Foreign investors that are unable or unwilling to wait for the foreign ownership threshold (currently capped at 30 per cent) in the banking sector to gradually increase to enter the market are now taking detours to get into the industry, by seeking opportunities to partner up with fintech companies in the country.

According to Michael DC Choi, deputy general director of the Korea Trade-Investment Promotion Agency (KOTRA), South Korean investors are looking for opportunities to invest in local fintech companies, on top of options to invest in Vietnam’s banking sector.

Choi said that investors from South Korea and other markets see “a huge potential for fintech companies to grow in this country”, taking advantage of the fact that 70 per cent of Vietnam’s population is still unbanked and at least half of the total population has access to the internet.

This could mean good news for the local fintech community, as he revealed that deals in the field are currently being reviewed by major South Korean financial institutions, including Shinhan Bank and KEB Hana. “They’re all looking at and studying opportunities for investment in local fintech companies,” Choi confirmed.

Choi also told VIR that while South Korean financial services companies are seeking to become players in the local fintech scene, South Korean banks, those with a presence in Vietnam as well as those seeking a way to enter the market, are looking at fintech companies to add value to their banking system.

Looking for a piece

When local mobile wallet and payment app MoMo received some $28 million worth of investment from Standard Chartered Private Equity and Goldman Sachs back in 2016, it was hailed as a rising star of Vietnamese fintech companies for attracting attention from foreign investors. Since then, local fintech has opened to welcome the next generation of fintech players like Weezi Digital, KIU, Wecash, Enablecode, Instant.vn, and Tradle, who were announced as winners of the recent Fintech Challenge Vietnam competition.

Local banks want a piece of them as part of their digital banking strategy growth, evident in the co-operation between these winners and local banks like BIDV, Vietnam International Bank (VIB),

TPBank, VietinBank, Vietcom- bank, and VPBank. Foreign banks want to get to know their apps as well and use them to tap into the underbanked population.

In a previous interview with VIR, Shin Dong Min, CEO of Shinhan Bank Vietnam, said that the bank had been in contact with fintech companies like MoMo, VNPay, and Payoo about the possibility of collaboration.

Min stressed that incorporating digitalised tools in retail banking is the way to go for the bank in Vietnam’s market. “This can be the area to incorporate the digitalisation trend that we see happening in the banking sector. For South Korean banks with solid know-how on digitalisation, investing in retail banking with digital features will be an advantage.”

Going the digital route has become a new norm for many players, as seen in the case of Commonwealth Bank of Australia (CBA), which, upon saying goodbye to its Ho Chi Minh City branch last year, chose to focus on operating as a research and development hub that specialises in providing solutions and apps for e-banking for VIB (which took over CBA’s local unit) and other local banks with an appetite for digitalisation.

Final destination

Investing in local fintech companies or possibly fintech arms of local banks is seen by some foreign investors as a detour to get to the actual destination they are aiming at: setting a foot into the operational unit of a local bank and waiting for an opportunity to arise in the future to acquire a bigger slice of the bank, if not the whole institution.

“Getting through this niche market is becoming a trend for foreign players, as once they are in, they can work with their partners and get to know them. Then, when the government decides to divest state shares in a state-owned bank or commercial banks that desire to increase their charter capital, the foreign investors can take the opportunity to increase their holdings there or take over the whole corporation should it be allowed,” said Tran Dinh Dung, head of the Underwriting and Financial Advisory Department at Saigon-Hanoi Securities.

According to Dung, with the advent of the digital age, physical banks could also be replaced by digital institutions, where transactions are conducted through a smartphone. This means that those companies that take bold steps ahead with their digitalisation platforms can take advantage of this trend.

Whether the market will see more mergers and acquisitions activities between foreign financial institutions and local fintech companies, as well as between the former and arms of local banks that engage in digitalisation or fintech, depends on the strategy of the investors themselves.

Dung also added that he expected the ownership limit for foreign players in the field of fintech to be more lenient than the one imposed on the banking sector, so more foreign investors could invest in the field either with a standalone fintech company or a fintech unit under a bank.

Foreign investors will still weigh their investment decisions carefully. According to HSBC Vietnam’s CEO Pham Hong Hai, some international financial institutions choose not to invest on a wide scale, but rather invest intensively into areas of strengths as well as corporate governance and risk management in order to ensure sustainable development. “Enhancing customer experience with digitalised features will also be an area of focus for banks to invest in,” he said.

VIR