THE DEVELOPMENT OF FINANCIAL TECHNOLOGY OPPORTUNITIES AND CHALLENGES FOR VIETNAMESE BANKING SYSTEM

“The development of FinTech Opportunities and challenges for Vietnamese banking system” In recent years, FinTech becomes a big phenomenon and an essential player in the banking industry. Its effects have spread widely across the world. As a result, the banking system is heavily influenced by FinTech products and services. This study will research the development of FinTech and its opportunities and challenges for Vietnamese banking system. The thesis uses secondary data from researches, surveys, online newspapers and articles found on the Internet to analyze by qualitative research method. First, the paper reviews FinTech and its stages of development in the banking system in general. The opportunities and challenges of FinTech are also explored. This gives the background knowledge and framework for the study. Next, it explores the FinTech development specifically in Vietnamese banking system in some aspects to find out its strengths and weaknesses. The researcher also points out the opportunities and challenges for FinTech in Vietnamese banking system. After evaluating the status of FinTech in Vietnam, the thesis will recommend some actions to continue developing Vietnamese FinTech environment in the future. It is hoped this study will help Vietnamese FinTech companies and the banking system to continue to take the opportunities brought by FinTech and overcome obstacles. This will contribute to strengthening Vietnamese banking industry.

BANKING ACADEMY FACULTY OF FOREIGN LANGUAGES

GRADUATION THESIS TOPIC:

THE DEVELOPMENT OF FINANCIAL TECHNOLOGY

-OPPORTUNITIES AND CHALLENGES FOR

VIETNAMESE BANKING SYSTEM

Ha Noi, May 2019

BANKING ACADEMY FACULTY OF FOREIGN LANGUAGES

GRADUATION THESIS TOPIC:

THE DEVELOPMENT OF FINANCIAL TECHNOLOGY

-OPPORTUNITIES AND CHALLENGES FOR

VIETNAMESE BANKING SYSTEM

Ha Noi, May 2019

I also want to show my thanks to my friends in Faculty of Foreign Language atBanking Academy to help me when I had trouble in writing the thesis They gave memany helpful pieces of advice for my research

Finally, I must express my gratitude to my parents for providing me with unfailingsupport and continuous encouragement throughout my years of study and through theprocess of researching and writing this thesis

