Trang 1 UNIVERSITY OF ECONOMICS AND LAWFACULTY OF BANKING AND FINANCE❖❖❖FINAL ESSAY CURRENCY TECHNOLOGY AND ELECTRONICPAYMENT SYSTEMTopic:Outline the growth of the Vietnam Fintech market
UNIVERSITY OF ECONOMICS AND LAW FACULTY OF BANKING AND FINANCE ❖❖❖ FINAL ESSAY CURRENCY TECHNOLOGY AND ELECTRONIC PAYMENT SYSTEM Topic: Outline the growth of the Vietnam Fintech market Discuss the potential impacts of Fintech development on the Vietnamese financial market From your arguments, which specific measures should the Vietnamese authorities take to support the development of Fintech in the future? Teaching instructor: Lê Đức Quang Tú Group of students: Student ID: 1 Nguyễn Đức Minh Tấn K194141745 2 Nguyễn Việt Thường K194141754 3 Nguyễn Vũ Thiên K194141750 4 Hà Mỹ Duyên K194141719 Ho Chi Minh City, December 10, 2021 Table of Contents 1 Abstract 2 2 Introduction 2 3 Introduction to Fintech and Fintech's products .2 3.1 Introduction to Fintech 2 3.2 History of Fintech in Vietnam 3 3.3 Fintech Ecosystem in Vietnam 4 3.2.1 Outstanding e-wallet products 5 3.2.2 Blockchain products 5 3.2.3 B2C E-commerce 6 3.2.4 Smart savings accumulation products 7 3.2.5 P2P lending 7 4 Potential impacts of Fintech development on Vietnam's financial market 7 4.1 Characteristics of Vietnam's financial market 7 4.2 Fintech market development in Vietnam 8 4.3 Potential impacts of Fintech development on Vietnam's financial market 10 5 Recommendations for competent authorities in Vietnam to make to support the future development of Fintech 14 1 6 Conclusion 16 References: .17 2 1 Abstract Vietnam is a potential nation in developing its economy, especially in the process of transaction and thriving the Fintech market Nowadays, there are many Fintech products which have been launched and widely applied to the Vietnamese financial market, especially e-wallets, Blockchain products, and e-commerce platforms In recent years, this boosting has had a strong impact on microfinance and the transformation of traditional commercial banking Although Fintech has had certain potential influences on the financial market, the development of this sector still exists in barriers in Vietnam Through this article, we propose some supporting measures such as establishing a sequential legal framework, investing in infrastructure, developing education, and introducing policies to encourage the growth of the Fintech industry 2 Introduction The industrial revolution 4.0 is the potential and motivation for the development of digital technology in many fields, especially the financial sector Moreover, Asia is at the main digital transformation process and the application of technology services and the financial sector’s products The particular proof is that there are more and more businesses using new technology and it becomes a trend in the new era Therefore, the term "Fintech" gradually became popular and attracted by many countries, especially Vietnam In Vietnam's financial market, the fast development of Fintech has helped the providers diversify their financial services and provide comfortable experiences to customers Thanks to Fintech, people have invented many digital financial products and models such as crowdfunding, e-wallets, digital banking, cashless payments, peer-to-peer lending, Blockchain, etc having fundamentally changed the way many fields operate, of which Finance - Banking is affected the most 3 Introduction to Fintech and Fintech's products 3.1 Introduction to Fintech 3 Instantly, Fintech is a term known with many meanings and there is no particular definition for it, we can know generally that Fintech stands for the word “Financial Technology” Fintech works by applying modern technologies to create new products and speedier experiences, more automatically and more transparently for financial services such as payment, money transfer, loans, insurance, etc and so it is especially developed in the industry of Finance - Banking In accordance with the Financial Stability Board (2021), Fintech is applying new technologies to renew financial services From this application, we can positively change the financial market by creating high-tech products, processes, or even advanced business models in the near future The appearance of Fintech has created new points and overcome many disadvantages of traditional products, requiring traditional businesses and banks to change their awareness, modernize technologies and services to meet the needs of the times 3.2 History of Fintech in Vietnam Since 2005, with the establishment of VTPay, an online payment services provider, is considered the first Fintech firm in Vietnam (Tam and Hanh, 2018) However, the popularity and acceptance of Fintech at that time was not high Beginning from 2015 to now, Fintech became the most interesting point of discussion and was well-known widely, even turning into a trend that was noticed by investors and the community