Analyzing the challenges that the commercial banks in vietnam have to face when the fintech business increasingly developing

MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIET NAM BANKING UNIVERSITY OF HO CHI MINH CITY QUACH THI NGOC NHAN ANALYZING THE CHALLENGES THAT THE COMMERCIAL BANKS IN VIETNAM HAVE

MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIET NAM

BANKING UNIVERSITY OF HO CHI MINH CITY

QUACH THI NGOC NHAN

ANALYZING THE CHALLENGES THAT THE COMMERCIAL BANKS IN VIETNAM HAVE TO

FACE WHEN THE FINTECH BUSINESS

INCREASINGLY DEVELOPING

BACHELOR THESIS SPECIALITY: FINANCIAL BANKING

CODER: 7340201

HO CHI MINH CITY, 2018

MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIET NAM

BANKING UNIVERSITY OF HO CHI MINH CITY

QUACH THI NGOC NHAN

ANALYZING THE CHALLENGES THAT THE COMMERCIAL BANKS IN VIETNAM HAVE TO

FACE WHEN THE FINTECH BUSINESS

INCREASINGLY DEVELOPING

BACHELOR THESIS SPECIALITY: FINANCIAL BANKING

CODER: 7340201

ADVISOR PHD DAO LE KIEU OANH

HO CHI MINH CITY, 2018

COMMENTS OF THE ADVISOR

Ho Chi Minh City, …………20…

Advisor

COMMENTS OF APPROVAL COUNCIL

Ho Chi Minh City, …… …… 201…

Moderator of the council

ABSTRACT

The world is experiencing rapid innovation from technology, with breakthrough initiatives such as cloud computing, virtual reality technology, In the trend of international economic integration as today These achievements are widely applied throughout the world and not just in Vietnam The application of modern technology, applying the most advanced technology in the financial field is called Fintech The year 2008 marked a new era of Fintech, Fintech definitions appeared and popular all over the world Fintech is today considered as the combination of the financial services and information technology together in parallel This era is defined not by the financial product or services provided but defined by quickly put into practice the advanced technology application on retail and wholesale operations The development of the FinTech was led by start-up businesses, and this led to challenges for financial institutions in the world, especially the challenge of balance between the benefits of innovation and the risks can occurs when applied the new methods

The year 2008 marked a new era of Fintech, Fintech definitions appeared and popular all over the world Fintech is today considered as the combination of the financial services and information technology together in parallel This era is defined not by the financial product or services provided but defined by quickly put into practice the advanced technology application on retail and wholesale operations The development of the FinTech was led by start-up businesses, and this led to challenges for financial institutions in the world, especially the challenge of balance between the benefits of innovation and the risks can occurs when applied the new methods

In global, Fintech was appeared in 1980s and developed strongly and stably, bring tremendous profits for major companies and contribute greatly to the development of the countries In addition, in middle of the year 2017 in Vietnam, there are more than 40FinTech companies are primarily active in the field of

payments and had the strongly impressive marks According to the IFC, in the year

2017, MoMo (specializing in the field of payment) and Trusting Social (specializing

in lending) in the top 100 innovative companies and towards the comprehensive financial solutions in worldwide With two companies of Vietnam in this list are world popular names such as TransferWise (specializing in the field of payment), Ant Financial (specializing in payment, financial plan, savings, loan)

The rising rapidly of Fintech has changed the business landscape in banking asking for more innovative solutions These recent tendencies require the banks to increase investment in Fint ech, rethink service distribution channels, especially the business-to-consumers models, increase further standardization of back-office functions, etc Some members of the financial services industry see the boom in FinTech as a threat to traditional banking industry Others believe that FinTech has become

a challenge that can be turned into an opportunity as it provides more flexibility, better functionality in some areas, and aggregation of services Overall, this is the reason why I

choose: “ANALYZING THE CHALLENGES THAT THE COMMERCIAL

BANKS IN VIETNAM HAVE TO FACE WHEN THE FINTECH BUSINESS INCREASINGLY DEVELOPING” to be my graduation thesis

The aim of this thesis is to analyze the recent trends in banking, identifying opportunities and risks of FinTech for banks A timely integration of FinTech into business allows banks to get an advantage in growing competition Thereby proposing petitions and solutions to help commercial banks overcome the challenges

in advance of the rapidly developing of the Fintech companies

Identified the main risks related to development of FinTech and financial innovations the banks are exposed to on the micro- and macrolevel

