Fintech for Promoting Financial Inclusion in Vietnam:

Fact Findings and Policy Implications

Le Thanh Tam

National Economics University, Hanoi, Vietnam

Le Nhat HANH

University of Economics, Hochiminh City,Vietnam

Abstract

Financial inclusion has been considered as enabler for 7 of the 17 Sustainable Development

Goals. With the development of industrial revolution 4.0, fintech is the key driver for financial

inclusion, in both developing and developed countries. The roles of fintech for financial inclusions

are clear, focusing on providing all financial services with lower costs, wider and better access

(24/7). In Vietnam, legal framework on fintech has been developed, the fintech steering committee

has been set up, and Vietnam is preparing the national financial inclusion strategy. In

implementation, the fintech market is still young, but almost 40 companies have joined with

increasing transaction volumes and high growth rate. The opportunities for fintech in Vietnam are

huge, from demand side, infrastructure, and the market gap. However, the challenges still

remained, coming from its nature, legal framework, small transaction and active clients ratio, and

the low awareness of people on fintech for financial inclusions. The recommendations to fintech

companies, commercial banks, State Bank of Vietnam, and other stakeholders have been proposed

for better fintech utilization in promoting financial inclusion.

Key words: Fintech, financial inclusion, digital finance

Address Correspondence to: Le Nhat Hanh – University of Economics, Hochiminh City. Vietnam

Email: lenhathanh@gmail.com

Business & Social Sciences Journal (BSSJ)

Volume 3, Issue 1, pp. 12-20

(P-ISSN: 2518-4598; E-ISSN: 2518-4555)

January 2018

Business & Social Sciences Journal (BSSJ) 12

1. Introduction

Financial inclusion has been one of the key priorities for many developing countries, as it has been identified

as an enabler for 7 of the 17 Sustainable Development Goals defined by United Nations. With the

development of industrial revolution 4.0, the application of digital technology for providing financial

services (also called fintech) has become the key driver in promoting financial inclusion. The G20

reaffirmed its commitment to implement the G20 High-Level Principles for Digital Financial Inclusion

(World Bank, 2017). Therefore, digital finance has been the opportunity and the methods for developing

countries in reaching financial inclusion with the shortest and most efficient way.

Vietnam is one of developing countries strongly committed with financial inclusion, with strong

infrastructure for digital finance (internet, smartphone) and golden aged population. The government has

requested State Bank of Vietnam and other related agencies to develop the National Financial Inclusion

Strategy; fintech steering committee has been set up in March 2017. Some digital finance activities have

been carried out in Vietnam since 2011 (Economic Times, 2017). However, few problems remain such as

insufficient legal framework, the potential risks of default, and the low awareness of people on financial

inclusion have hidden the development of financial inclusion in Vietnam. Therefore, this paper is aimed to

(i) summarize the importance of fintech for financial inclusion; (ii) analyse the legal framework and actual

operations of fintech in Vietnam, assessing the opportunities and challenges of this activity; and (iii)

propose some recommendations for better application of fintech for promoting financial inclusion.

2. Literature review on concepts and roles of fintech for promoting financial inclusion

According to World Bank (2017), financial inclusion means that “individuals and businesses have access

to useful and affordable financial products and services that meet their needs – transactions, payments,

savings, credit and insurance – delivered in a responsible and sustainable way”. From ADB (2017)

viewpoint, financial inclusion means that “all segments of a population – even those with the lowest

incomes – can access formal financial products and services. The financially excluded comprise both the

unbanked and the underbanked”. CGAP (2017) consider financial inclusion as “households and businesses

have access and can effectively use appropriate financial services. Such services must be provided

responsibly and sustainably, in a well regulated environment”.

Financial inclusion has been becoming one of priority for policymakers, regulators and development

agencies globally with the two milestones: (1) identified as an enabler for 7 of the 17 Sustainable

Development Goals defined by United Nations; (2) The G20 committed to advance financial inclusion

worldwide and reaffirmed its commitment to implement the G20 High-Level Principles for Digital

Financial Inclusion. From 2010 to now, more than 55 countries have committed to financial inclusion, and

more than 30 have either launched or are developing a national strategy (World Bank, 2017a).