in the financial field in two downtowns: Hanoi capital and Ho Chi Minh city In 2005, the digital development was focused and there were initial steps to enter the Vietnamese market By 2007, there were many developments in the field of mobile payments, promoting the establishment of these service providers In 2011, Fintech development gained a remarkable achievement when launching a Personal Finance Management application 2013 was the year many products were launched into the market The most prominent is Blockchain Technology, followed by data management, POS and the first crowdfunding website In 2014, the first P2P lending and comparison sites were the result of a legacy of previous technologies The introduction of digital banking marked an important milestone of Fintech development in 2015 In 2016, there were 4 many Fintech companies participating in the market, these companies are actively looking for capital The period 2017 - 2021 is the period to promote the development of Fintech products in terms of payment and financial management Blockchain and AI will become the new development trend of Fintech in this period 3.3 Fintech Ecosystem in Vietnam The Fintech Vietnam ecosystem currently has about 154 active companies divided into main segments: Payment, P2P Lending, Digital Banking, Wealth management, Crowdfunding, Credit Scoring, Blockchain/Crypto, Comparison, POS, Insurtech In Vietnam, fintech has the potential to grow and attract investment, particularly from investment funds Electronic payment is the leading segment today The second place belongs to the field of P2P lending Other fintech fields, such as credit scoring, wealth management, and personal finance, are also in the early stages of development and have a lot of room for expansion Currently, there are 47% startups in the field of payment services, accounting for the highest proportion in the region This segment has always attracted many investors and has become the trend of countries with an early growing Fintech market Milian et al (2019) and Lee and Shin (2018) stated that “we will be able to generally divide the products within the Fintech sector into 2 categories consistent with customers The initial class is businesses with the aim of focusing on lending segments, typically financing startups, overdraft loans, personal loans, personal financial management or specialized companies provide financial services to general consumers The other class is served for Fintech startups and financial institutions that work smoothly and productivity which is called back-office technology corporations.” Fintech is bringing many suitable conveniences with the boosting of technology 4.0 such as electronic payments, public services, supply chain management, etc with typical products like: E-wallet, Blockchain, B2C E- commerce 5 Document continues below Discover more fCrhoímnh: sách tài chính quốc tế CSTC01 Trường Đại học… 93 documents Go to course BỘ CÂU HỎI ÔN TẬP LUẬT TÀI Chính 3 100% (2) [123doc] - de-thi- tai-chinh-quoc-te-… 23 100% (2) I3 SG WEEK 1 - trabajo 100% (2) 1 Ingles Course book Introduction to Law… 113 Marketing 100% (7) quốc tế Portfolio Entries In Global Marketing 9 Marketing 100% (3) quốc tế Vin Fast Marketing 3.2.1 Outstanding e-wallet products 36 Nguyên lý 100% (34) Marketing In the past few years, Momo, ViettelPay and ShopeePay are the 3 largest firms having market capital in the payment sector Although, the differences between them are enormous (Ví MoMo, 2020) All E-wallets perform the same non-cash payment function: pay bills, top up cards, buy train tickets, etc Momo's convenience products are considered to be diverse and meet the need of the customer's experience such as: game events (Blackjack, Momo Jump, Momo City, etc.), postpaid wallet, lucky bag, etc These e-wallets are a powerful support tool for increasing market share of the e-commerce industry, making purchases faster, safer, and more convenient E-wallet payment helps people enjoy various discounts resulting in being more attracted to this product Since then, E-wallet continuously and positively affected the consumption behavior and cash habits of Vietnamese 3.2.2 Blockchain products 6 Financial services account for over 87 percent of all Blockchain applications in Vietnam (Lê Thanh Nguyệt and Phùng Duy Quang, 2020) If we take advantage and broaden the range of applications, blockchain will offer the potential to thrive and break existing limitations L/C transaction: Blockchain is progressing strongly and has the potential in the future in the Vietnamese market The Letter of Credit (L/C) is one of blockchain's outstanding products Now, this product is being applied in the banks creating effective payment, bringing potential investment opportunities to businesses In particular, MBBank, VietinBank, and BIDV have successfully issued interbank letters of credit on the Contour network In accordance with