Recommendations for regulators and banks to ensure reduction of risks associated with development of FinTech Analysis of FinTech market has shown growing competition, including from nonfinancial institutions Providing practical recommendations to commercial banks for strengthening the position in financial

innovations and controlling the risks associated with introduction of financial innovations

Analytical methods to analyze the causes and effects of Fintech on the bank, compare those analyzes with previous research at home and abroad Next, analyze and synthesize solutions from previous studies, find solutions suitable to the economic model and development trends in Vietnam and answer the question "What are the actual developments of FinTech nowadays in Vietnam?'' and synthesize solutions from previous studies, find solutions suitable to the economic model and development trends in Vietnam and answer the question "What solution to harmonize Fintech's products and services?" The thesis is divided into 4 chapters:

CHAPTER 1 Introduction: Brief description about reason for choosing the topic; Research objectives of the project, Object and scope of the study; Research Methods;

Information of the research contribution; Research structure; Literature review

CHAPTER 2: Theoretical basis about Fintech and Banking services

Summary of the Fintech theoretical basis; The appearance of Fintech; Key segments

of Fintech; Typical products; Impacts from Fintech changing the financial landscape; Definition of commercial banks; Financial services of commercial banks From these comparisons, readers can visualize the similarities in products and services that help Fintech become a competitor to the Bank in the future Through chapter 3, the author will highlight the advantages of Fintech that will make the Bank will have difficulties

in the future and the causes of those difficulties

CHAPTER 3: Challenges that commercial banks in Vietnam have to face when the Fintech business increasingly developing

The Current Situation and Development Trend of Fintech in Vietnam and Banks' Difficulties Presentation of Fintech developments in Vietnam; Development trend of Fintech; Difficulties of banks and their causes which covers 3 aspects: Demographic, Technology and distribution channels and products

CHAPTER 4: Recommendations

To help banks develop in line with new technology trends Proposing some recommendations to the Government and solutions for commercial banks; Some recommendations for Fintech business The author is based on the real situation in

chapter 3 about trends and developments of the current Fintech companies in Vietnam

as well as the available knowledge and some surveys by other authors related to the same owner so that some recommendations can be made to enable the

Bank and Fintech companies to cooperate bilaterally That requires a great deal of effort from the banks, with the help of the State having solid development strategies

in the future to be able to achieve the same results as your country in the area where the author Please refer to the lessons learned

The essay highlights the basic theories of Fintech companies, services of Fintech as well as banks, highlighting the current situation, how the development direction of the Fintech companies have impact on how to banking services Through this, the author proposes recommendations that primarily establish co- operative relationships between banks and Fintech companies so that both of these financial actors can further develop and contribute to the economy Besides, this thesis also mentions lessons learned from China, Singapore and India, countries experiencing difficulties like Vietnam, so that the Government and banks in Vietnam can refer and improve the finance industry The author hopes that this thesis will serve as a reference for further research purposes on the subject of the latter and to provide Fintech and the bank with a more positive overview about each other in this competitive market

However, due to short study time and limited knowledge, this essay may have

g the valuable and useful inevitably mistakes I hopefully look forward to reviewing comments of the teachers in the Council as well as the readers

Author

Quách Thị Ngọc Nhân

SUMMARY

Along with the development of the market economy, the demand of customers in the financial sector has also increased Historically, banks and financial institutions have played an important role in providing financial services

to their guests

However, the world is witnessing a technological revolution coming from a new financial institution - Fintech With financial products with its outstanding advantages, Fintech has soon got its own development market and more potential in the future This is causing difficulties for current financial institutions in acquiring customers, so banks are the largest financial institution in the financial sector needing to devise a wise plan to face challenges for Fintech companies and maintaining their position in the market This essay offers solutions to promote harmonious cooperation between Fintech companies and banks, with the necessary help from the State From this partnership, the bank can improve operational efficiency and meet customers' needs with new products and services In addition, the thesis also discusses lessons from China, Singapore, India, countries that have experienced difficulties like Vietnam, for the completion and development of the financial sector of State and bank in Vietnam

PLEDGE

I reaffirm the thesis "ANALYZING THE CHALLENGES THAT THE COMMERCIAL BANKS IN VIETNAM HAVE TO FACE WHEN THE FINTECH BUSINESS INCREASINGLY DEVELOPING " is my own article