Digital finance – the application of digital technology to finance (or fintech) is considered as one of key

pillars to financial inclusion, because of its significant roles to promoting financial inclusion in five key

aspects as followed (ADB, 2017a):

• Enable fast, low-cost, and convenient customer identification and verification processes – especially

when powered by unique national identification numbers, a realtime verification infrastructure, and

supporting regulatory frameworks such as tiered know-your-customer (KYC) schemes.

•Meaningfully alter the economics of the supply side by addressing last-mile distribution and servicing

issues through low-cost, widespread, digitally-enabled points of physical access such as mobile phones

and point-of-sale (POS) devices.

• Prevalent throughout the payments value chain and ecosystem. Digital government-to-person (G2P)

payments and remittance flows can create the initial momentum for electronic payments, thereby

supporting the development of viable supply-side business cases. These can be sustained and further

developed through person-to-all (P2All) 4 payments systems combined with interoperable networks

and open application programming interface (API) platforms.

Authors: Tam & Hanh 13

• Significantly enhance access to credit by using alternative sources of data, such as payment

transactions and telecoms data, as well as analytics. These improve customer profiling, credit risk

assessment and fraud detection.

• Savings can be mobilized digitally through alternative, lower-cost origination and distribution

channels and more-convenient product designs, such as mobile wallets connected to savings accounts

and intuitive goal-based savings products. An easy KYC and onboarding process can also contribute.

In World Bank (2017b) analysis, the role of fintech is also presented by easing up financial services

for efficiently and effectively promoting financial inclusion.

Figure 1: Fintech for promoting financial inclusion

Source: World Bank (2017b).

These roles of fintech are more vital, as the industrial revolution 4.0 allows fintech companies to create

more favorable access to the banking- financial services, added more value for customers in using the

services with lower cost and faster time. Developing on the basis of information technology and

telecommunication without needing a network of branches and transaction offices, the fintech services and

products could reach a huge number of people, especially the ones in the rural & remote areas who are

facing difficulties to access formal/traditional banking services (Nguyen Kim Anh, 2017).

3. Fact findings of fintech for promoting financial inclusion in Vietnam

3.1 Legal framework of fintech for promoting financial inclusion

Vietnam has set up the basic regulations for digital finance, including non-cash payments and intermediary

payment services (e.g. digital wallet services) since 2010. The Overall plan for digitalizing payments were

initiated in the promotion of e-commerce in Vietnam with the Prime Minister’s Decision No. 1073/QD-

TTg in 2010 on approving the master plan on e-commerce development during 2011-2015; and the

Government Decree No. 52/2013/ND-CP on e-commerce.

In November 2012, the Government of Viet Nam issued Decree 101/2012/ND-CP directing the issuance of

regulations for non-cash payments. Circular 36/2012/TT-NHNN and Circular No. 39/2014/TT-NHNN

were eventually issued in December 2014, providing guidelines for intermediary payment services. On July

1, 2016. Decree 80/2016/NC-CP was issued amending Decree 101. Subsequently, Circular No.

20/2016/TT-NHNN was issued amending Circular No. 39.

The digitalizing payment ideas are clearly stated in the Government Decree No. 101/2012 on non-cash

payment and Decree No. 80/2016 amending the Decree No. 101 above. Of which, non-cash payment can

be carried out by both credit institutions (including microfinance institutions) and intermediary service

Business & Social Sciences Journal (BSSJ) 14

providers who have licenses from the State Bank. The plan for implementing Government Decree No.

101/2012 has been made further steps by the State Bank of Vietnam (SBV) Circular No. 39/2014/TT-

NHNN on intermediary payment services. Government also limit transactions paid in cash in the

Government decree No. 222/2013/ND-CP to promote more non-cash payment (e.g. no cash payment for

organizations using State budget source, securities transactions via Stock Exchanges, enterprise capital

contributions and purchases – articles 4,5,6)1.

In addition to issuing regulations, SBV has set up the Fintech Steering Committee in March 2017, including

all key personnel in SBV functional departments and National Payment Corporation of Vietnam (NAPAS).

