovation, 98, 102155 SFA 2020, “VIETNAM FINTECH REPORT 2020" fintechnews.sg Available from [30 December 2020] Shaikh, S A (2020) Using Fintech in scaling up Islamic microfinance Journal of Islamic Accounting and Business Research Shiau, W L., Yuan, Y., Pu, X., Ray, S., & Chen, C C (2020) Understanding fintech continuance: perspectives from self-efficacy and ECT-IS theories Industrial Management & Data Systems Sinha, J and Subramanian, A (2007) 'The Next Billion Consumers: A Road Map for Expanding Financial Inclusion in India.' BCG Report The Boston Consulting Group Socialist Republic of Vietnam Government Portal (2020), “Nghị số 84/NQ-CP Chính phủ : nhiệm vụ, giải pháp tiếp tục tháo gỡ khó khăn cho sản xuất kinh doanh, thúc đẩy giải ngân vốn đầu tư công bảo đảm trật tự an toàn xã hội bối cảnh đại dịch COVID-19" Available from http://vanban.chinhphu.vn/portal/page/portal/chinhphu/hethongvanban7class_id =509&_page=1&mode=detail&document_id=200125 [20/12/2020] Socialist Republic of Vietnam Government Portal (2020), “Quyết định số 149/QĐ-TTg Thủ tướng Chính phủ : việc phê duyệt Chiến lược tài tồn diện quốc gia đến năm 2025, định hướng đến năm 2030”, Available from http://vanban.chinhphu.vn/portal/page/portal/chinhphu/hethongvanban?class_id =2&_page=1&mode=detail&document_id=198928 [20/12/2020] Socialist Republic of Vietnam Government Portal (2020), —Quyết định số 2545/QĐTTg Thủ tướng Chính phủ : Phê duyệt Đề án phát triển tốn khơng dùng tiền mặt Việt Nam giai đoạn 2016 - 2020”, Available form < http://vanban.chinhphu.vn/portal/page/portal/chinhphu/hethongvanban?class_id =2&_page=1&mode=detail&document_id=187896> [20/12/2020] Socialist Republic of Vietnam Government Portal (2020), —Quyết định số 241/QĐ-TTg Thủ tướng Chính phủ : Phê duyệt Đề án đẩy mạnh toán qua ngân hàng dịch vụ công: thuế, điện, nước, học phí, viện phí chi trả chương trình an sinh xã hội” , Available from < http://vanban.chinhphu.vn/portal/page/portal/chinhphu/hethongvanban?class_id =2&_page=1&mode=detail&document_id=193050> [20/12/2020] Statista (2019), -Number of smartphone users in Vietnam from 2015 to 2022 (in millions')*”, https://www.statista.com/statistics/467739/forecast-of-smartphoneusers-in-vietnam/ [31/12/2020] Tchamyou, V S., Erreygers, G., & Cassimon, D (2019) Inequality, ICT and financial access in Africa Technological Forecasting and Social Change, 139, 169-184 Tsai, C H., & Peng, K J (2017) The fintech revolution and financial regulation: The case of online supply-chain financing AsianJLS, 4, 109 Wooldridge, J M (2016) Introductory econometrics: A modern approach Nelson Education World Bank (2017) “Overview of Financial Inclusion” Available from http://www.worldbank.org/en/topic/financialinclusion/overview [ 10/12/2020] World Bank (2018a) “Climbing the ladder: poverty reduction and shared prosperity Vietnam.'”World Bank Report Available from http://documents.worldbank.org/curated/en/206981522843253122/Climbingthe-ladder-povertyreduction-and-shared-prosperity-in-Vietnam [10/12/2020] World Bank (2018b) “The Global Findex Database 2017\ World Bank Available from https://globalfindex.worldbank.org/ [10/12/2020] Zins, A., & Weill, L (2016) The determinants of financial inclusion in Africa Review of development finance, d(1), 46-57 Summary of the thesis “Enabling financial inclusion through fintech” Financial inclusion is an issue of global concern to develop a financial system that serves all society members, providing appropriate and convenient services at an affordable cost for all individuals and businesses, contributing to the country's sustainable development By approaching the financial inclusion justification and Vietnam context whose goal "At least 80% of adults will have a bank account" under Decision No 149/QD-TTg has been signed by Prime Minister Nguyen Xuan Phuc on 20/2/2020 So how financial inclusion can promote? New financial technologies (fintech) are seen as key enablers of financial inclusion Before investigating the impact of fintech on financial inclusion, some definitions must clarify Financial inclusion definition According to the World Bank, Financial inclusion means that individuals and businesses can access useful financial products and services at reasonable prices, including remittance, payment, savings, credit, and insurance, provided responsibly and sustainably Accordingly, Financial