This thesis has never been submitted for graduation at any university This thesis is the author's own work, the research results are honest, in which there are

no previously published content or the content made by others except the quotes full source in the thesis

I will take full responsibility for my pledge

Author

Quách Thị Ngọc Nhân

THANK YOU

First of all, I would like to express my sincere thanks to the instructor of PhD Dao Le Kieu Oanh dedicated her knowledge and supported her during the completion

of my thesis

Next, I would also like to thank the teachers of Ho Chi Minh City University

of Banking for opening up many opportunities for me to improve myself and at the same time create all the conditions for us to implement the project this

Finally, I would like to thank my family and friends, my loved ones who have always helped and encouraged me in the previous time

With the effort and desire to complete the graduation thesis, but due to the limited time of the study, the article could not avoid shortcomings, I would like to receive comments and contributions from teachers to The topic is completed and has higher practical value

Thank you sincerely,

Author

Quách Thị Ngọc Nhân

CONTENTS

CHAPTER 1: INTRODUCTION 1

1.1 Rationale 1

1.2 Objectives 2

1.3 Research Question 3

1.4 Subject and the Scope 3

1.5 Methodology 3

1.6 Information of the research contribution 4

1.7 Literature review 4

1.8 Research Structure 6

SUMMARY CHAPTER 1 7

CHAPTER 2: THEORETICAL BASIS ABOUT FINTECH AND BANKING SERVICES 8

2.1 The appearance of FinTech in financial market 8

2.1.1 The main segment and products of the FinTech 12

2.1.2 The impacts from FinTech changing financial background 16

2.2 The theoretical basis of commercial banks 18

2.2.1 The appearance of commercial banks 19

2.2.2 The main segments of commercial banks 20

2.2.3 The financial services of commercial banks 22

2.2.4 How to the commercial banks affect on financial institutions 25

2.3 The relationship between FinTech and commercial banks in Vietnam 26

2.4 Challenges for commercial banks when the FinTech business appeared and rapidly developing .29

2.5 The experiences of foreign commercial banks in competition and integration cooperating with Fintech .31

SUMMARY CHAPTER 2 38

CHAPTER 3: CHALLENGES THAT COMMERCIAL BANKS IN VIETNAM HAVE TO FACE WHEN THE FINTECH BUSINESS INCREASINGLY

DEVELOPING 39

3.1 Developments trend of FinTech in Vietnam 39

3.2 Opportunities and challenges from Fintech Wave in Vietnam 41

3.2.1 Opportunities from Fintech industry 41

3.2.2 Difficulties that banks have to face 42

3.3 Reasons cause difficulties for commercial banks 46

3.3.1 The State Legal framework is not fully worked-out 46

3.3.2 The IT infrastructure of the banks has not advanced enough yet 47

3.3.3 Restriction on organization leadership skills 48

SUMMARY CHAPTER 3 50

CHAPTER 4: RECOMMENDATIONS AND SOLUTIONS FOR TRADITIONAL BANKS TO OVERCOME THE CHALLENGES WHEN FINTECH COMPANIES ARE CONSTANTLY DEVELOPING 51

4.1 Orientation and development of Fintech companies in Vietnam 51

4.2 The direction commercial banks operation in Vietnam in the competition with Fintech companies 55

4.3 Solutions for Vietnamese commercial banks to overcome the challenges when the FinTech companies are constantly developing .56

4.4 Recommendations 59

4.4.1 For the State bank and the Government 61

4.4.2 For the commercial banks 63

4.4.3 For the Fintech companies in Vietnam 64

OVERALL 67

REFERENCES 68

LIST OF TABLE, CHART, PIECHART AND DIAGRAM

Chart 2 1 The amount of money invested by Fintech companies in 2017 10

Chart 2 2 Shows the number of deals invested in 2011-2017 10

Table 2 1 Non-bank organizations licensed in Vietnam 11

Diagram 2 1 The main segments of Fintech .13

Pie chart 2 1 The change in the structure of services from 2016 to 2017 17

Picture 2 1 Customers services willing to cooperate with Fintech companies 29

Chart 2 3 The risks from Fintech business to the Financial instituions (FIs) 30

Chart 2 4 Population structure using payment services in China 33

Chart 2 5 Chinese services are planned to develop in the future 33

Chart 2 6 Structure of service use of Fintech in Singapore and the world in 2017 .35

