Fintech: Which Limit Is Reasonable For Foreign Investors?

10:50:21 AM | 30/8/2019

According to a draft decree that replaces Decree 101 on non-cash payment, foreign Fintech investors are allowed to hold 30%, 40% and less than 50% of interests. Mr. Phung Anh Tuan, Vice President and General Secretary of the Vietnam Association of Financial Investors (VAFI), Director of VCI Legal Law Firm, said that, with such limits, it is difficult to draw big or professional investors and institutions.

Powered by scientific and technologic development, especially mobile technology, financial technology (Fintech) has made tremendous progress, changed the face of the financial and banking system, and made business and consumption transactions more convenient.

However, Fintech management policies have not kept up with the rapid technological evolution, resulting in many shortcomings that need to be addressed.

Fintech makes financial transactions more convenient and handier for a large number of users. Therefore, it also fuels concerns that Fintech may be abused for illegitimate activities.

Therefore, in the past time, authorities have taken actions to tighten Fintech management by introducing a number of draft legal regulations restricting foreign investment into the intermediary payment field or limiting transaction value, e-wallet accounts and declaring user identity information.

According to the State Bank of Vietnam (SBV), placing a 30% cap on foreign investments in the intermediary payment sector, similar to that of the banking sector, was meant to ensure the stability and security of the national monetary policy, avoid manipulation by foreign investors, ensure national sovereignty in banking and financial operations, and support domestic investors to seize the opportunity. However, VAFI said that Fintech now needs foreign funds to invest in technology, markets and human resources. Therefore, foreign investment restrictions will hinder Fintech development.

Mr. Tuan said, the Government has allowed wholly foreign banks to set up branches in the country and has considered relaxing foreign ownership limits at commercial banks. Therefore, it should not take current investment limits on banking as a precedent for Fintech.

Moreover, current barriers do not work well because foreign investors have many ways to circumvent them by establishing domestic frontier organizations or asking Vietnamese people to do this for them. Hence, other management methods should be taken into account.

In new-generation trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU - Vietnam Free Trade Agreement (EVFTA), Vietnam is committed to opening up a wide range of financial and banking sectors, including payment and money transfer services, provision and transfer of financial information, financial data processing and related software catered by other financial services providers, consultants, intermediaries, and other support financial services. So, “policy-makers should not violate Vietnam's international commitments to avoid unexpected consequences like recent investor-state dispute settlement lawsuits (ISDS) in foreign countries,” Mr. Tuan said.

Mr. Varun Mittal, Vice Chairman of the Singapore Fintech Association and Head of Fintech Consulting Services in new markets at Ernst & Young Singapore, said Vietnam has substantial potential to develop Fintech. Foreign Fintech investment limits at 30% or 49% caused particular concerns because Fintech business development is still largely relying on foreign investment. Fintech startups all need investment in technology, markets and human resources while domestic resources are not sufficient to fill up. In addition, foreign investment allows Vietnamese businesses to access new technological achievements, especially in big data or artificial intelligence (AI), which are particularly important to build products and solutions for Fintech.

If authorities are persistent with precautious approach and open the door little by little, Vietnamese Fintech businesses will fall back into the average group and cannot reach its full potential as expected. Therefore, if they want to make Fintech enterprises of regional scale, they must help them develop, scale up, access capital and have flexible management to not only serve Vietnam but also become an Asian giant.

According to economists, Vietnam needs to strengthen administration to create a fair business environment, to improve the security and safety of financial transactions, and to protect user rights. At the same time, policymaking should not, because of some particular cases, impose upsetting restrictions and constraints on a majority of users that wipe out the positive significance of Fintech contributions to digital economy development and the Government-backed cashless payment policy.

Mr. Vo Tri Thanh, former Vice Chairman of the Central Institute for Economic Management

The Vietnamese government is determined to foster the digital economy and facilitate Fintech development. However, policymakers are quite slow. In the banking and financial sector, they often tend to think about risks first because they fear spillover effects. For Fintech, there is a need for a flexible risk management mechanism to quickly adapt to technology and market movements.

Vietnam has open policies to unlock some financial sectors, allowing the establishment of a wholly foreign-owned finance, securities and insurance companies. Thus, there is no reason to worry much about controlling Fintech if it has monitoring mechanisms.

For service sectors, as in other countries, the government is prudent to open 2-3 fields for foreign investors. For Fintech, basically, we already have the sandbox mechanism. Even though there are risks or changing conditions, impacts will not be too big.

Mr. Nghiem Thanh Son, Deputy Director of Payment Department, SBV

The Government of Vietnam expects to have banking services accessible to 70% of the population. The State Bank of Vietnam (SBV) is executing solutions to achieve this goal.

In the next five years, the market will witness many new appearances and many disappearances in the Fintech sector. This is a market rule. Given ongoing developments, we will certainly have unicorn companies which have a nominal value of more than US$1 billion. Currently, potential businesses have attracted a lot of money from foreign investment funds. Hopefully, in the next five years, invested enterprises will have a larger development scale. Authorities like the SBV will have policies and solutions to improve and develop sustainable and competitive Fintech ecosystem.

Mr. Ngo Van Duc, Deputy Head of Payment System Monitoring Bureau, Payment Department, SBV

Currently, according to unofficial statistics from the SBV, nearly 150 Fintech businesses are operating in many different areas, mainly in payment sector, and 30 intermediaries are certified by the SBV. In addition, Fintech businesses are involved in credit lending and banking solutions like electronic authentication, blockchain application and personal financial services.

Payment is the main activity of Fintech. There are 30 licensed payment intermediaries, mostly electronic wallets (27), electronic payment gateways (26), representative collection and spending (26), and electronic money transfer (9). Moreover, payment is also very strong at commercial banks which actively apply new technologies.

In the past 2-3 years, payment services delivered via mobile phones and internet channels have developed strongly. According to data collected annually, internet transactions grow in both number and value. QR code payment services are developed by 24 commercial banks and adopted by 50,000 points of sales.

Tu Anh