inclusion is determined by the following three criteria: (i) Access to financial services; (ii) Use of financial services; (iii) Quality of products and services delivered Simultaneously, access to account transactions is the first step towards expanding financial inclusion, as a trading account allows all citizens to store money, send and receive payments Financial inclusions' definition is broader and more multidimensional, emphasizing the quality aspect of service Accordingly, Financial inclusion provides users with available financial services at an affordable cost, makes customers use financial services regularly, offers financial services to users' needs Financial inclusion is not limited to improving access to credit, improving citizens' financial literacy, and protecting consumers Fintech definition According to Karakas & Stamegna (2017), fintech stands for financial technology, which is a broad term used mainly to refer to companies using technologybased systems in some way To provide services directly or to try to make the financial system more efficient Initially, this term referred to technology applied to support the operations of commercial and standards firms Today, the fintech interpretation has expanded to include any new financial sector changes, including new changes in financial education and training, retail banking, investment, or innovation Fintech operations progress and expression have also become synonyms for services finance that emerged in the 21st century Fintech encompasses a wide range of services and products in the foreground, such as payments using money, loans, business, consulting, fundraising, virtual money, and projects will expand further in the coming years According to World Bank (2017), Financial technology -Fintech- is creating new opportunities and challenges for the financial sector - from consumers to financial institutions and regulators Fintech offers many opportunities for governments, from making their financial systems more efficient and competitive to broadening access to financial services for the under-served populations However, it can also pose potential risks to consumers and investors and, more broadly, to financial stability and integrity After clarifying the definitions of fintech and financial inclusion, which leads to the question "How to measure the fintech and financial inclusion?" The fintech measurement Fintech measurement in Fintech measurement in Authors this study Mobile phone used to use previous studies Mobile money account Abayaa et al (2020); Ouma et al., (2020) of specified services Mobile phone used to pay Mobile for payment of the Asongu et al (2019) utility bill bill ;Nagpal et al (2020); Demir et al., (2020) Mobile phone used to Digital payment Nagpal et al (2020) receive payment Owning a mobile phone Mobile phone penetration Morawczynski & Kpodar (2012); Abor et al (2018) The financial inclusion measurement To suitable in the research context in Vietnam This study will calculate financial inclusion through account ownership because owning an account is an important first step toward financial inclusion (Word Bank, 2017) An account is a fundamental product to access financial markets, savings and credit are essential services to expand and improve financial inclusion However, having accounts and using accounts are two different things, and reality shows that the next step countries need to promote financial inclusion is how to increase account ownership Moreover, owning an account is an important first step toward financial inclusion (Word Bank, 2017) Furthermore, following Decision No 637/QĐ-NHNN, promoting financial inclusion, and enhancing individuals (age 15+) having an account at the financial institution, at least 70 percentages are financial inclusion in Vietnam Therefore, in line with Demirguc Kunt & Klapper (2012) and Cámara & Tuesta (2014) having an account at the financial institution is financial inclusion in this study To evaluate the impact of technology on financial inclusion, the author uses the Binary Logistics regression model with the following general form to analyze the impact of fintech and other factors on financial inclusion in Vietnam This study's new point focuses on non-bank financial institutions' services, such as digital payments services and electronic banking services