research by Trần Thị Huyền Trang (2021), letters of credit on Contour's platform help customers enjoy many advantages such as transparency and security of their information, ensuring integrity from the issuance stage to the presentation of records has helped to minimize the risk of property appropriation when making international payments and saving related transaction expenses such as information exchange, filing, etc 3.2.3 B2C E-commerce Fintech has remarkably contributed to the development of B2C e- commerce in Vietnam Fintech provides easy-to-use e-wallets and online payment options, reducing cancellation rate from customers (Nguyễn Thu Hiền, 2021) By adding vouchers for prepayment, users will enjoy more payment incentives and discounts, hence, they will enjoy and buy more on e-commerce platforms While Lazada, Tiki partnered with Momo, ZaloPay and Viettel Pay to diversify payment methods for customers, Shopee still has exclusive rights to pay with ShopeePay since both are from the same parent company The eM wallet and ShopeePay are payment solutions exclusively for Lazada and Shopee e-commerce platforms The eM wallet is missing a lot of customer attraction leading to being forgotten, Lazada users will choose to pay through Momo and ZaloPay more Regarding ShopeePay, due to the monopoly of payment, customers only receive incentives when paying through ShopeePay, it is quite outstanding, has a large number of users and is more popular than the eM wallet 7 3.2.4 Smart savings accumulation products In the last years, there have been a variety of revolutionary products that have attracted many limited capital investors and these products have thrived strongly in the smart savings market, creating a passive income for Vietnamese clients (who do not have much knowledge and experience in financial investing) is FinHay This product has many diversified investment portfolios to meet the abilities of each user, each mascot such as “Cò trắắng, Rùa Hoàn Kiếắm, Trâu nước, Voi rừ ng, Sao la” will have different interest rates and risks, helping clients to be proactive with the capital they hold and be flexible with investments whose duration is adapted to clients' cash flow For example, “Trâu nước” will be able to get a loan over 2 - 6 years, hence it is difficult for clients who do not have backup savings to invest in this portfolio, investments withdrawn before maturity will be subject to much fees 3.2.5 P2P lending And the outstanding product when it comes to Fintech is peer-to- peer lending Peer to peer lending (P2P) is seen as an improved product in the lending process A special feature here is that through an intermediary platform, which is P2P, the borrower will get a loan directly from the lender This intermediary platform takes profits based on the costs that the borrower or lender pays to the platform The benefits of P2P are that it is easy, fast, free from 3rd party interference and does not need to do complicated paperwork Besides, borrowing interest rates on this platform are also quite low Therefore, it is competitive compared to the traditional lending of commercial banks The companies featured in this platform are Timo, Growth Wealth, VayMuon or TrustCircle 4 Potential impacts of Fintech development on Vietnam's financial market 8 4.1 Characteristics of Vietnam's financial market The financial market has always played an important role in providing capital, as a place to trade assets on the market This is the backbone of the national economy It also acts as an intermediary to coordinate excess capital from individuals with idle money to those in need of working capital In the recent financial markets, Commercial banks are still holding a large proportion in the capital market (VĂN PHƯỚC, 2018) Simultaneously, this source of capital is tending to increase medium and long-term loans; decrease short-term loans Besides, the stock market strongly develops and it is also an ideal place to become a channel for large businesses to appeal for funds in the market However, our country’s financial market still exists many limitations due to several core reasons such as unclear information, inflexible capital sources, lack of infrastructure, etc Meanwhile, Covid-19 has slowed down the growth momentum of the financial market Based on the research of Đạt (2020), the pandemic weakened Vietnam's economy, the export and domestic industries have been severely negatively impacted leading to a significant deficit in the excess capital in the society, credit growth slowed down, banks had to pay careful attention in regulating loans and optimizing bad debts In addition, the complicated pandemic also indirectly negatively affects banks and financial markets The sharp decline in foreign investment funding, the unwillingness of customers to hold cash, and abnormal market price fluctuations are also the main reasons for the instability of Vietnam's financial market 