This committee is responsible for formulating and submitting to SBV Governor the annual action plan of

the Committee; advising Governor the solutions to complete the ecosystem including a legal framework to

facilitate the performance and the development of Fintech companies in Vietnam in line with guidance and

orientation of the Government; discussing and submitting to SBV Governor several crucial substances

relating to strategy, plan for accelerating the development of Fintech in Vietnam, and conducting other

tasks as authorized by SBV Governor (SBV, 2017a).

The Government also requests SBV to be the key player (working with other stakeholders) in formulating

the National Financial Inclusion strategy. In this strategy three key pillars are: diversified financial products

& services; enhanced capacity of financial institutions; consumer protection and financial literacy (Ha Xuan

Dinh, 2017). Fintech is one of the most important methods in dealing with all these key pillars.

3.2 Fintech transaction volumes and providers in Vietnam

Although fintech is quite new in Vietnam (the oldest fintech firm was established in 2005 – named

VTPay)2, the transaction volumes are significant with various and potential providers to come. As per

Statista (2017), Vietnam fintech transaction amount is estimated to reach US$ 7,259 millions in 2017, with

annual growth rate of 17.5% in period 2017-2021. The largest segment is “digital payment” with total

1 Following are some of the salient features of these regulations that are relevant to the digital

finance issue:

(i) Types of intermediary payment services include (SBV circular No. 39, article 2): Two types: service of

provision of electronic payment infrastructure (include financial switch service; electronic clearing

service; electronic payment gateway service); and support service for payment services (include cash

collection and cash payment services; support service for wire transfer; digital wallet service).

(ii) Banks, MFIs, PCFs are allowed to provide non-cash payment services (money transfer, payment

authorization) to clients who may or may not have payment accounts (Decree 101: Article 3, Section 3

and Article 14, Sections 3 and 4).

(iii) Non-bank organizations may apply for an SBV license to provide intermediate payment services (e.g.

digital wallets), with the following requirements: Certificate of business registration or establishment

license issued by competent state authorities; Charter capital of 50 billion VND; and required human

resource and technical infrastructure for the provision of the intermediary payment service as prescribed

by the SBV. (Circular 39 Article 4, Section 2 and Decree 101, Article 15, Section 2)

(iv) Intermediary payment service providers must comply with the internal rules and regulations of the SBV

on risk management, electronic banking operations, money laundering, guarantee of safety and security

of IT systems and the establishment, use and archive of electronic documents as provided for in the Law

on electronic transactions (Circular 39, Article 7).

(v) Digital wallet service providers must open a payment guarantee account, which shall at any time contain

the total balance of e-money of all clients (Article 3, Sec. 6). .

(vi) Digital wallet service providers are not allowed to: issue more than one digital wallet to a payment

account of a bank client; extend credit to customers using digital wallet; and pay interest on balances of

digital wallets1 (Circular 39, Article 9, Section 1a, 1b).

(vii) Money in the digital wallets should be deposited and withdrawn (cash-in, cash-out) through the payment

accounts of customers in a bank (Circular 39, Article 9, Section 3).

(viii) Digital wallet users are required to have payment accounts in a bank. Prospective users that do not have

one yet are required to open a payment account prior to usage. (Circular 39, Art. 13, Section 1e).

However, in reality, users do not necessary to have bank accounts.

2 http://fintechnews.sg/vietnam-fintech-startups/

Authors: Tam & Hanh 15

transaction value of USD 7,252 millions (99.9%). This is one of the very few best fast growing sectors, and

one of the hottest investment trend for startups in Vietnam.

Total fintech firms in Vietnam is estimated to be almost 40, of which majority are mobile payment

(52%) with the most founded Start-ups in Vietnam.

Figure 2: Distribution of Fintech companies in Vietnam by activities

Sources: Author calculation from (Chiristian Konig, 2017), Lien Viet Post Bank (2017), Angela Scott-

Briggs (2017)

There is also a possibility of foreign fintech giants joining the Vietnamese market in the future,

such as Apple Pay, Samsung Pay, Facebook Payments, Google Wallet and Amazon Payments. However,

these penetrations have not yet done (VNS, 2017).