This accomplishment would not have been possible without all of them Thank you

Author

Cao Thi Van Thu

STATEMENT OF AUTHORSHIP

Student name: Cao Thi Van Thu

Class: K18ATCC Student Number: 18A7510164

TABLE OF CONTENTS

ACKNOWLEDGEMENTS i

STATEMENT OF AUTHORSHIP ii

TABLE OF CONTENTS iii

LIST OF ABBREVIATIONS vii

LIST OF FIGURES ix

LIST OF TABLES x

ABSTRACT xi

CHAPTER 1: INTRODUCTION 1

1.1 Rationales 1

1.2 Goals 1

1.3 Subject and scope 2

1.4 Structure 2

CHAPTER 2: LITERARURE REVIEW AND BACKGROUND OF FINTECH 3

2.1 Fundamentals of fintech and its development 3

2.1.1 Definition of FinTech 3

2.1.2 Development of FinTech 4

2.1.3 Driving forces of FinTech development 11

2.1.4 Opportunities and Challenges to FinTech 12

2.1.5 Requirements for FinTech development 16

2.2 Impacts of fintech on baNking sector 17

2.2.1 Changing distribution channels and products of the banking system 17

2.2.2 Changing the operation of the traditional banks 17

2.2.3 Changing market demand 18

2.2.4 Changing market share in the banking sector 18

2.2.5 Changing the demand and structure of human resource in the banking sector 18

2.3 Opportunities and challenges to the banking system 18

2.3.1 Opportunities 18

2.3.2 Challenges 20

CHAPTER 3: DATA AND METHODOLOGY 23

3.1 Data 23

3.1.1 Data used for fundamentals of FinTech 23

3.1.2 Data used for the status of FinTech development in Vietnam banking system 24

3.1.3 Data used for opportunities and challenges to Vietnam banking system 24

3.1.4 Data used for other parts of the thesis 25

3.2 Methodology 25

3.2.1 Research approach 25

3.2.2 Research design 26

3.2.3 Data collection methods 26

3.2.4 Data analysis methods 26

3.2.5 Data processing procedure 27

CHAPTER 4: RESULTS AND DISCUSSION 28

4.1 Results 28

4.1.1 The status of FinTech development in Vietnamese banking system 28

4.1.2 Opportunities and challenges to the banking system 33

4.2 Discussion 37

4.2.1 Accomplishments and limitations of FinTech in Vietnamese banking system 37

4.2.2 The development trend of FinTech in Vietnam 39

4.2.3 Recommendations 42

CHAPTER 5: CONCLUSION 46

5.1 Summary 46

5.2 Findings 46

5.3 Accomplishments and Limitations of the thesis 47

5.3.1 Accomplishments of the thesis 47

5.3.2 Limitations of the thesis 47

5.4 Recommendations for future researches 47 REFERENCES

APPENDICES

Appendix 1: Opportunities related to the rise of FinTech

Appendix 2: Vietnam Banking System

Appendix 3: The number of institutions in banking system segments 2018Appendix 4: Global Digital Snapshot in 2015-2018

LIST OF ABBREVIATIONS

ACB Bank Asia Commercial Joint Stock Bank

Agribank Vietnam Bank for Agriculture and Rural Development

AI Artificial Intelligence

ASEAN Association of South East Asia Nations

ATM Automatic Teller Machine

BACS Bankers' Automated Clearing Services

CEO Chief Executive Officer

CHIPS The Clearing House Interbank Payments System

FinTech Financial Technology

IPS Intrusion Prevention System

GDP Gross Domestic Product

KPMG Klynveld Peat Marwick Goerdeler

PwC PricewaterhouseCoopers

SME Small and Medium Enterprise

SWIFT Society for Worldwide Interbank Financial

Telecommunications

The UK The United Kingdom

The US The United States of America

TPBank Tien Phong Commercial Joint Stock Bank

USD United States Dollar

Vietcombank Joint Stock Commercial Bank for Foreign Trade of

LIST OF FIGURES

Figure 2: FinTech companies found by year in 2008-2017 8

Figure 3: Funding for FinTech companies by category

Figure 5: Challenges for FinTech companies and incumbents 22

Figure 6: FinTech product segmentation in 2017 and projected

trend in 2025

30

Figure 7: Vietnam’s e-commerce users 30

Figure 8: Internet and smartphone penetration in Vietnam

Figure 10: Technological areas of investment 40

Figure 11: Focus on emerging technologies 40

Figure 12: Current and expected partnerships per country 41

LIST OF TABLES

Table 2: Global Digital Snapshot 2015-2018 14

Table 3: FinTech companies in Vietnam 28 and 29Table 4: The growth of Internet and smartphone penetration in

Vietnam

31

Table 5: Labor force quality among nations in Asia-Pacific 32

of FinTech in Vietnam, the thesis will recommend some actions to continue developingVietnamese FinTech environment in the future It is hoped this study will helpVietnamese FinTech companies and the banking system to continue to take theopportunities brought by FinTech and overcome obstacles This will contribute tostrengthening Vietnamese banking industry

CHAPTER 1: INTRODUCTION 1.1 RATIONALES

In recent years, FinTech is the term which has caught the attention of many individuals

in different fields although FinTech has appeared for a long time since 1866 It is thefast approaching “The Industrial Revolution 4.0” around the world bringing the greatopportunity for the dramatic rise of FinTech

FinTech changes the financial system, and the banking system is under the greatestinfluence of it Banking services using FinTech like mobile banking, internet banking,SMS banking, etc gradually appear As a result, it plays an important role in thechange in customers’ behavior toward banking products

