Fintech future ahead for smarter M&A deals

Japanese multinational air conditioner manufacturing company Daikin Industries last week unveiled its plan to spend over $710 million, including financing and plans for mergers and acquisitions (M&A) over the next four years in Southeast Asia and India to produce core components and smaller air conditioners.

The Osaka head office’s proposed contracts and other investment arrangements up to fiscal year 2025 are set to represent a 60 percent increase over the previous 4-year period’s spending. Daikin Industries chief executive Yoshihiro Mineno said the firm’s funds for further investment and mergers and acquisitions will be used to improve already existing infrastructure in Vietnam.

Although much of the population uses e-payments, there is great potential for an M&A boom in related fintech deals, photo Le Toan

According to KPMG Vietnam, M&A activities in Vietnam slowed in 2022, and the average deal size of a transaction with stated value has decreased from $31.1 million in 2020 to $16.5 million in the first 10 months of 2022.

The first 10 months of this year brought in a total of $5.7 billion, down 47.4 percent from all of 2021 and down 12 percent from 2020. Only 13 mega-transactions over $100 million were recorded in the first 10 months of 2022, down from 22 at the same time the previous year.

Nonetheless, Herston Elton Powers, managing partner of 1982 Ventures, told VIR that the macro and demographic drivers of Vietnam will continue to drive the growth of Vietnamese technology, particularly the fintech and venture capital (VC) ecosystems.

“The next wave of Vietnamese fintech entrepreneurs will start to launch new and sophisticated business models, such as open banking platforms and business-to-business solutions, thereby bringing more potential deals in the fintech industry,” Powers said.

Rising market

Also last week, Japanese megabank Sumitomo Mitsui Banking Corporation (SMBC) struck a deal with Vietnamese fintech firm SmartNet to buy $9.2 million worth of shares. With this deal, SMBC plans to accelerate its Asia franchise expansion and strengthen its regional digital banking capabilities.

SmartNet was founded in 2015 and provides payment solutions in Vietnam with a focus on micro, small and medium-sized enterprises (MSME). The company owns and operates e-wallet SmartPay.

SmartNet Chairman Marek Forysiak said: “We offer financial solutions to MSMEs to help them solve operational problems and grow their business. In addition to payment solutions, we offer various services such as Buy Now, Pay Later (BNPL), flexible consumer credit or installments via card, which is only available from large retail chains. The agreement with SMBC is an important step for us to become the leading service provider platform for merchants.”

In 2021, SMBC successfully acquired a 49 percent stake in Vietnam’s largest consumer finance company, FE Credit, in a $1.4 billion deal – the largest financial M&A deal in Vietnam. SMBC is also rumored as a potential strategic foreign investor in VPBank, the parent company of FE Credit.

Also last week, fintech startup Rootopia announced that it had closed a $1 million investment in a pre-seed round from Genesia Ventures, ThinkZone Venture and BK Fund. Rootopia is a fintech platform that helps students continue their education by taking care of their tuition and fee needs. With the fresh fund, Rootopia intends to continue experimenting and expanding its pool of early user base to achieve the right product-market fit.

Fundiin, a BNPL fintech company in Vietnam, meanwhile, has successfully raised $5 million in a Series A funding round led by Trihill Capital and ThinkZone Ventures. This followed existing investors including 1982 Ventures, Genesia Ventures, JAFCO Asia, Zone Startups Ventures and Do Thu Ngan, former deputy CEO of Sacombank.

Nguyen Anh Cuong, co-founder of Fundiin, said: “While the credit card penetration rate in developed countries ranges from 50 percent to more than 70 percent, this rate in Vietnam is only 5 percent. This shows that Vietnam is a high potential market for BNPL to develop and is also an important solution to promote financial inclusion and prevent loan sharks, one of the most important missions in the National Financial Inclusion Strategy.”

Some foreign fintechs, especially payment companies, are tapping into Vietnam’s lucrative market.

In mid-November, Google Wallet increased its footprint to Vietnam, Thailand and Malaysia. This feature is only available to Visa cardholders in Vietnam, with Mastercard to be included in the coming weeks. Several banks offer this feature, but not all enable it for both credit and debit cards.

Bad regulations

In addition, Vietnamese customers are becoming more accustomed to embedded financial services, encouraging more non-financial businesses to include payment and lending options in their apps.

A recent study by UOB, PwC Singapore and the Singapore Fintech Association showed that awareness of embedded financial services in Vietnam is high, with around 90 percent reporting that they were aware of apps with embedded financial services.

Some embedded finance companies in Vietnam, such as Credify, are also gaining traction and increasing user engagement through improved utility.

According to Huy Pham, founder of the FinTech-Crypto Hub at RMIT University, Vietnam ranks third among ASEAN in terms of digital payment users, with about 59 percent of Vietnam’s population exposed to digital payment, behind Singapore and Indonesia. However, the total transaction value of this sector in Vietnam is only higher than that of Malaysia and is far behind the Philippines and Thailand.

In addition, although nearly 60 percent of the Vietnamese population has some exposure to digital payment, the transaction value of this sector is relatively low, leading to a low average transaction value per user. A relatively similar trend is observed in other segments, such as digital assets, digital investments, new banking and alternative financing.

A survey by GlobalData revealed that the card payment industry in Vietnam is projected to grow by 23.8 percent, reaching about $37.6 billion in 2022, led by the expansion of digital payments.

Moreover, Vietnam is leading crypto adoption worldwide, and Vietnam’s blockchain industry is drawing a lot of attention from foreign investors. However, the crypto/blockchain market faces several obstacles, such as fraud without investor protection, leading to a decline in investor confidence.

“The current environment may discourage firms in this industry from establishing their headquarters in Vietnam and establishing their bases in countries that provide more incentives, such as Singapore or the United Arab Emirates. The Vietnamese government is also missing out on a huge amount of tax collection from cryptocurrency trading, Pham said.

He added that despite an active fintech market, a proper regulatory framework is still lacking and more actions are required to further boost the market’s growth.

“An initiative in 2017 to develop a fintech regulatory framework and sandbox has not been realized. If Vietnam does not have a sandbox soon (by mid-2023 at the latest), we may lose the opportunity to become a leading fintech blockchain hub given hard competition from other countries, Pham said.

Second, the government must ensure that Vietnam has the right ICT infrastructure. “Technical and financial education will play a key role in raising citizens’ awareness and helping them avoid fraud or threats in the fintech-blockchain space,” Pham added.

Source: VIR