4. Result of selected e-wallet projects implemented in Vietnam To accelerate the mobile payment part in fintech, SBV through its Payments Department launched

three pilot programs3 to test the feasibility of using e-money and agents that will enable banks to minimize

costs in servicing low value accounts and ease accessibility of financial services to the poor and low-income

clients even in remote rural and mountainous areas. The three pilot programs are briefly described below:

Table 1: Details of 3 pilot e-wallet programs

Military Bank-Viettel Vietcombank - MOMO PG Bank- Petrolimex

Type of model Bank-led Non-bank led Bank-led

E-money issuer Military Bank MOMO - Service

provider

PG Bank

Partner Telco Viettel MOMO TelCo partner None

Link to a bank

account

Not necessary Not necessary Not necessary

E-money stored

limits

None None None

Per transaction

limit

VND 20 million None mentioned VND 20 million

Fees charged Transaction volume-

based

From VND 10k to 60k.

Volume-based; higher for

non-bank account client

Allowed cash-in

and cash out

points

10’000 Viettel transaction

offices + 20’000 mobility

agents for remittances.

4000 M-service agents 2000 Petrolimex gas

stations + 18 PG branches

and 81 transaction offices.

Transactions

allowed Money transfers and all

types of payment services.

P2P, P2B.

Money transfers and all

types of payment services.

P2P, P2B.

Money transfers - P2P.

3 Aside from the three pilot programs, Lien Viet Post Bank (LVPB) also plans to launch its e-wallet by middle of

these month. VBARRD also has a license for e-wallet but its operations is still very minimal.

10%

3%

5%

3%

8%

8%

8%

58%

Crowd funding

Lending

Data management

Comparison site

Bitcoint block chain

Personal Finance

mPOS & facilitators

Mobile payment

Business & Social Sciences Journal (BSSJ) 16

Transactions to

date About 800 billion VND

worth of transaction per

month provided to about

1 million clients.

1 million customers with

e-wallet; 1.5 million for

over the counter services

at MOMO outlets

Total volume of transaction

to date is 167 billion VND

serving about 44,000 clients

Challenges/constr

aints - Not yet sustainable and

profitable;

- Annual SBV licensing

barrier to investments;

- Banking regulations not

relevant to small

transaction clients;

- Low transaction limits

raising costs for clients.

- Not yet sustainable and

profitable;

- Annual SBV licensing

barrier to investments;

- Small and costly agent

network;

- Lack of technology

education and financial

literacy of the population.

- Not yet sustainable and

profitable;

- Annual SBV licensing

barrier to investments;

- Low transaction limits

raising costs for clients.

Source: ADB (2016).

Among these three projects, Momo is the outstanding one, and it has attracted the a lot of

mainstream attention for most recently raising capital under a Series B for US$28 million from Standard

Chartered Private Equity (SCPE) and Goldman Sachs in 20164.

In addition to these three pilot projects, Lien Viet Post Bank issued the Vi Viet e-wallet from 2011.

With the supports from UNCDF, Vi Viet e-wallet has added bank-led high value products with low-cost

access to savings and overdraft loans or micro-loans to women, apart from existing services in the market:

air-time top-ups, peer-to-peer remittance, utility bill payments, insurance premium payment, online

shopping. Up to March 2017, Vi Viet e-wallet has reached more than 1.5 millions customers, with more

than 2.1 millions transactions, with VND 2,403 billions volumes. Vi Viet e-wallet offers customers a total

of 150 services. With the potential of the biggest bank in Vietnam in term of network (34

LienVietPostBank’s owned Branches and Transaction Offices; 1,067 Postal Transaction Offices; 5,527 Vi

Viet merchants; 614 TOs of Vietnam Bank for Social Policies (VBSP); 10,000 post offices in all 63

provinces/cities of Vietnam) (Lien Viet Post Bank, 2017), this could be one of the major players in the

fintech market for payment.