4.2 Fintech market development in Vietnam Vietnam is one of the potential markets in the formation stage, the growth rate in the Fintech field is strong within the region Currently, about 64 million Vietnamese, which means 60% of the population, use mobile devices with the Internet connection, ranked 6th in Asia and the Pacific region, and ranked in the top 13 over the world (Nguyếễn Thu Hiếền, 2021) In addition, Vietnam has a young population, an early Internet approach, and technological knowledge (Nguyen, 2020) Those things have directly boosted the growth of the new Fintech sector like 9 exchanging goods on e-commerce platforms, paying via the Internet, etc These are the main factors for the Finance - banking system to base on the Fintech platform to become extraordinarily explosive within the future and the present Recognizing that development abilities, Vietnam Fintech market has received extensive attention not only by domestic but also foreign investors In 2019, the report of United Overseas Bank (2019) indicates that Fintech capital investment in Vietnam is only lower than Singapore, about 36% of total investment in the Fintech start-up sector across ASEAN, an increase of 0.4 % compared to 2018 Also, according to Fintech news, by the end of 2020, the increase in the number of Fintech companies is about 3 times – about 44 companies to about 123 companies spanning many different industries in 3 years from 2017 to 2020 Additionally, YCP Solidiance also forecasts that by 2025 the Fintech market will be able to grow from 9 billion USD to 22 billion USD compared to 2019 The Fintech market has had many signs of progress and differs from the early years of joining Vietnam Although Fintech develops multi- 10 dimensionally in a multi-segment way, Fintech firms are centered on and account for a large proportion that continues to be the payment section (Pham and Dao, 2020) About 30 firms have been authorized by the State Bank to provide payment intermediary services, despite the fact that they are not commercial banks, notably e-wallets with high-tech payment functions such as NFC, QR code scanning, Digital Card, etc., are popular as of June 2019 Leading in this field is Momo e-wallet, followed by a series of other payment wallets such as ZaloPay, ShopeePay According to Pham and Dao (2020), except focusing on payments, peer to peer lending is still the second largest sector in which there are two prominent companies, Tima and VayMuon During the 4th epidemic in Vietnam, it caused a lot of comprehensive damage to the national economy However, this is a good time for the Fintech request to mature and develop forcefully To ensure social health and prevent the epidemic, the government furnished “the social distancing” directives, or nearly the" new peacetime" policy Fortunately, this thing is a switch for Fintech businesses and people to gradually convert using traditional payments into using digital payments The amount of domestic money consumption has decreased significantly, and the amount of online payments through e-commerce products because of concerns about close contact with delivery people has increased by about 80% compared to the third quarter of 2020 according to the report of the bank of Vietnam Besides, Covid has also pushed guests to pay on e-wallets like bill payments, Peer to Peer or Peer to Merchant transfers for essential activities According to MSC analysis, by the end of the quarter III of 2020, Momo has reached more than 20 million new clients, which means a growth of nearly 100% just in one business term 4.3 Potential impacts of Fintech development on Vietnam's financial market The appearance of a number of Fintech projects by non-banks participating and developing has brought certain impacts to the Finance - 11 Banking segment, expanding the customer network that they are able to approach financial services This impact has introduced adaptive measures to improve the traditional financial apparatus in our country, specifically the combination of Fintech and traditional institutions This combination created high quality finance products and services, improved user experience with many new utilities, reduced processing costs and time significantly, and increased the customer base for banks (LIEN et al., 2020) Specifically, for activities in the banking sector, according to Resolution No 328/QĐ-NHNN, the Bank of Vietnam issued a decision to establish in “SBV Fintech Steering Committee Conference” within the first Fintech commission in March 2017 This facility aims to promote the legal corridor to meet the highest efficiency and make an opportunity for the emergence and stable development of Fintech businesses This support has made it easier for Fintech businesses to give users more choices when using financial services, instead of directly accessing it through commercial banks as before And this will be a big barrier in the