Fintech startups are encouraged to think long-term

In the first three quarters of 2022, fintech investments in Vietnam accounted for only 5 percent of the total of this type of financing in Southeast Asia, but the new year is expected to bring many more opportunities.

Despite the incomplete legal framework for this sector, fintech was still a popular keyword in 2022 in Vietnam’s startup community. According to data from Do Ventures and Cento Ventures, financial services still attracted $162 million, up 2.6 times from the previous year with $61 million.

In early 2022, MoMo officially reached unicorn status with a valuation of over $2 billion, after announcing the completion of its fifth funding round. Before that, the other two startups in the Vietnamese unicorn club were VNG and VNPay. Both are multi-field businesses, which include fintech.

“When investors see the potential in the market, investors are willing to spend large amounts of money to build a set of existing customers, so that in the future they can offer full banking services,” said Do Danh Thanh, deputy director of digital transformation and IT strategy at Deloitte Vietnam.

A report on venture capital (VC) activity and trends for 2023 by Golden Gate Ventures also estimates that capital flows will focus more on the healthcare and financial sectors in the next decade, despite the decline in VC in 2022. In particular, Southeast Asia will see many new unicorns in the fintech field.

Among other countries in the region, Vietnam saw a drop in the funding race in 2022, with investments making up just 5 percent of the total in the first nine months, according to a recent report titled Fintech in ASEAN 2022 by UOB, PwC Singapore, and the Singapore Fintech Association.

Specifically, Singapore and Indonesia continue to be the most successful countries in Southeast Asia in fundraising, taking up 76 percent. Meanwhile, Vietnam and the Philippines recorded a sharp decline in the share of investment compared to 2021.

However, embedded finance, the seamless integration of financial services adopted by non-financial companies and one of the biggest fintech trends of the next decade, is particularly evident in Vietnam, Thailand and Indonesia.

In Vietnam, 83 percent of respondents said they have used embedded financial applications, while the average use of these apps in the region is 70 percent. On average, nearly three out of four users in the region of apps with built-in financial services use them at least once a week, with the highest in Vietnam at 85 percent.

“This emphasizes how such apps have the potential to increase user engagement through improved utility,” the report assesses. “Integrated financial services in Vietnam are most used in small-scale investment (28 percent), followed by integrated insurance in travel and transportation services (23 percent).”

Amid the global financial crisis in 2022, many Vietnamese startups continued to raise capital, with a total of nine deals, including Finhay ($25 million), Timo ($20 million), and VUIAPP ($6.4 million). Although the total of US$211.4 million was still a decrease compared to 2021, experts considered that this small setback could present an opportunity for fintech growth in Vietnam in the coming years.

“The reason for the growth has been digital transformation. This remains an important cornerstone of embedded finance. And those set to take advantage of this are SMEs and micro-retailers,” noted Nguyen Huu Tuat, co-founder and CEO of NextPay.

Jalil Rasheed, CEO of the Tony Blair Institute For Global Change, added: “The next phase of VC investment is predicted to create a fintech boom in Southeast Asia. In particular, Vietnam is strengthening its reputation as a safe, efficient home for VC, especially in fintech and e-commerce, as these are the areas that attract the biggest investments in 2022.”

However, startups are encouraged to aim for sustainable rather than short-term and trendy models.

“The retail and consumer market in Vietnam continues to develop strongly. At the same time, the Internet economy is projected to grow 11 times by 2030, ranking first in terms of growth rate in Southeast Asia. With that opportunity, fintech in Vietnam remains a breeding ground for innovation, says Bui Thanh Do, founder and CEO of ThinkZone Ventures.

The challenge is to create revolutionary and accessible solutions that provide value for users. Successful companies must simultaneously solve problems in customer classification, business models, bad debt settlement and technological application to optimize solutions and processes, according to Do.

“Another challenge is that in Vietnam user data is quite fragmented. If this can be improved, there will be more breakthrough solutions from startups in the future. And it is the founders’ responsibility to try to find ways to optimize the company’s products and operations to meet market demands,” he said.

Source: VIR