FinTech is growing rapidly around the world and Vietnam is not an exception because

of globalization There is an increase in the number of banking products and servicesusing advanced technology in Vietnam Moreover, not only the quantity but also thequality of services using FinTech is increasing This brings not only opportunities butalso challenges for Vietnamese banking system Some main drawbacks of FinTech inVietnamese banking system which need to be tackled are about not up-to-datetechnology, lack of high-quality labor force and the worry about information securityand privacy

To clearly discover and deal with problems of FinTech in Vietnamese banking sectornowadays, this study will analyze the development of FinTech and find out theopportunities and challenges for Vietnam banking system to propose some

recommendations For those reasons, the topic “The Development of Financial Technology - Opportunities and Challenges for Vietnam” is chosen for the thesis 1.2 GOALS

The aims of this research are to find out the status of FinTech development inVietnamese banking system and discover challenges and opportunities of Vietnamesebanking system After that, the thesis will design some recommendations to overcome

the challenges and take advantage of opportunities bringing by FinTech to the bankingsystem in Vietnam

1.3 SUBJECT AND SCOPE

The subject of the research is FinTech development and its opportunities andchallenges in Vietnamese banking system

The thesis mainly focuses on FinTech in the banking system in Vietnam from 2015 topresent

1.4 STRUCTURE

Besides the introduction and conclusion, this thesis contains 3 main parts:

Part 1: Literature review and background of FinTech

Part 2: Data and methodology

Part 3: Results and discussion

CHAPTER 2: LITERATURE REVIEW AND BACKGROUND OF FINTECH 2.1 FUNDAMENTALS OF FINTECH AND ITS DEVELOPMENT

2.1.1 Definition of FinTech

FinTech is the short form of financial technology There is no internationally officialdefinition of FinTech at the moment KPMG defines FinTech simply as technology-based businesses that compete against, enable and/or collaborate with financialinstitutions (Pollari, 2016) The definition of Leong and Sung (2016) about FinTech is

“a cross-disciplinary subject that combines Finance, Technology Management andInnovation Management.” which can be elaborated as “any innovative ideas thatimprove financial service processes by proposing technology solutions according todifferent business situations, while the ideas could also lead to new business models oreven new businesses” (Leong and Sung, 2018)

FinTech can be easily understood that using innovative technology in financialservices

However, it is not possible to have a universal definition of FinTech

There are many segments in the term “FinTech” Pollari (2016) divides fintech into 4main parts (see figure 1)

Figure 1: FinTech segments

Source: Definition of FinTech and Description of the FinTech Industry

2.1.2 Development of FinTech

a FinTech development in revolution

Table 1: FinTech development

Developingcountries

Start-up/ New entrants

Origin Linkages Digitalization 2008 financial

crisis

Last moveradvantage

Source: FinTech: Evolution and Regulation (Arner, 2015)

* FinTech 1.0 (1866-1967)

This is when early technology with finance started to combine (Arner, 2015) The keyenabling technologies included Trans-Atlantic transmission cable (1866), mainframecomputers, etc (Leong and Sung, 2018) FinTech 1.0 globalized banking services(Hoang Khanh Lam, 2018) According to Arner (2015), some other noteworthytimelines of FinTech 1.0 are Fedwire in 1918, Diner’s Club in 1950, and telex in 1966

* FinTech 2.0 (1967-2008)

FinTech 2.0 was the period when banking services changed from analog to digital Thiswas also the development period for traditional banking services (Douglas W Arner,2015)

It is widely accepted that the first cash machine was put into use by Barclays Bank inits Enfield Town branch in North London, United Kingdom, on 27 June 1967(Wikipedia, 2019) In1968, BACS (Bankers' Automated Clearing Services) wascreated In 1970, CHIPS (The Clearing House Interbank Payments System) was found

In 1973, the network providing safe and secure financial transactions for its members

called SWIFT was established (Investopedia, 2018) In 1981, Michael Bloombergfound Bloomberg – financial news, analytics, and information provider (Investopedia,2019) The mobile phone was invented in 1983 and this was a huge step in thetechnology industry and the development of FinTech The appearance of the Internet /Dot.Com Bubble in 1999 continued to create solid support for FinTech in future.