The following relationship captures this approach: Yị = Details: + c^Fintechi) - Y is the dependent variable measuring financial inclusion, takes the value of if the individual has an account at a financial institution, and otherwise - X is a set of independent variables measuring the individual's characteristics - Fintech is a set of independent variables measuring financial technology such as financial services payment through mobile phone Data sources: The author uses survey data from the World Bank's Global Findex 2017, published in April 2018 This data is collected through surveys of more than 150,000 adults over 15 in more than 140 countries by Gallup, Inc It includes individuals' characteristics and modernized details of the manner respondents access financial services From 2011 to 2017, once each three years, about 1000 respondents are chosen to interview randomly 1002 respondents representing about 81 percent of the population (excluding 11 provinces: Nghe An, Thanh Hoa, Kien Giang, GiaLai, Dak Lak, Ha Giang, Ha Tinh, Kien Giang, Kon Tum, Quang Binh, An Giang, and Dien Bien with the target "population is the civilian, non-institutionalized population 15 years and above." The mobile money account is not explored in the 2011 database, so the panel data is non-necessary to examine the tendency of financial inclusion Due to two respondents did not meet the information requirements Therefore, in line with the previous study, the author focus on the variable account ownership as a key financial inclusion indicator with 1000 respondents in Vietnam Findings of the study is providing an overview of the trends of fintech, financial inclusion and other determinants in Vietnam: Fintech indicates including mobile phone used to use of specific services, mobile used to pay utility bill, mobile phone used to receive the payment, owning a mobile phone have a statistical significance and positive coefficient Financial inclusion is influenced by an individuals’ characteristics Education and income are indicators playing a key role in enabling financial inclusion Other factors, including age, age2 also have statistical significance to financial inclusion Thedecision to participate in the financial system first step of individuals is not affected by gender in Vietnam despite some research all over the world whose have significant Recommendations are offered from the finding of this study: On the one hand, State Bank and government must have sustainable cooperation in researching and proposing solutions to explain new models and technologies, such as (i) Implementation of using mobile money accounts for small value goods and services (ii) Completing the application for the formulation of a Decree on a controlled trial management mechanism for Fintech activities in the banking sector; (iii) Researching to supplement appropriate legal regulations for products, models, services, payment means associated with the industrial revolution 4.0 such as digital banking, electronic know your customer (eKYC), researching blockchain technology in the payment sector; applying Big Data, Artificial Intelligence (AI) technology to many banking areas Currently, many domestic banks have applied advanced technology and new solutions to payment activities to increase payment speed, enhancing service safety and security, increasing customer experience and satisfaction such as biometric verification (fingerprint, face); payment on Quick response (QR code); Tokenization; contactless payment; Payment on mobile point of sale (mPOS) On the other hand, the vulnerable group like the less-educated and poverty adults who are lack of instruments to access financial inclusion So it is necessary to strengthen the education community Besides, good policies may be issued by community educators and policymakers to improve financial literacy so as to promote the living standard Instruments such as microfinance or social banking should be developed for low-income adults to access Moreover, easing financial institutions’ requirements may create more chances for them to access financial products APPENDICES Probit regression results Iteration 0: log likelihood = -632.75321 Iteration 1: log likelihood = -501.58816 Iteration 2: log likelihood = -496.14174 Iteration 3: log likelihood = -496.03661 Iteration 4: log likelihood = -496.03636 