long-term development of the banking sector if the old model does not change and adapt 12 Until now, banks in our country have caught up with the trend and actively cooperated with Fintech, taking advantage of the strengths in technology of these companies Below is a proof of that change and adaptation of traditional banks Based on the chart, there are many banks that have strategies and implemented digital transformation in 2020 They believe that this transformation is an urgent task as well as a big turning point for the bank to improve their service quality to a new level, helping them optimize operational efficiency and reduce costs thanks to good optimization of improvements in technology from Fintech In addition to the bank's benefits, Fintech startups can also achieve significant pros through this cooperation when optimizing the great source of the clients’ data network from bank systems Besides, these businesses are not financial companies by nature, so all monetary transactions must go through a banking institution It can be understood that the cooperation of these two subjects is a manifestation of a symbiotic relationship 13 The Fintech field is growing rapidly, more and more businesses are starting in this field with different approaches Financial investment and personal financial management are also having attention and promising segments Furthermore, based on the research of DANG and VU (2020), while our country's financial market is in the process of development, microfinance institutions (MFIs) still face many challenges in providing financial services in many user segments that still have limited exposure, including small businesses, rural residents and urban migrants The recent prosperity of Fintech globally, including Vietnam, promises to fill this gap MFIs are considered as effective places in supporting income generation and improving the lives of troublesome individuals in society Customers of MFIs are mainly low-income workers, micro enterprises, people with limited knowledge and technology, especially Fintech When the Vietnam market develops, financial integration with these subjects is essential According to the GSO's Labor Force Survey of the "General Statistics Office of Vietnam in 2020", we have a chart below 14 As of July 1, 2020, there are 1836 communes with people's credit funds and bank branches in operation Based on the results from the survey, out of the total number of households, there is a need for credit loans and bank loans for agriculture The percentage of households receiving loans increased from 53.9% to 76.2% within 4 years (2016- 2020) It can be seen that, with such a large demand, credit and the banking system are really important funding channels in the process of agricultural economic development This also shows that Vietnam's microfinance market is a fertile land full of potential and needs strong promotion Therefore, Fintech is expected to effectively support microfinance activities with the main goal of expanding financial coverage for customers who have many difficulties in accessing financial services Moreover, the successful application of Fintech in microfinance activities 15 also enhances the financial awareness of the lower segment of customers This contributes to creating new long-term economic values for Vietnam 5 Recommendations for competent authorities in Vietnam to make to support the future development of Fintech In the current context of Vietnam, it has barriers to the development of Fintech in Vietnam: The first one, Nguyen (2020) considers that our country's legal institutions in Fintech are still inexplicit and have many shortcomings In comparison to the rapid advancement of technology, the amendment and completion of the legal corridor has been delayed (Nguyếễn Vắn Tâm, 2018) Second, the recent banks’ infrastructure in our country is not enough ability to use the high technology for protecting the safety of the bank systems information (Nguyếnễ Thị Tú Trinh et al., 2021) Third, according to Nguyếễn Vắn Tâm (2018), the difficulties that Fintech businesses in Vietnam face are finding reasonable business activities for the governance or sponsorship model; Therefore, it can affect business development Fourth, information security and people's cash habits are also barriers for Fintech (Việt Hư ng, 2018) Finally, Fintech human resources are still immature, the available human resources are not suitable for the Finance segment, becoming a challenge in the process of selecting high quality human resources for enterprises in the industry In order to fully exploit the development potential of the Fintech market in our country, especially in this important period, we propose a number of measures and recommendations as follows: The first recommendation is promoting the establishment of a comprehensive legislative framework for Fintech business This is a crucial activity for the