* FinTech 3.0 (2008-2017)

In developed countries, FinTech 3.0 was sparked by the financial crisis in 2008 Thecrisis made the financial system in general and the banking system in particular have tochange In this era, FinTech start-up has emerged alongside big traditional banks(Arner, 2015)

Arner (2015) also pointed out some remarkable events about FinTech 3.0:

- 2007: iPhone launched

- 2008: Wealthfront was founded and provided automated investment services

- 2009: BitCoin launch Square is created, providing mobile payments solutions

- 2009: Kickstarter introduced a reward-based crowdfunding platform

- 2011: Transferwise was created

* FinTech 3.5 (2008-2017)

FinTech 3.5 began in developing countries such as Africa and emerging Asia in order

to pursue financial inclusion and economic development (Arner, 2015) Somememorable achievements of FinTech 3.5 listed by him are:

- 2007: M-Pesa introduced in Kenya, by Vodafone for Safaricom

- 2010: Alibaba introduced loans to SMEs on its e-commerce platform

- 2011: LuFax, an online Internet finance market place, was created

- 2015: India announced the creation of 11 new payment banks (for example FinoPayTech)

- 2015: MyBank and WeBank, two new Chinese private banks appeared

* FinTech 4.0 (2018-present)

With the world is entering Industrial Revolution 4.0, FinTech also is entering a newera With the rise of Internet of Things, Big Data and AI, this will affect FinTechdevelopment Blockchain is also a segment that rises significantly in this period(Sharma, 2018) They will be the fields that most FinTech trying to focus on

Up to 2017 there are 2040 FinTech enterprises in the world, including 150 companies

in banking operations, 228 companies in capital raising, 465 companies in financialmanagement, 531 companies in deposits and lending, 666 companies in payments(Venture Scanner data, Deloitte Center for Financial Services analysis, 2017, retrievedfrom FinTech by numbers) The number of FinTech companies in banking and capitalmarket is in declining trend (see figure 2)

Figure 2: FinTech companies found by year in 2008-2017

Source: Venture Scanner data, Deloitte Center for Financial Services analysis

However, the investment for FinTech is still on the rise (see figure 3)

Figure 3: Funding for FinTech companies by category 2008-2017

(Unit: billion$)

Source: Venture Scanner data, Deloitte Center for Financial Services analysis

b FinTech development in the banking system

The development of FinTech in Vietnam banking system is similar to other countries inthe world According to Lovatt (2016), Jeff Gido - Goldman Sachs's Global Head of

FinTech in the investment banking division divided the development in FinTech inbanking system into three waves:

* First wave: The emerging disruptors

This was when FinTech first appeared and became a threat to traditional institutions.Because of its conveniences, FinTech started to thrive This gradually changed thedemand and preferences of customers The market of traditional institutions in thebanking sector was shaken

In Vietnam, FinTech appeared later than developing countries, but it still rose at fastpace

* Second wave: Increased collaboration

Gido believed we are experiencing the second wave of FinTech (Myers, 2016).Although the banks were aware of the changes in the banking industry and try to keeptheir competitiveness, they were still less flexible than FinTech enterprises Incumbentsstarted to provide new services such as mobile and internet banking, but they justreacted to FinTech development The banks and other institutions had begun to invest

in FinTech start-up This was the beginning of the collaboration between banks andFinTech This collaboration benefits both banks and FinTech companies The bank canachieve new technologies and ideas to attract customers In the other hand, FinTechcompanies can gain trust from customers to expand their businesses

