Foreign ownership cap to deter foreign capital in Vietnam’s fintech

Many foreign investors hold over 30 percent of local fintech firms’ charter capital

A Vietnamese central bank’s proposal to limit foreign ownership in the country’s fintech sector might prevent local firms from calling for foreign investment capital, experts warned.

The State Bank of Vietnam has submitted to the government a proposal on limiting the foreign holding in Vietnamese fintech firms at 30 percent with the aim to better manage the nascent financial services sector.

 Currently, the foreign ownership limit in many fintech companies exceeds the 30 percent rate permitted for credit institutions as there has been so far no legal regulation on the limit applied for the fintech sector yet, according to the central bank.

 Foreign investors currently hold dominant stakes in many local fintech firms. For example, the Republic of Korea’s UTC Investment hold a 65 percent stake in VNPT Epay, NTT Data own a 64 percent of Payoo, Hong Kong’s Champion Crest holds 51 percent of Amigo Technologies JSC, Thailand’s True Money controls a 90 percent of 1Pay, and MOL Accessportal holds a 50 percent of Vietnam’s top online payment system Ngan Luong.

 Under the proposal, SBV said that the fintech with intermediary payment services relates to the country’s banking activities and financial market. It thus directly affects the interests of service participants as well as the security and safety of the national monetary policy.

 Therefore, the central bank said, it is necessary for state management agencies to adopt appropriate policies, including regulations on foreign ownership in this area, to avoid the manipulation of foreign investors, as well as ensuring national sovereignty in the banking and finance operation.

 However, the American Chamber of Commerce in Vietnam (AmCham) expressed concern about the central bank’s proposal on the country’s payment and fintech sectors, even though it is optimistic about the government's efforts to facilitate the non-cash economy and develop the digital sector in the country.

 The foreign holding limit will make Vietnamese fintech startups unable to hire talent, and keep their businesses less competitive than other regional peers, AmCham said, noting the growth of the financial and fintech services in Vietnam will depend on legal regulations covering investment in the sector.

 Sharing the same view, the Working Group for Trade and Investment of the Vietnam Business Forum also said the limit on foreign ownership in fintech will cause adverse impacts on the industry’s development.

 Besides, the group  pointed out that the country still lacks legal regulations to guide the operations of fintech, such as peer-to-peer lending (P2P), which have made it more difficult for local fintech firms to find out proper directions for their development.

 From this fact, the group has proposed to the government to soon issue additional guidelines for new fintech services, especially those are providing P2P lending services in the country.

 Foreign inflows needed

 Experts said that it is good for Vietnam to get foreign investment in its fintech sector as support in technology, experience and capital from global major foreign financial groups will help local firms further develop.

 Meanwhile, the Vietnamese fintech sector is also attractive to foreign investors thanks to its high growth potential. According to a report on Vietnam’s fintech growth potential released by APAC-focused consulting firm Solidiance, Vietnam’s fintech market value is expected to increase from US$4.4 billion in 2017 to US$7.8 billion in 2020.

 The wave of foreign investment in the sector is forecast to continue in the future as more foreign financial institutions want to seek a relationship with local fintech firms, considering it an effective and rapid measure to be able to have access to 70 percent of the country’s unbanked population.