Financial Technology (“Fintech”) is one of the fastest growing business sectors globally, with Vietnam at the forefront of Fintech growth. Fintech targets a diverse customer base, from individuals, to enterprises, banks, non-government organisations (NGO), public authorities, and so forth.
Fintech has become an integral part of financial activities for individuals, starting with traditional activities usually undertaken by banks such as payments, lending, wealth management, and Point-Of-Sale (POS), and continuing with new business models developed through introduction of new technologies such as blockchain, insurtech and digital banking.
General discussion on Fintech
While the opportunities for growth are substantial for international investors seeking to enter the financial technology sector in Vietnam, it is important for foreign investors to be aware of the conditions, limitations and particular licensing provisions before setting out with a defined market entry strategy.
In Vietnam, Fintech companies received $410 million, or 36% of the total global capital invested into Southeast Asia’s Fintech economies, between January and September of 2019, only behind Singapore. This further outlines the foreign investors’ consistent interest in the Fintech business in Vietnam.
Below is an analysis of selected prominent Fintech activities in Vietnam from a licensing, commercial and legalistic perspective, covering business conditions as well as licensing procedures:
- Payment Intermediary Services, including:
- Electronic Payment Gateway Services
- E-Wallet Services
- Peer-to-Peer Lending (P2P Lending)
Electronic Payment Gateway Services
Electronic Payment Gateway Services are services providing technical infrastructure to connect between the payment acceptance units (the Sellers) and banks (where the Purchasers have owned their payment account), in order to assist customers to make payments in e-commerce transactions, electronic bill payments and other electronic payments.
The platform acts like a bridge between the purchaser and the seller in electronic transactions, enabling clients to make non-cash payments quickly and conveniently, and keep their personal information secure.
In Vietnam, some of the more popular electronic payment gateway service providers include:
Electronic wallet service (e-Wallet service)
Pursuant to Decree 101/2012/ND-CP of the Government, an E-wallet service is regulated where “a provider of payment intermediary services provides a client with a nominal electronic account on an information carrier (such as electronic chip, mobile phone sim, computer, etc.) that enables the client to store a sum of money in the form of deposit equivalent to the sum of money transferred from the customer’s payment account at a bank to a secured payment account of the provider of digital wallet service with the ratio of 1:1.”
E-wallets in Vietnam are growing widely and are used to pay for goods and services at supermarkets, convenience stores, e-commerce websites (such as Shopee, Lazada, Tiki), or other applications and software (such as Grab, Spotify, Delivery Now). At the same time, e-wallets are supported by incentivised users due to frequent promotions, discounts and points accumulation.
Popular e-wallet service providers in Vietnam include:
Market access limitation under WTO commitment and Business Line registration
With regard to market access regulations for foreign investors entering Vietnam applicable to the provision of intermediary payment services, these activities have not been committed by the Vietnamese authorities under the WTO Commitment. Accordingly, after receiving an investment project registration application from foreign investors, the licensing authority needs to consult the relevant Ministries in regard to permitting investors to undertake activities in-country. That said, there are currently no regulations or conditions regarding foreign investors’ ownership limitations when establishing entities in Vietnam operating with intermediary payment services.
In practice, we have seen a number of foreign-invested companies in Vietnam obtaining approval from the licensing authorities to perform intermediary payment services under their approved business lines. One of the most common business lines which is relevant for companies providing Payment Intermediary Service is
|VSIC Code||Business line|
|6499||Other financial service activities not elsewhere classified (except for insurance and social insurance)|
However, the foreign investors must still seek Ministerial approval in order to be eligible for the provision of this specialised service in Vietnam, as it is not specified in the WTO Commitment, thus the application process may take several months or more before any approval is granted.
Local companies owned by Vietnamese citizens, despite the fact that they are not required to seek market access approval as their foreign invested peers, may encounter challenges regarding the statutory conditions which need to be satisfied in order to be able to legally operate their business.
Operational conditions and sub-licenses
Vietnamese law allows both bank and non-bank organisations to provide Intermediary Payment Services. However, non-bank institutions (to simplify, ordinary Vietnamese companies in the majority of cases) can only be allowed to undertake the payment intermediary service after attaining a Provision of Payment Intermediary Services (“License“) from the State Bank of Vietnam (SBV).
The prime condition to attain the License is the requirement for minimum charter capital of at least 50 Billion Vietnam Dong. In addition, the company must satisfy the following prerequisites:
- Have a scheme to provide intermediary payment service
- The legal representative, General Director (Director) of the organisation applying for the license is required to have an university degree or higher, or have at least 3 years working experience in one of the fields of business administration, economics, finance, banking, law; and
- Have material facilities, technical infrastructure, information technology systems, technology solutions appropriate to the requirements of the provision of intermediary payment services. The backup engineering system has to be built independent of the main system to ensure the safe and continuous provision of services (in case the main system is compromised) and comply with specific regulations on ensuring safety and system confidentiality of banking and financial information.
Below is an illustration of the procedure for obtaining the Payment Intermediary Services (“License“)
|License name||License for Provision of Payment Intermediary Services|
|Services to be applied|
|Authority||State Bank of Vietnam (SBV)|
|Lodgement||The company submit several sets of documents by post or directly to the SBV|
|Timeline||Approval within 60 days after the authority receives the complete and valid application file|
|Validity||The license is valid for 10 years from the date it was issued by the SBV and may be requested again at least 60 days before the expiry date.|
In addition to the foreign investments flow into the Payment Intermediary Services sector, peer-to-peer lending (P2P Lending) is a widely used service enabled by the growing digital market transformation where all monetary transactions are supported by technology. That being said, despite of the rapid, global development of this new financial service, in Vietnam the relevant regulations and laws governing businesses which facilitate peer-to-peer lending (P2P Lending Companies) are still limited.