* Third wave: The future of bank - FinTech relationships

The third wave will see the equal partnership between banks and FinTech companies Many people think this wave is coming in the very near future FinTech companies willplay a major role in the banking system They will partner with big banks that havepre-established relationship FinTech can take advantages of the customer networks ofbanks, and the banks can gain advanced technologies to offer better services andproducts The third wave will make a revolutionary change for the banking system

2.1.3 Driving forces of FinTech development

There are many factors that stimulate the development of FinTech They are thereasons for the rise of FinTech in recent time Some major drivers of FinTech can benoted are:

a Technological developments

Technology is an important supply factor which develops FinTech (Schindler, 2017).Before, there was no ATM With technology, ATMs were created Now with evenbetter technology such as the Internet, internet banking appeared Furthermore,developments in technology such as the Internet of Things and the maturing ofartificial intelligence and robotics in the longer-term will have a significant impact onthe delivery of banking and financial products and services of FinTech (Pollari, 2016)

b Changing consumer behavior and preferences or market trend

This is a demand factor affecting FinTech (Financial Stability Board, 2019) The trend

of market plays a critical role in the rise of FinTech Customers are adapting newtechnology quickly and choosing alternatives to find greater conveniences For thisreason, they may prefer FinTech than traditional services (Pollari, 2016) The statistic

of telephone and mobile phone usage showed that with the consistent mobile signal,people can access to cloud-based technologies any place and anytime Theconveniences made people tend to use FinTech with cloud-based technologies (Broom,2015)

c Changes to the macroeconomic or financial landscape or industry change

Schindler (2017) considered this driving force is a supply factor The industry changesuch as the global crisis resulted in regulations like information transparency appear.The banks need FinTech to enhance the security of their data (Dominic Broom, 2015)

d Supporting the policy and regulatory environment

Regulation is another supply factor that is frequently present (Schindler, 2017).FinTech companies can understand what they can do to comply with the law

Regulation can also contribute to the demand for new products and services (Schindler,2017) The regulators appropriately respond to the awareness of FinTech can benefitthe customer to gain more knowledge about new technology and FinTech (Pollari,2016) They will want to try and use the services of FinTech companies

e High-quality labor forces

Three studies of Broom (2015), Pollari (2016), and Schindler (2017) have not referred

to this factor Human resource is one of the factors affecting FinTech development.The high-quality labor force in the banking industry with knowledge about technologycan boost the development of FinTech

f Attractive profit pools which are accessible

The FinTech products having a higher return will attract more investments and createhigh chances of seeing technology transformation (Pollari, 2016) With highinvestments, FinTech companies can continue to expand their business

2.1.4 Opportunities and Challenges to FinTech

a Opportunities

There are many opportunities for FinTech to develop in the future

* The conveniences of technologies

People like technologies because they have some conveniences compared to traditionalsolutions and high security Services using FinTech bring personalization to services,accessibility of services anywhere, anytime and reduced time and cost of transactions(Vardanyan, 2017)

* The preference of customers towards FinTech

The relationship between banks and customers may be weakened causing FinTech to

be enhanced in order to change the situation Vardanyan (2017) thought that banks andcustomers may not always have the same goals The banks are not willing to changebecause they aim at increasing the number of transactions in a specific time In theother hand, the customers want personalized, faster services The one who wants toborrow may have to face a long and exhausting process (Lamest, 2018) According toLamest (2018), the distrust of customers to banks also results from the lack oftransparency from traditional institutions on their services Customers have littleknowledge and doubts about the banks FinTech can take advantage of this to satisfycustomers’ requirements They can use advanced technologies to offer personalizedand fast services to customers and provide a strong security system for protecting theirclients’ information and data

* Industrial Revolution 4.0 brings new technologies

Industrial Revolution 4.0 is the main opportunity for FinTech In this era, moretechnologies are expected to be created and greatly enhanced Furthermore, the number

of people who have access to those advanced technologies is increasing as well Forexample, the number of digital usage rises consistently throughout the years