Iteration 5: log likelihood = -496.03636 Probit regression Number of obs LR chi2(13) Prob > chi2 Pseudo R2 Log likelihood = -496.03636 account_fi n account_mo Coef b 5974684 mobilephoneowner 4004222 1.41673 payment_received 1.9435 utilitybill_payment age 0560296 age2 -.0007557 female 0349455 education_pr i 7094495 education_te 1.5418 r income_2nd 053093 income_3r d 0658578 income_4t h 2017211 income_5t h 3060414 _cons -2.522899 Std Err .303716 1633762 6086807 68411 0189179 0002173 0931072 1159402 1587634 1643573 1631756 1563421 1533873 4225476 z 1.9 2.4 2.3 2.8 2.9 -3.48 0.3 6.1 9.7 0.3 0.4 1.2 2.0 -5.97 P>|z 0.04 0.01 0.02 0.00 0.00 0.00 0.70 0.00 0.00 0.74 0.68 0.19 0.04 0.00 = = 1,000 273.43 = [95% Conf Interval] 1.19274 002196 .0802107 7206337 2.60973 2237468 3.28438 6027193 0189513 0931079 -.001181 -.0003297 -.147541 2174323 4822109 9366882 1.85305 1.23071 -.269041 3752275 -.253960 385676 -.104703 5081461 0054079 6066749 -1.694721 3.351077 Wald test [account_fin]account_mob = [account_fin]mobilephoneowner = [account_fin]payment_received = [account_fin]utilitybill_payment [account_fin]age = [account_fin]age2 = [account_fin]female = [account_fin]education_sec = [account_fin]education_ter = [account_fin]income_2nd = [account_fin]income_3rd = [account_fin]income_4th = [account_fin]income_5th = chi2( 13) = 183.03 Prob > chi2 = 0.0000 The lagrange multiplier test [account_fin]c.xbhat#c.account_mob = [account_fin]c.xbhat#c.mobilephoneowner = [account_fin]c.xbhat#c.utilitybill_payment = [account_fin]c.xbhat#c.payment_received = [account_fin]c.xbhat#c.age = [account_fin]c.xbhat#c.age2 = [account_fin]c.xbhat#c.female = [account_fin]c.xbhat#c.education_sec = [account_fin]c.xbhat#c.education_ter = [account_fin]c.xbhat#c.income_2nd = [account_fin]c.xbhat#c.income_3rd = [account_fin]c.xbhat#c.income_4th = [account_fin]c.xbhat#c.income_5th = chi2( 13) = 3.21 Prob > chi2 = 0.9971 Correlation account _fin acccount_ fin account_ mob mobileph oneowner uitilitybill payme nt payment_ receive age account _mob mobilep honeow ner utilitybil Payment l_payme _reveive nt age age2 1.0000 0.1863 1.0000 0.0000 0.2064 0.0502 0.0000 0.1123 0.1718 0.2314 0.0000 0.0000 0.1718 0.4875 0.0000 0.0000 -0.2461 -0.1247 0.0000 0.0001 age2 -0.2530 0.0000 0.1141 0.0003 female 0.0166 0.0227 0.6009 income -0.0446 -0.0304 nd 0.1590 0.3361 income -0.0438 -0.0046 rd 0.1660 0.8846 income_4 0.0198 0.0262 th 0.5314 0.4077 income_5 0.1808 0.0839 th 0.0000 0.0079 education 0.0782 0.0202 sec 0.0134 0.5235 education 0.3505 0.1116 ter 0.0000 0.0004 1.0000 0.0565 0.0739 0.0352 0.2659 -0.2587 0.0000 -0.3002 0.0000 -0.1084 0.0006 -0.0281 0.3744 -0.0211 0.5044 0.0302 0.3400 0.1512 0.0000 0.1476 0.0000 0.1371 0.0000 1.0000 0.1622 0.0000 -0.0659 0.0371 -0.0617 0.0510 -0.0275 0.3850 -0.0213 0.5002 0.0167 0.5987 -0.0293 0.3551 0.0678 0.0321 -0.0400 0.2063 0.1444 0.0000 1.0000 0.0931 0.0032 -0.0819 0.0096 0.0038 0.9048 -0.0213 0.5002 -0.0032 0.9190 0.0279 0.3781 0.0499 0.1150 -0.0245 0.4386 0.1444 0.0000 1.0000 0.9812 0.0000 0.0513 0.1053 -0.0347 0.2736 0.0383 0.2257 -0.0163 0.6071 -0.1109 0.0004 -0.2130 0.0000 -0.1918 0.0000 1.0000 0.0515 0.1038 -0.0358 0.2586 0.0341 0.2813 -0.0260 0.4119 -0.1078 0.0006 -0.2148 0.0000 -0.1800 0.0000 female female 1.0000 income 0.0404 nd 0.2015 income -0.0300 rd 0.3440 income_4 0.0030 th 0.9238 income_5 th 0.0532 education -0.1046 sec 0.0009 education -0.0038 ter 0.9050 income_ income_ income_ income_ educatio 2nd 2nd 2nd 2nd n sec educatio n ter 1.0000 -0.2240 0.0000 -0.2401 0.0000 -0.2691 0.0000 0.0838 0.0080 -0.0810 0.0104 1.0000 -0.2450 0.0000 -0.2745 0.0000 0.0415 0.1900 -0.0789 0.0125 1.0000 -0.2943 0.0000 -0.0002 0.9950 0.0003 0.9915 1.0000 0.0174 0.5823 0.2196 0.0000 1.0000 -0.4143 0.0000 1.0000 ... instrument for fintech to enable financial inclusion It is challenging to deepen financial inclusion without fintech According to Arner et al (2020), fintech is the key driver for financial inclusion. .. issued - Which factors of fintech affect financial inclusion? - How fintech influence financial inclusion in Vietnam? - What recommendations are concluded about financial inclusion in Vietnam? 1.4RESEARCH... a financial institution 2.1.3 Financial inclusion definition Financial inclusion is the provision of financial products and services to people and businesses at affordable prices Financial inclusion