Why Vietnam’s fintech sector is resilient

Vietnam is one of the largest markets in Southeast Asia with a population of more than 90 million, but in terms of fintech development it remains somewhat nascent. In 2023, fintech funding fell 84% to just US$35.3 million, according to data compiled by research firm Tracxn, a significant decrease from 2022’s US$227 million. However, the fall in funding was consistent across most of Asia last year given unfavorable market conditions. The long-term outlook for Vietnam’s fintech industry remains positive, and it is in the process of rolling out a regulatory sandbox, while banks are beginning to invest more in digital technology given the competition they face from fintechs.

In April, the State Bank of Vietnam submitted a draft decree to the Vietnamese government on a targeted fintech regulatory sandbox. Three fintech segments will be covered by the sandbox: credit scoring, open application programming interface (API) and P2P lending. While this scope is narrow, perhaps the focus will be beneficial. In other countries, sandboxes have cast a wide net but failed to bear fruit. The sandbox might work well for P2P lending, which often operates in a gray area.

Meanwhile, it is worth noting that a recent report by the research firm Decision Lab suggests that incumbent banks are responding to the challenge posed by fintech startups by investing more in digital technologies. For instance, Grab-backed Moca was the No. 6 digital financial platform in Vietnam in the fourth quarter of 2022, but had fallen out of the top ten within a year, while mobile apps operated by traditional banks had made significant inroads. Banks achieved a 16% penetration rate with the Generation X demographic, 15% with Generation Y and with the youngest consumers, Generation Z, 20%.

We cannot say we are surprised, even if traditional banks in Vietnam are not known for their digital prowess. Vietnam has not yet launched a digital bank licensing regime, though it has permitted the creation of online lenders through partnerships or as subsidiaries of licensed incumbent lenders.

Vietnam’s most prominent fintech unicorn, MoMo, remains dominant, according to Decision Lab’s survey. Across the three market demographics, it has a 40% market share among digital finance platforms. No other app is even close. Among fintechs, ZaloPay is next best with a median market share of about 16%.

That said, it is unclear how profitable MoMo is as the company does not publicly disclose much information about its financials. It is likely that to maintain its leading market share the company has to heavily subsidize customers. At the same time, MoMo continues to talk about being a super app even as that strategy has faltered for many payment apps across the APAC region.

MoMo last announced a large capital injection in January 2021 (a US$100 million Series D round), when the market environment was very different. The company probably needs to tell investors a better story if it expects to close more big funding rounds and pave the way for an eventual IPO.