Table 2: Global Digital Snapshot 2015-2018

Active socialmedia users(billion)

Uniquemobile users(billion)

Mobile socialmedia users(billion)

Source: Hootsuite and We Are Social

As a result, this environment is an essential chance for the rise of FinTech

b Challenges

Nowadays, FinTech is not an unfamiliar term FinTechs use their opportunities andbring innovative ideas of the banking system However, every creative innovation isaccompanied by obstacles and risks FinTech companies still need to deal with someissues to expand their businesses

* Information security and privacy is threatened

Information security and privacy is the main issue for every FinTech entrepreneur.Using FinTech means personal and important information being sent mostly throughmobile and internet connection Data on mobile phones can easily be lost or stolen.Nowadays, technologies are developing, and hackers may use them to steal informationabout someone and use that for illegal actions According to Agrawal (2017), “whiledigital banking, blockchain technologies, cryptocurrencies, and other facets of FinTechcontinue to revolutionize, they also increase risk levels associated with confidentialityand security of customer data” Protecting information of customers and findingsolutions about data privacy and security issues is one of the biggest challenges forFinTech companies in the future

* Unclear regulatory framework

The regulatory framework is a notable challenge for FinTech FinTech companiesoften functioned as banks or offer some services like banks but they do not usuallyprovide the all services of banks and hence are not considered as banks in law “One ofthe most obvious challenges for FinTech companies is to identify which agencygoverns them and distinguish the sets of regulations that apply to them” (Arachnys,2016) Moreover, the regulations do not catch up with the rate of FinTech innovation.The FinTechs should be aware of the changes in regulation and have suitable solutionsfor those changes (Vista, 2018).

* Investment management

Investment management is a problem they have to face There are a large number ofFinTech projects available FinTech companies need to choose appropriate projects andmanage the portfolio effectively Finding feasible projects for the portfolio is achallenge for FinTech enterprises (Vista, 2018)

* Customer management

Another challenge may cause issues for FinTech enterprises is customer management.Customers use a lot of services from many FinTech companies FinTech enterprisesshould provide the best services in order to keep customers using their products (Vista,2018) The customers want easy to access and use services Although easy to use andaccess services remain the biggest strength for FinTech startups, many customers areoften confused during guidance, which makes them hard to continue using services ofFinTech Agrawal (2017) said that for FinTech companies, every platform should beuser-friendly and simple on mobile apps and websites to help improve the user’sexperience

* Management for the serious risks

Risk management is also a challenge for FinTech enterprises Every companyincluding FinTech has to face many risks such as legal risk, management risk, financialrisk, etc What kind of financial risk depends on the segment that FinTech companyfocuses on (Vista, 2018) All the above challenges are also risks which FinTechenterprises need to be considered The malfunction of technologies may cause

remarkable losses for FinTech companies and their customers Fintech enterprisesought to consider their risks and find out appropriate solutions for those issues

2.1.5 Requirements for FinTech development

a Technology

Technology is a core of FinTech As a result, to have a good FinTech environment,technology infrastructure should be solid and stable If technology becomes moreadvanced, FinTech companies can create more and better services and products

b Information security and privacy protection

With the technology upgrading every day, the possibilities of cybercrime also go up.This is a big risk for many FinTech companies and banks in the world It requirescareful protection for data and information of customers and companies

c Human resources

Human resources play an indispensable role in the development of FinTech A goodlabor force and well-organized human resource strategies is essential for FinTechcompanies

CEOs in the banking system need to have professional qualifications with managementskills and creativity to utilize FinTech to the fullest The leaders also should have agood sensibility to market trend and customer’s needs to know what to invest Also, themanagers need to analyze and understand the law to avoid legal risk

Specialists who can forecast and create developing strategies to the banking system arealso necessary

