Vietnam’s government has issued a resolution to create a regulatory sandbox for financial technology as it looks to spur on the sector’s development.
Sandboxes allow start-ups and other new fintech-based initiatives to conduct ‘live’ experiments under regulatory supervision. They are becoming increasingly popular worldwide as national authorities look to encourage innovation and competition in financial services provision.
The South-east Asian nation’s government, which last year launched a digital transformation programme, has officially tasked the State Bank of Vietnam (SBV) with the sandbox’s development and assigned the central bank ‘prime responsibility’, according to Resolution 100/NQ-CP ‘regarding the approval of the proposal to develop a decree on a controlled testing mechanism for financial technology activities’.
The SBV, which will ‘co-ordinate with relevant ministries and agencies’ to gather input and provide a report to the government in the fourth quarter of this year, already released a draft decree [Vietnamese language] in June 2020 proposing a fintech sandbox framework for public comment. The central bank cautioned that the lack of a regulatory framework could bring about a variety of risks, such as financial exclusion, security and data breaches, money laundering and financing of terrorism.
After an initial SBV assessment, eligible entities would receive a registration certificate issued by the prime minister, according to the draft. In order to participate, an entity must either be a credit institution, an independent fintech company or a fintech company partnering with the banks. The decree defines eligible fintech organisations as organisations that are not banks, established in Vietnam in accordance with the ‘Law on Enterprises’ and directly provide some banking-related services based on fintech solutions and/or fintech solutions supporting the activities of credit institutions. Programme duration would range from one to two years.
Private-sector fintech growth
Like most countries, Vietnam – which has a population of about 97 million – has seen strong private-sector fintech growth during the Covid-19 pandemic, with digital payments and e-commerce activities booming.
Government policy to promote financial inclusion and a cashless society are also among the reasons for fintech’s surge, according to an ISEAS–Yusof Ishak Institute (formerly Institute of South-east Asian Studies) 2021 report, ‘Vietnam’s Evolving Regulatory Framework for Fintech’.
Electronic payments increased by 76 per cent, with total transaction value increasing by 124 per cent in the first quarter of 2020 compared to the same period in 2019, according to the ‘Vietnam Fintech Report 2020’ by Fintech News Singapore. Visits to e-commerce apps hit 12.7 million in the second quarter of 2020 when social distancing was imposed – a rise of 43 per cent.
The country, whose capital city is Hanoi, is currently home to more than 120 fintech start-ups covering a range of services that include digital payments, alternative finance, wealth management and blockchain. From 2017 to 2020 the market size and number of start-ups operating in the fintech environment more than tripled, according to the Vietnam Startup Report issued by Korean venture capital firm Nextrans in April. Market growth will remain strong, Nextrans forecasted. Ninety-four per cent of the country’s banks are investing in fintech this year and 42 per cent consider digital banking a priority.
Vietnam has also emerged as a cryptocurrency hotspot, topping the 2021 Chainalysis Global Crypto Adoption Index, a second iteration of the US-headquartered company’s efforts to measure grassroots cryptocurrency adoption worldwide.
Highest ‘unbanked’ rate in South-east Asia
Despite its fintech growth, Vietnam has a relatively large proportion of individuals and small- and medium-sized enterprises that remain unbanked or underbanked. Sixty-nine per cent of adults do not have bank accounts, the highest rate in South-east Asia, according to World Bank data from 2018. The rate of cash transactions (as of 31 December 2019) was also relatively high (80 per cent).
The government’s digital programme – the ‘National Digital Transformation Program to 2025, With a Vision to 2030’, approved by the prime minister in June last year – includes the facilitation of financial inclusion among its objectives.
The programme aims to realise ‘the dual goals of forming a digital government, a digital economy, and a digital society, while simultaneously establishing digital businesses that have a global competitive capacity’, according to a government press statement. Specific targets include the digital economy contributing 20 per cent to the country’s economy by 2025 and 30 per cent by 2030.
The programme also aims for Vietnam to be in the top 50 countries on the United Nations’ ICT Development Index by 2025 and that its fibre-optic network infrastructure will reach more than 80 per cent of households by 2025. Both 4G and 5G mobile network services and smartphones are to ‘be universalised, while more than half of the country’s population will be making use of electronic forms of payment’.
‘UK regulatory sandbox shifts to “always open” status’ – our story (25 Aug 2021) on the UK Financial Conduct Authority’s regulatory sandbox switching from having a cohort-based approach to ‘always open’ status
‘Italy launches fintech sandbox’ – our story (19 July 2021) on Italy’s regulators announcing that a decree launching a sandbox and establishing a ‘fintech committee’ had entered into force
‘Greece launches EU-funded regulatory sandbox in fintech push’ – our story (15 June 2021) on Greece’s central bank launching a sandbox funded by the European Union via its Directorate-General for Structural Reform Support and implemented in collaboration with the European Bank for Reconstruction and Development
‘Spain’s sandbox welcomes first fintech projects’ – our story (25 May 2021) on Spain’s newly established sandbox