Paige Hennessey attended FAHS from 2009 to 2013. She was one of the top academic students of her year. The following paragraph outlines her recent experiences.
I was selected for an internship at KPMG Vietnam in Ho Chi Minh City for three months over the summer. The internship was all expenses paid covered by the Asia New Zealand Foundation who work to create lasting relationships and connections between Asia and New Zealand. During my internship I worked in Internal Audit, Risk and Compliance services, advising Vietnamese firms on related issues. The internship was an incredibly wonderful and life-changing experience and I used my newfound knowledge of Vietnam and the banking industry to pen an article about my observations of banking and FinTech in Vietnam. I am currently finishing up some travels around Asia before returning to Victoria Uni for my fifth year studying a conjoint LLB/Bcom majoring in Finance and Accounting.
Below is Paige’s article.
Over the last 10 years, Vietnam’s growth continues to accelerate following a long line of Asian predecessors as it breaks into the lower ranks of middle-income countries. With foreign direct investment (FDI) increasing 44% year-on-year according to the Ministry of Planning & Investment, Vietnam appears set to face economic growth of up to 6% in 2018.
With continued growth and prosperity on the horizon, Vietnam has become a hub of opportunity, especially in the space of FinTech and innovation. With one-quarter of its 92 million population under the age of 25, Vietnam has real potential to harness disruptive technology for mainstream use, particularly in terms of financial services and the banking sector.
Vietnam’s Banking Landscape
Choosing a bank in Vietnam is no easy feat with over 40 banks competing for your custom. Bank presence in major cities such as Ho Chi Minh and Hanoi is huge, with major banks having on average between 200-400 branches throughout the country. The problem is that this largely brick-and-mortar presence is doing little to capture customers, as of 2016 only 20% of Vietnamese owned a bank account according to PwC Vietnam. Banks in Vietnam face two main challenges, capturing customers and providing the right services.
Whilst banks maintain their presence in the city, they have low penetration rates in rural provinces where over 60% of the population live. The banking sector in Vietnam is traditional, relying on paperwork and face-to-face interactions to open bank accounts. This is contrary to an informal lifestyle in the provinces where literacy rates are low and almost all transactions are cash based. It is not just rural provinces where banks are failing to capture customers, 36% of people don’t see a need for a bank account and an additional 18% think that credits cards are too complicated to use. The root of these problems stem directly from Vietnam’s strong cash culture – it is a cultural preference to use cash because of its convenience and tangibility. In addition to this, older generations are generally distrustful of technology, they fear losing their money through scams or other unknown dangers.
The other major challenge is that banks are not focusing on serving their future customers. 23 million people in Vietnam are under 25 and this major portion of the economy has grown up with technology playing a key role in their lives. More than ever millennials rely on their phone for everything, the convenience of doing it from their phone often outweighs a number of other factors and has directly contributed to the success of businesses such as Uber and Grab in Vietnam. Emphasis on brick-and-mortar stores is contrary to the technology steered future and the clear evidence that a growing number of people use mobile and internet services as their primary banking contact point. Banks are seemingly continuing to operate inefficiently, opening branches with high overheads and operating costs when they should be focusing on investing in the development of a user-friendly, scalable mobile banking application.
The Perfect Storm
With traditional banking not quite cutting it, the changing demographics of Vietnam is creating the perfect storm for FinTech to succeed in. Whilst bank account ownership rates continue to fizzle, investors in e-wallet and online payment infrastructure are being made welcome in one of the world’s top five fastest growing information technology countries. More than half the population is already online with 50 million smartphone users projected for end of 2018. According to research from DI Marketing, for 9 out of 10 smartphone users, the device is their sole means of accessing the internet, making smartphone applications more important than ever. With data available in every part of the country at low costs, smartphone accessibility is a key advantage for FinTech innovators looking to compete alongside traditional banks.
E-wallet Momo is a great example of a company harnessing FinTech to capture the market. Started in 2013 by M_Service, Momo recently raised $28 million in its second round of funding from Standard Chartered Private Equity (SCPE) and Goldman Sachs. Momo is a mobile, electronic wallet and payment application for iOS and Android. Its customers are able to make nationwide transfers between friends and family, pay over a 100 different bills and purchase a variety of items from clothing to movie tickets. Momo’s e-wallet can be loaded through a bank account, MasterCard or Visa, or with cash at one of its 3000 outlets nationwide. With a significant number of outlets and pre-paid MasterCard and Visas readily available, Momo is able to remove banks from the equation completely. Momo has seen double-digit growth in the last two years and has over 5 million users. As of December 2017 Momo and Uber signed a strategic agreement that enables passengers to pay for rides using Momo. Significantly, this is the first partnership Uber has undertaken in Southeast Asia. According to Uber’s Brooks Entwistle, the region has a unique payment ecosystem that must be recognized to ensure the success of Uber. The partnership signifies Momo’s growing market presence in Vietnam, gaining a strong foothold in a competitive market.
A step further than mobile payments is Timo, Vietnam’s first digital bank. Timo is a bank with no paperwork, no queues and no branches – sort of. Regulations require that any bank offering financial products must obtain a customer’s identity in-person before they are able to open an account. Thus Timo’s only physical presence in Ho Chi Minh City is a café called the ‘Timo Hangout’. The space is a fully operational coffee shop where any customer can frequent to drink coffee or surf the internet. Those who want to open an account can sit with a Timo Customer Representative and complete the account opening process in around 10 minutes. Timo opens new accounts with zero deposits and offers an app that customers can use to track their transactions. Given Vietnam’s huge coffee culture, Timo have excelled in creating a space that makes opening an account feel like a coffee date instead of a tedious task.
Timo is fresh on the scene but has been making some seriously smart plays, with $5 million in seed capital from private investors they have partnered with VPBank to become their digital sidearm. A key strategic move, this allowed them to piggyback off VPBank’s status as a registered bank, allowing them to provide users with typical products such as checking accounts and credit cards. Timo has taken a different approach to competing in the market, they can’t compete against traditional banks because branch presence is huge creating high barriers to enter the market. Instead, Timo looks to compete on the basis of customer experience; giving millennials exactly what they want, anytime banking and payment services direct from their pocket.
Barriers and Challenges
It would be unrealistic to picture Vietnam without banks, but to envision a country with innovation and collaboration to provide customers with what they want – Vietnam may not be that far off. Competition in the sphere is intense, banks now have to complete amongst each other as well as against these start-ups. FinTech’s aren’t without challenges as well, they need to capture the trust of older generations including government officials. Funding is a key pain point for a new project and the support of the government will see the industry flourish. In addition to this mobile payment in Vietnam’s FinTech scene is by far the most popular. The market is crowded and there are still too few users, competition has increased ten-fold with large competitors such as Alipay and Samsung Pay entering the market late 2017. A barrier for all financial firms is the culture of Vietnam, who stands out in this increasingly crowded market will largely turn on consumer confidence.