Having knowledge in technology and banking is important for employees in FinTech

in order to operate and offer services to customers

d Regulation policies

The law for FinTech companies is also a critical factor for FinTech It can helpFinTech companies to have a clear view on what to comply, raise trust and avoid risks.Regulations also raise awareness and attract more investment for FinTech

2.2 IMPACTS OF FINTECH ON BANKING SECTOR

2.2.1 Changing distribution channels and products of the banking system

FinTech create different distribution channels and new services in banking systemother than traditional ones Besides cash on delivery- a traditional method of payment,digital way of payment is available by FinTech The flexibility of FinTech creates newservices for the banking system Internet banking, mobile banking, etc become greatlypopular to civilians This brings the diversity of products and services in the bankingsector

2.2.2 Changing the operation of the traditional banks

The appearance of FinTech adds pressure to traditional banks If banks do not improvetheir services and operation processes, they will gradually fall back For that reason,the banks now have different operation strategies In the future, there will be fewerbranches of banks, and the digital bank will become a new trend for traditional banks(Nguyen Thi Hien, Nguyen Thi Minh Ngoc, 2017)

2.2.3 Changing market demand

Before, people want services that are credible by traditional services Because manyservices of FinTech companies are faster and cheaper, people also change theirexpectations to a product and service

2.2.4 Changing market share in the banking sector

Some products and services offered by traditional banks can be provided by FinTech.Moreover, with the benefits to customers, more people will use the services ofFinTech Hence, the market of traditional banks gradually “shares” to FinTech

2.2.5 Changing the demand and structure of human resources in the banking sector

The accomplishments of technologies replace a considerable amount of labor forces inthe banking industry FinTech requires the human resources to be more qualified inbanking knowledge and technological knowledge The labor forces in banking sectorbecome reducing the number of low-qualified people and increasing high-qualifiedpeople (Bui Thi Lan Huong, 2018, 268)

2.3 OPPORTUNITIES AND CHALLENGES TO THE BANKING SYSTEM 2.3.1 Opportunities

a Boost financial inclusion

Digit finance has created easier access to banking services to many people Now withmore and more people using the Internet and smartphone, anyone can use bankingservices Moreover, it is even coming to remote areas (Basel Committee on BankingSupervision, 2018) This also leads to the expansion of customer network of the banks

b Lower transaction costs and faster banking services

According to Professor John Wong from Paris Management University, costs for bankswill reduce 80% if they use FinTech This result from banks can cut down the number

of branches, the number of ATMs or payment cards which are not necessary withsmartphone and internet (VNA, 2018)

Also, FinTech enterprises can speed up the transactions in far distance helping peoplenot waste time in going to banks or ATMs (Basel Committee on Banking Supervision,2018)

c Raise funds through small investors

Small investors only have a little amount of money so they hesitate to save or maketransactions in the banks They do not want to experience a time-consuming procedurejust to save a small amount of money As a result, the banks lost a significant amount

of potential funds Now, with the help of technologies, only a few click or touch incomputer and mobile phone, they can make transaction anywhere (Duong Tan Khoa,2017)

d Improve the efficiency of banking processes

FinTechs use cryptographic or biometric technologies which may make thetransactions safer and higher chance of successful (Basel Committee on BankingSupervision, 2018)

e Potential positive impact on the stability of the banking system due to increased competition

The entry of FinTech raises the competitiveness in the banking system All banks andFinTech companies need to provide great services to keep loyal customers They alsobuild partnerships to utilize the advantage of each side to create services and products.Hence, the banking system will become more stable with better services

2.3.2 Challenges

a Traditional banks market are threatened by FinTech

As FinTech rises, they started to take over a part of the market of traditionalinstitutions Because FinTech brings innovative and convenient solutions for services,

it gains interest and trust from customers This requires traditional banks to change orelse they will gradually lose their businesses The following figure shows the ratio oftraditional institutions afraid the FinTech will make them lose businesses

Figure 4: Percentage of incumbents who believe part of their business is at risk

(Unit: %)