5. Opportunities and challenges of fintech for promoting financial inclusion in Vietnam

5.1Opportunities

The opportunities of fintech for financial inclusion in Vietnam are enormous with high prospects.

First, from the demand side, Vietnam is considered as the very potential market for fintech because

of the following reasons: (i) Vietnam is the 14th most populous countries in the world with more than 95.2

millions, in the “golden-age” of population with 69.3 % within the age of 15-64 (World Meters, 2017), and

the very high mobile subscription rate – 142.9% of population (N.A., 2016); (ii) the proportion of mobile

smart phone penetration by age group are very high (62% for age 15-25; and 63% for age 25-35); (iii) more

and more people in Vietnam participate in mobile online activities; (iv) the remittance activities have been

developed significantly, especially the oversea remittance, which increases the demand for money transfer

overall (Chiristian Konig, 2017).

Table 2: Prosperous future of Vietnam market for fintech from demand side

Age 15-25 Age 25-35 Age 35-44 Age 45-65

Mobile/smart phone by

age

62% 63% 47% 27%

Product

information

Email checking Search Social networks

Mobile online activities 24% 38% 45% 46%

2013 2014 2015 2016

4https://www.dealstreetasia.com/stories/vietnam-fintech-app-momo-attracts-28m-from-standard-chartered-pe-

goldman-sachs-34441/

Business & Social Sciences Journal (BSSJ) 18

Most of people just consider financial services means credit services, and most of payment transactions are

still via cash.

7. Policy implications of fintech for promoting financial inclusion in Vietnam

To overcome the challenges and grasping the opportunities of fintech for better and more

effective/efficient in promoting financial inclusion in Vietnam, some recommendations to stakeholders are

proposed as below:

To fintech companies: (i) Utilizing the technology for expanding network to ensure good access

of potential customers to the e-financial services; (ii) Ensuring the high quality of services in

term of safety with reasonable costs to gain more trusts and satisfactions of customers; (iii)

Using more PR methods, particularly via worth-of-mouth, story-telling, and other promotion

campaigns to allow customers knowing about e-financial products more; (iv) Training the

agents more thoroughly and choosing the agents carefully to avoid the possible “agent-principle

problems”; and (v) compete, but the same time, cooperate with banking sector to utilize their

potential customer bases and market.

To commercial banks: (i) Taking into account the seriousness of fintech investment at the

banks; consider this as the best chance for downscaling in the mass retail market. Banks can

have a separate fintech company, a fintech subsidiary, a joint-venture with outsider, or using

other fintech companies as banks’ agents; (ii) Utilizing the current strengths of reputation,

network, customer base and equity to develop suitable fintech products for financial inclusion,

focusing on mass retail financing demands; (iii) Cooperate and coordinate with selected strong

fintech firms in developing new e-financial products for this particular market segment; (iv)

Ensuring the quality and risk management to avoid losing reputation.

To State Bank of Vietnam: (i) Improving the legal framework of fintech for financial inclusion,

particularly the agent banking, governance and management, data privacy and consumer

protection, risk management, anti-money laundry, etc; (ii) Developing the supervision and off-

site examination manuals for fintech; (iii) Making the Fintech Steering Committee and Fintech

Working Group work efficiently and effectively; (iv) Putting the fintech content as the driver

for financial inclusion in formulating and implementing the upcoming National Financial

Inclusion Strategy; and (v) accelerating the financial literacy campaign nationwide.

To other stakeholders (such as Ministry of Education and Training, Ministry of Information

and Technology, Ministry of Labor, Invalids and Social Affairs, Ministry of Agriculture and

Rural Development, and others): (i) Improving the internet and smart phone using quality; (ii)

Actively implementing and participating in financial literacy campaign via several aspects; (iii)

Utilizing social media (facebook, instagram, webs) for lowering the cost and increasing the

access of people to key information relating to financial inclusion, fintech, e-wallet, money

transfers, etc; (iii) Transfering the G2P into using all non-cash payment and encourage the final

users/beneficiaries to use e-wallets.

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Authors: Tam & Hanh 19

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Business & Social Sciences Journal (BSSJ) 20

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