Chart 3 1 Ratio of the population aged from 40 to 50 using new technology services in the period 2016-2017 .49

Chart 4 1 The views of banks on Fintech companies 56

Chart 4 2 Status of Fintech in Vietnam .57

Chart 4 3 Expected Earnings Growth of Companies Distributed by Region .60

Chart 4 4 Number of companies are and will cooperate with Fintech .65

CHAPTER 1: INTRODUCTION 1.1 Rationale

The world is experiencing rapid innovation from technology, with breakthrough initiatives such as cloud computing, virtual reality technology, In the trend of international economic integration as today These achievements are widely applied throughout the world and not just in Vietnam The application of modern technology, applying the most advanced technology in the financial field is called Fintech The year 2008 marked a new era of Fintech, Fintech definitions appeared and popular all over the world Fintech is today considered as the combination of the financial services and information technology together in parallel This era is defined not by the financial product or services provided but defined by quickly put into practice the advanced technology application on retail and wholesale operations The development of the FinTech was led by start-up businesses, and this led to challenges for financial institutions in the world, especially the challenge of balance between the benefits of innovation and the risks can occurs when applied the new methods

In global, Fintech was appeared in 1980s and developed strongly and stably, bring tremendous profits for major companies and contribute greatly to the development of the countries In addition, in middle of the year 2017 in Vietnam, there are more than 40FinTech companies are primarily active in the field of payments and had the strongly impressive marks According to the IFC, in the year

2017, MoMo (specializing in the field of payment) and Trusting Social (specializing

in lending) in the top 100 innovative companies and towards the comprehensive financial solutions in worldwide With two companies of Vietnam in this list are world popular names such as TransferWise (specializing in the field of payment), Ant Financial (specializing in payment, financial plan, savings, loan)

The rising rapidly of Fintech has changed the business landscape in banking asking for more innovative solutions These recent tendencies require the banks to increase investment in Fint ech, rethink service distribution channels, especially the business-to-consumers models, increase further standardization of back-office functions, etc Some members of the financial services industry see the boom in FinTech as a threat to traditional banking industry Others believe that FinTech has become a challenge that can be turned into an opportunity as it provides more flexibility, better functionality in some areas, and aggregation of services Overall,

this is the reason why I choose: “ANALYZING THE CHALLENGES THAT

THE COMMERCIAL BANKS IN VIETNAM HAVE TO FACE WHEN THE FINTECH BUSINESS INCREASINGLY DEVELOPING” to be my

in advance of the rapidly developing of the Fintech companies

1.3 Research Question

With the purpose that was mentioned above, this thesis concentrates on solving and finding the satisfactory answer here:

_ What are the actual developments of FinTech nowadays in Vietnam?

_ Which are the actual effects on traditional banks when the FinTech business play

an important role in financial market and how?

_ What are the recommendations to overcome the negative impacts on traditional banks?

1.4 Subject and the Scope

_The Subjects of Research are the negative impacts that Fintech cause to the

commercial banks

_The Research Scope are divided into two factors:

 Space: The research focus on FinTech companies (momo, 1Pay,…) and others commercial banks in Vietnam (Sacombank, ACB, MB,…) to see how tradional banks influenced by the FinTech business in the financial market, thereby monitoring the risk asessment though each stage

 Time: Evaluating listed FinTech companies and the banks for the period from

2010 to 2017

1.5 Methodology

Quantitative research methods are used by gathering data from related associations, organizations and statistical institutions To ensure data accuracy the figures are cross-checked with Eurostat

industry-The method of practical research: collecting, analyzing from the field in active

in domestically and internationally Referring to prestigious research documents With descriptive statistical methods, data collection by summing the data and information relating to the development of domestic and foreign FinTech from previous years Then, using the information on the implementation method of

comparing the data to find out the change of Fintech from many years ago to answer the question "What are the actual developments of FinTech nowadays in Vietnam?''