Until this day, there is no legal definition for “P2P lending” in any relevant Vietnamese legal document, or any specific decree and or circular which regulates the activities of companies (local-invested and foreign-invested) providing P2P platforms/apps in Vietnam.
Market access limitation under WTO commitment
Pursuant to WTO Commitments between Vietnam and other members of WTO, P2P Lending is not mentioned as part of “Banking Services and Other Financial Services”. Specifically, Section 7.B of the WTO Commitment listed the following activities to be governed by this commitment:
- Acceptance of deposits and other repayable funds from the public
- Lending of all types, including consumer credit, mortgage credit, factoring and financing of commercial transaction
- Financial leasing
- All payment and money transmission services, including credit, charge and debit cards, traveler’ cheques and bankers drafts
- Guarantees and commitments
- Trading for own account or for account of customers, whether on an exchange, in an over-the-counter market or otherwise, the following:
- Money market instrument (including cheques, bills, certificates of deposits)
- Foreign exchange
- Exchange rate and interest rate instrument including products such as swaps, forward rate agreements
- Money broking
- Assets Management
- Settlement and clearing services for financial assets
- Provision and transfer of financial information, and financial data processing and related software by suppliers of other financial services
- Advisory, intermediation and other auxiliary financial services on all activities listed in subparagraphs from (a) to (k), including credit reference and analysis, investment and portfolio research and advice, advice on acquisitions and on corporate restructuring and strategy
Therefore, regarding the ability of foreign investors to access the market in this sector, as there are currently no specific instructions or agreements in place to regulate peer to peer lending, foreign investors entering this sector in Vietnam are required to seek investment approval from the relevant Ministries, and follow the process to obtain the investment license, before the P2P Lending entity can be established in Vietnam.
Business line registration
The operational scope of a P2P Lending business is to create an environment/platform for individuals with capital (lenders) and those who need capital (borrowers) to exchange and provide currency/capital transactions between each other without going through the banking system. Therefore, P2P Lending companies in fact, unlike companies in the financial services business, provide a digital technology platform instead of providing money/loans.
According to public records, most of the P2P Lending companies operating in Vietnam are domestic companies, however foreign investors are increasingly participating in the market in a proactive, participatory manner. P2P Lending service companies should register appropriate business lines, commensurable with their activities, as follows:
|VSIC Code||Business line|
|6619||Activities auxiliary to financial service activities not elsewhere classified|
|7020||Management consultancy activities|
Detail: Financial management consultancy
However, there is still no legal and regulatory basis to conclude that the 3 above mentioned business lines registered by domestic P2P Lending companies are reasonable and sufficient from the point of view of the relevant authorities.
In Official Letter No. 5228/NHNN/CSTT dated 8 July 2019 of the State Bank of Vietnam, the SBV affirmed about this activity: “In Vietnam, some companies have registered their business lines as financial advisory, financial brokerage and self-introduction as P2P Lending companies providing services to connect investors and borrowers; however, the current Vietnamese law does not have regulations on P2P Lending activities yet”.
Therefore, it can be understood that, at present, there is no specific business line for P2P Lending Companies to register under the Vietnamese laws.
P2P lending future in Vietnam and the Fintech experimental mechanism (‘Sandbox’)
According to Official Letter No. 5228 of the State Bank, SBV also stated that P2P Lending activities can contribute to promote the popularisation of finance, expand capacity and create more channels to access financial resources, lending methods, especially for disadvantaged groups in the society but with access to the internet; thereby, P2P lending may contribute to repel the “black credit” situation. However, P2P Lending activities present significant risks for consumers (lending risks, information risks, money laundering prevention risks, cybersecurity risks etc.) that can adversely affect the stability of the markets and social security.
The State Bank of Vietnam is concerned that P2P Lending enterprises may be operating “beyond their authority” when undertaking a form of “banking operations” under Article 8 of the Law on Credit Institutions 2010 and it encourages banks and credit institutions to be cautious when signing cooperation contracts with P2P Lending companies. This further shows that P2P Lending activity in Vietnam is still strictly monitored by the authorities, resulting in a more difficult licensing process for foreign investors seeking to operate in this industry in Vietnam.
In response to the requests from both enterprises and relevant authorities to create a regulation mechanism for P2P Lending companies to legally provide services in Vietnam with clear guidance, the Government announced in 2020 that it is preparing a draft decree on a controlled experimental mechanism for financial technology activities in the banking sector (Fintech Experimental Mechanism) which is well-known in other countries as a “sandbox”. Accordingly, the Government will allow Fintech investors to provide Fintech services in specific areas in Vietnam within a definite time frame. After the testing period, the investor will receive the approval from the State Bank of Vietnam to provide full services across the entire country Vietnam. However, the draft decree has yet to be passed and we expect the government will release further guidance on these matters by the end of 2021.
We recommend international investors active in the fintech sector to continue to monitor the developments within the regulatory digital transformation framework in Vietnam, and be aware of the above prerequisites for market entry provisions and conditions before setting out a long term investment strategy in country.