Consumer demand is reasonable and the Vietnamese market is overwhelming.
Editor’s note: This article is from KrASIA, author Thu Huong Le, original title P2P regulations critical for Vietnam to avoid fallout
Point Tip:
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Starting P2P Loan Platform: Consumer demand for loans in the market is significant, and NextTech Group’s VayMuon has a good reputation, and Tima has completed $3 million in Series B financing.
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Regulatory policy loading: Due to the lack of legal framework, most companies can participate in P2P online lending business, and the regulatory guarantee is low. The National Bank of Vietnam has submitted a proposal to the government to guide the platform activities in the regulatory sandbox.
The 2017 World Bank Global Index shows that approximately 70% of the population in Vietnam does not have a bank account. Many people with bank savings are also not eligible to obtain loans from traditional financial service providers.
YCP Solidance, a consulting firm focused on the Asian market, believes that the number of non-bank accounts in Vietnam has decreased, but local bank penetration still lags behind other ASEAN neighbors.
The company also predicts that by 2020, the Vietnamese financial technology market will reach a transaction volume of 7.8 billion US dollars. The continued growth of electronic payments has greatly contributed to the development of this market.
According to the National Bank of Vietnam (SBV), Vietnam currently has about 150 financial technology companies, 40 of which are operating loans.
The “Vietnamese Consumer Loan” report of Fitch Ratings shows that it is driven by factors such as “favorable demographic structure, consumerism boom and a large number of people who cannot access banking services and have no bank accounts”. The huge business opportunities in the field are very attractive to lending companies.
The P2P loan platform provides another way to get credit. But analysts believe that consumers often cannot tell what is a reliable loan provider and what is a suspicious platform for possible fraud. If Vietnam does not adopt a legal framework to regulate this new business model, it may be counterproductive and expose consumers to greater risks.
Over the years, the informal credit market dominated by usury has plagued Vietnamese who are in poor economic conditions and unable to borrow through formal channels. If the borrower fails to repay the short-term loan on time, it must not only bear the high interest rate, but also suffer violent harassment.
With the increase in Internet penetration and the surge in domestic mobile phone ownership in Vietnam, this “black credit” is inevitably transferred.Go to the online platform. Earlier this month, the Ministry of Public Security issued a warning against the loan app. These apps have an annual interest rate of not only 1600%, but also use illegal violent means to intimidate borrowers and sometimes confiscate the borrower’s property.
In addition, because borrowers lack formal credit records, small-sum consumer loans, including P2P lending platforms, have inherently high risks.
The missing legal framework
The Vietnam P2P loan report issued by Allens Law Firm shows that most companies can participate in P2P lending business due to the lack of a legal framework for P2P business.
However, this lacks the necessary legal protection for both the borrower and the lender. Since lending companies may participate in “banking activities” that should not be performed by non-credit institutions, this legal loophole also hinders the development of the entire industry.
VayMuon and Tima are both well-known P2P platforms and are considered the leader of the Vietnamese financial technology ecosystem, which last year raised $3 million through Series B financing.
However, if you take a quick look at Vietnam’s App Store, you’ll find a long list of unsolicited lending apps in the app store.
In July this year, the National Bank of Vietnam warned domestic credit institutions and the Vietnamese branch of foreign banks to be more cautious when working with P2P lending companies. The bank said that some local P2P lending companies would mislead investors and consumers, claiming that their activities are protected by current regulations and can effectively avoid risks.
In view of the recent warnings issued by the Ministry of Public Security of Vietnam and the delays in the implementation of relevant regulations, the social trust of the P2P lending industry is indeed not high.
The mixed market of fish and dragons
NextTech Group’s P2P lending platform VayMuon was founded in 2017 by Trang Dao. The company claims to have 2 million users and is considered one of the most popular platforms of its kind in Vietnam. The company has expanded its operations to Myanmar and Cambodia.
VayMuon provides personal lending services to white-collar or factory workers who seek fast short-term borrowing but do not meet bank loan requirements. The company plans to complete the A round of financing in the near future to enhance product diversity and better serve customers with different needs.
The loan they provide does not exceed 10 million VND (about US$430) and will be reviewed and approved according to the personal data collected by the company and its partners. The audit project includes the applicant’s salary record, income certificate and current status. There are debt situations, etc. The borrowing rate is not set by the loan provider, but VayMuon sets the interest rate cap – the monthly interest rate and the annual interest rate are 1.5% and 18% respectively.
Trang said that VayMuon has successfully built a good brand reputation, but she also believes that other platforms continue to crack down on the negative news of suspected fraud, which may hinder the long-term development of the industry.
“We are very transparent when we announce interest rates and fees, but we still want a comprehensive legal framework to ‘cleanse’ the market and distinguish between good and bad,” she said.
In April of this year, a report by China’s financial news media Securities Times mentioned that about a quarter of the 40 existing loan platforms in Vietnam are from China. As China has strengthened its supervision in this area, some platforms have moved to the Vietnamese market.
According to Nguyen Hoa Binh, chairman of VayMuon’s parent company NextTech Group, the total number of P2P lending platforms from China to Vietnam may be even more, about 60-70.
He believes that Vietnam should learn from Indonesia and take quick action. Earlier this month, the Indonesian Financial Services Authority issued a ban on 297 illegal P2P lending platforms it discovered.
Supervise the sandbox to be online
Recently, people from all walks of life have begun to discuss whether they should use the form of regulatory sandbox to stimulate technological development and commercial innovation in Vietnam. Ngo Van Duc, an official with the payment department of the National Bank of Vietnam, said that the bank has proposed to allow financial technology companies that meet the qualifications of operating location, transaction limits and number of customers to enter the sandbox for a maximum of two years.
At present, the proposal of the National Bank of Vietnam to regulate financial technology companies has been submitted to the government. Industry stakeholders and government officials are hoping to develop a statute to guide financial technology activities in the sandbox by 2020.
If all this goes well as planned, investors may breathe a sigh of relief.
East Asian Early Ventures ESP Capital’s GP Vy Le said in an interview with KrASIA that investors have been cautious about investing in Vietnam’s P2P lending platform before officially issued more clear guidelines.
Reports by ESP Capital and Cento Ventures on Vietnam’s technology investment in the first half of 2019 show that most of Vietnam’s funds flow to payments and remittances, with financial services accounting for only a small portion.
Even so, the industry still has great potential.
Google, Temasek, and Bain & Company’s recently released Southeast Asian Digital Financial Services report mentions that by 2025, the value of the field will reach $60 billion. Although digital payment and remittance services are in placeAt the turning point, but the digital lending industry is expected to grow at a faster rate, especially in Vietnam.
The report also pointed out that the ability to introduce supportive and consistent government policies and laws and regulations will become “the biggest floating factor affecting the development of digital financial services in the region.”
Solidance partner Michael Sieburg said that in recent months, Chinese and Southeast Asian companies have become more interested in exploring and entering this market. He believes that in order to unlock the full market potential, the much-anticipated P2P lending regulations should focus on providing consumers with protection.
“Must protect consumers from fraud and high interest rates on black credit,” he said. “As long as there are several consumer fraud incidents that are of concern, people will lose trust in the market.”
Translation | Emily@熊猫译社
编 | 郭沈@出海
Figure | Unsplash