Source: PwC Global FinTech Survey 2017

b Unsatisfied technological infrastructure

FinTech require advanced technologies For the growth of FinTech, every countryneeds to have a steady technology infrastructure to adapt new technologies This is achallenging task for many nations in the world, especially developing countries If thetechnologies are outdated, FinTech and the banking system of the country will slowlyfall behind

c The banking system is in shortage of qualified human resource

Although the demand for human resource in FinTech is high, FinTech companies stilllack qualified labor force According to Mrs Trung Hien (2019), people who work forFinTech companies need knowledge about both technologies and banking (NEU,2019) Lack of knowledge in one field will reduce the quality of the human resource

So education and training in both aspects are essential to have qualified labor force forFinTech

d The regulatory framework is incomplete

The fast pace of FinTech development creates new services, products which is a hugeachievement for the banking sector in specific However, the regulations aim atFinTech cannot follow the rate of FinTech development Furthermore, the operations

of FinTech companies occur in many countries, but the laws are only limited in one

country (Hoang Khanh Lam, 2018, 219) The amendment of laws about FinTech isunavoidable

e Holes in information security and privacy

The rise of technologies is accompanied by the rise of cyber risk In the world,cybercrime has wasted about 600 billion USD every year, around 0.8% global GDP(BKAV, 2018) Hackers can use advanced technologies to steal information and money

of users Incidents of customer data being leaked may happen The banking systemmay be heavily suffered from those incidents, which may cause an information crisis(Hoang Khanh Lam, 2018, 218)

f Integration between banks and FinTech

When FinTechs and banks cooperate, they face some obstacles because banks andFinTechs have different operation methods, goals and advantages A challenge should

be considered technology integration Syncing information is essential to managecustomers’ data and give them appropriate services FinTechs use new technologies,and that is difficult to integrate with information in old systems If FinTech companies

do not have plans and experiences in integration, traditional banking process may notmatch with new system and technology (Vista, 2018) Many other issues may arise aswell in the process of integration because of their differences (see figure 5)

Figure 5: Challenges for FinTech companies and incumbents

(Unit: %)

Source: PwC Global FinTech Survey 2017

CHAPTER 3: DATA AND METHODOLOGY 3.1 DATA

Data used in this thesis are secondary data found from previous researches, surveys andonline articles All the data dated from 2008 to present, and most of them from 2015until 2018

3.1.1 Data used for fundamentals of FinTech

Most of the data for theoretical information are in form of words They came frommany previous researches in Vietnam and foreign countries about FinTech of IgorPesin (2017), Leong and Sung (2018), Dorfleitner, Hornuf, Schmitt, and Weber (2017),Dominic Broom (2018), Basel Committee on Banking Supervision (2018), Schindler(2017), Pollari (2016), Arner (2015), Nguyen Thị Hien and Nguyen Thi Minh Ngoc(2018), Vista (2018), Duong Tan Khoa (2017), Hoang Khanh Lam (2018), Bui Thi LanHuong (2018), Financial Stability Board (2019) Some information in onlinenewspapers such as James Chen (2019), Julia Kagan (2018), Vardanyan (2017), Lovatt(2016), Myers (2016), Arachnys (2016), Lamest (2018), VNA (2018), Sharma, (2018),Agrawal (2017), BKAV (2018), NEU (2019) also gives information for this thesis.Those studies show the information about the background of FinTech and itsdevelopment, the opportunities and challenges of FinTech in the banking system.Moreover, statistics data were also used First data is the global survey of 1,308financial services and FinTech executives and includes insights and proprietary datafrom PwC’s DeNovo platform in 2017 The second information is the survey ofDeloitte Center for Financial Services in 2017 including the statistic of quantity andinvestment of FinTech companies in the banking sector from 2008 to 2017 Third data

is researched by Hootsuite and We Are Social about digital usage in the world in

2015-2018 They are the evidence to explain the general status of FinTech in the world