Government to ensure the strong and steady development of businesses in the Fintech field In addition, an appropriate governance mechanism is needed, policies to promote the establishment and development of new Vietnamese Fintech start-ups, together with at the one time a clear and long-term development strategy appropriate to the orientation, only directives of the State to prevent spontaneous 16 development causing risks to the market Furthermore, building the innovative and suitable legal framework for the prosperity success of Fintech needs to be reformed in parts, sequentially serving the goal of both developing the market and without impeding Fintech companies' creativity (Nguyen, 2020) A reasonable sequence to ensure that momentum could be as follows: (1) Legal research and testing, (2) Expand the scope of use of the regulatory sandbox and gradually remove the obstacles of the old regulatory framework to the Fintech market, (3) Applying the original basic legal provisions into practice, (4) A full legal framework will be put to use in the practice, when companies that have built themselves the necessary and sufficient conditions for sustainable development in this Fintech sector Secondly, focus on building a foundation for public investment projects, and the government needs to consider and approve tax reduction policies so that businesses can easily access the market Additionally, the Government actively supports start-up businesses to access diverse capital sources with suitable interest rates, and create a favorable environment for participation in the Fintech field Specifically, improving the infrastructure will facilitate the application of technology as well as the ability to execute easily and without restriction For instance, in information security, e-KYC has been tested before and has been used by companies in many fields on their applications, especially commercial banks, to verify I am the owner, avoiding the risk not only for the corporations but also for the clients Next, Fintech businesses receive active support in terms of capital as well as incentives in tax payment For individuals in the software field, applying technology in life, the Fintech segment also encourages tax reduction for the first time That will be a lever to help businesses in this industry increasingly attract resources to participate in the 4.0 revolution Additionally, the government offers financial assistance to Fintech firms so that they can start off on a solid footing and avoid running out of cash Simultaneously, actively associate Fintech with units representing financial institutions such as commercial banks, financial institutions, financial companies, and investment funds by promoting Fintech startup environments, thereby diversifying financial 17 services, maintaining a healthy financial market, and improving access to capital for market companies Thirdly, we must encourage the research and application of Blockchain technology in daily life Build a stable and secure foundation Then, expand the research to other industries and test them on real individuals to gauge the effectiveness and willingness of users to experience Blockchain will bring life-changing capabilities to everyone in the future, from buying insurance and quick payments to easy mobility, maintaining corporate identities and managing people The implementation of blockchain will make it easier to use financial services and make banking safer, more secure, and more efficient Blockchain helps to reduce many costs for monitoring supply chains, as well as protecting the management system of state agencies from cyber attacks on confidential information, etc (Nguyen and Dang, 2018) Fourthly, it is necessary to focus on investing in the training of Fintech human resources and related sectors to develop, improve quality, and expand Fintech human resources According to Nhung and colleagues, active implementation of plans to expand society's knowledge of finance and popularize financial knowledge to subjects such as students, students, especially students who live in suburban areas with inadequate living conditions, is important Furthermore, it is crucial to concentrate on enhancing people's new technological knowledge in order to provide them with the essential foundation to be able to proactively approach and manage personal finance on new technology applications or platforms Finally, it is necessary to actively spread and disseminate to many users in society about the benefits that Fintech applications can improve daily life, as well as help customers understand all essential information through popular forms of mass communication to prevent transaction risks that may arise in Fintech 6 Conclusion In general, since the day fintech was introduced to Vietnam, it has grown strongly and still has a lot of potential for future development 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