Favourable conditions for fintech sector surge in Vietnam in next two years

02 May 2018 Consultancy.asia 3 min. read

Like elsewhere around the globe, the financial industry of Vietnam is in the midst of serious disruption, with the local fintech market expected to push from $4.4 billion last year to $7.8 billion by 2020.

With an unbanked population still trailing well behind that of some of its Southeast Asian neighbours, and one of the fastest growing smart-phone adoption-rates in the region, the fintech sector of Vietnam is poised for explosive growth – rising by as much as a third in the next couple of years according to a new industry report from Asian-centric strategy firm Solidiance.

Citing underbanked populations as the key driver for non-bank institution capitalisation, the report notes the current banking figure of Vietnam at just 59% of its citizens, compared to a rate of 89% in Thailand and 92% in Malaysia. Yet, with a government strategy in place to reduce the ratio of cash-payments by 10% in the country between 2016 to 2020, the ambitious target is to raise the banking population figure to 70% - a nearly 40 point jump on the 31% of 2014.Current state of Vietnam’s financial ecosystemThat the increase in Vietnam’s banking population is coinciding with that of the country’s smartphone and internet penetration rates augers well for a ready and disruptive fintech sector which can capture market-entry banking customers ahead of traditional banking institutions. The growth potential is further supported by a young and rising tech-savvy middle class, as well as a burgeoning ecommerce scene.

As it stands, the local internet penetration rate has now cracked more than half of the population, rising from 44% in 2013 to 52% three years later at a CAGR of 7%, while the smartphone per capita figure among urban users rocketed from 20% to 72% over the same period – equating to a CAGR of 58% and some 35 million current estimated users all told. According to a recent research report from Nielson, the figures last year stood at 84% smartphone holders in key cities and 68% in rural areas.Internet and Smartphone users in VietnamFurther, the country’s current number of online shoppers is expected to grow from roughly 35 million to 42 million enthusiastic adopters by 2021 – or over 40% of the projected population – with average spends predicted to rise from $62 to $96. Cash on delivery, as the current major form of payment, will likely give way to digital and other modern payment methods over this period.

Indeed, digital payment solutions already account for 89% of the fintech services in the Vietnamese market, ahead of personal (9%) and corporate (2%) financial services – although the latter are projected to lead Digital Payments (12.8%) in compound annual growth rates to 2025, with the Corporate and Personal Finance segments pegged at respective rates of 35.9 and 31.2 percent.Fintech Product Segmentation in VietnamYet, while the fintech market is primed for growth, the Solidianace white-paper suggests the industry still faces certain local barriers – such as the lack of regulatory clarity, capital limitations, management knowledge constraints, and ongoing awareness and trust issues as to new players in the non-traditional banking realm. Further, start-ups and established providers alike will have to contend with fierce market competition.

Still, with a number of overlapping forces, the future looks bright for fintech in Vietnam. “With a large potential tech-savvy user base, active start-up and investment community, increasingly supportive regulatory framework, and robust enabling environment, fintech applications will further penetrate Vietnam’s financial ecosystem and establish themselves as key go-to services across digital payment, personal finance, and corporate finance solutions,” the consulting firm concludes in the report.