Using research methods to compare data before and after FinTech appearance

to see clearly changes in the supply of services in the commercial banks Since then,

we can see the impacts from FinTech has changed the banking industry Analysis methods to analyze the causes and effects of FinTech on the banks, comparing the analyzes with previous studies in the country and others Next, analyze and synthesize solutions from previous research, finding appropriate solutions to the economic models and development trends in Vietnam and answer the question "What are the solutions to harmonize the products and services of the banks and FinTech? "

The thesis is divided into 4 chapter

1.6 Information of the research contribution

- Theoretical: The thesis has synthesized the theory of the effects of Fintech on commercial banks in Vietnam Then apply those analytical results to the theoretical model of the challenges that banks face in the development of FinTech

- Practical: The application of technology in financial activities (Fintech) is considered a new trend that can dramatically change banking activities in the future What do Vietnamese commercial banks need to do when FinTech business increasingly developing? In this article, we will analyze the impact of Fintech on the operation of global commercial banks in general and Vietnam in particular, the challenges that these banks will face in the future Finally, we propose some solutions for banks to solve the problems of Fintech development in order to survive in the 4.0 technology era

1.7 Literature review

 Documents research in country:

(Dang Cong Thuc, 2017) Fintech defines financial technology as the most advanced technology in accounting, finance and investment Fintech can reengine the

financial industry, change how it manages and manages operations, thinking and human perception

Today, the revolution of Fintech is taking place as stormy as the Internet did

in the 1960s and 70s of the twentieth century Fintech largely receives customer approval due to the simplicity and convenience it offers But because Fintech companies do not have a clear impact on banks' profitability, most banks in Vietnam still ignore their operations However, with a 21% growth rate in five years in the payment sector, it is expected to reach a value of 1,366 billion dollars by 2020, threatening market share in payment sector of the banks (Do Vu Chau Thuong 2017)

(Luu Hoai Hong Ngoc 2017) has identified difficulties for customers in the transaction of cash and payment by card The payment service of Fintech companies

is the answer to this problem, for users, telephone transactions bring maximum convenience, easy connection and fast For sellers, minimizing costs through over delivery, obtaining customer information from workplace names to purchase trends can all be collected for the business process business The payment industry will carry a large potential market, fast growth and high profitability

 And some research from abroad:

According to Douglas W.Arner, Janos Barreris and Ross P Buckley (2015), Fintech has grown through five major phases:

- Stage 1 (1866-1967): Change from Analogue to Digital

- Stage 2 (1967-2008): The development of traditional digital financial services flourished

- Stage 3 (2008-present): Democratization of digital financial services

- Stage 3.5: A new synthesis in emerging markets such as Asia and Africa

But according to In Lee, Yong Jae Shin 2017, not only banks but banks and Fintech companies face the following six challenges: Investment management,

customer management, regulations now technology integration, security, privacy, and risk management

In addressing these issues, Jason Conrad 2017 offers five pathways for banks: developing smart money transfer applications, automated answering machines and message payments, card payments, smartphone investments, intelligent budgeting and personal finance management and virtual currency services do not require the involvement of the State Bank

From theoretical framework collected, this thesis will be based on research methodology of Do Vu Chau Thuong (2017) and Douglas Arner, Jànos Barberis and Ross Buckley (2015), to carry out the research process At the same time, the authors mention three countries with similar cultural characteristics and has successfully developed the services of Fintech Singapore, China and India From that point of view, my research is on more about the situation of the local FinTech businesses Hence, the impact of it will be clearly identified on the commercial banking sector in Vietnam nowadays And in contrast, the Bank will provide recommendations to support the development with the Fintech companies

1.8 Research Structure

Apart from the introduction, the list of abbreviations, list of tables, conclusions, list of references, appendices, topics are structured into 3 chapters: Chapter 1: Introduction

Chapter 2: Theoretical Basis about FinTech And Banking services

Chapter 3: Challenges that commercial banks in Vietnam have to face when the FinTech business increasingly developing

Chapter 4: Recommendations and solutions for traditional banks to overcome the challenges when the FinTech companies are constantly developing

SUMMARY CHAPTER 1

In Chapter 1, the author presents an overview of the research topic Starting from the rationale of the topic to the subject, the objectives, the research methodology, the meaning of the topic, the profile of the research and the structure

of the thesis In order to give the reader an initial model to easily follow the course

CHAPTER 2: THEORETICAL BASIS ABOUT FINTECH AND

BANKING SERVICES2.1 The appearance of FinTech in financial market

FinTech is a very broad financial sector with a long history of development Most people think Fintech is a phone application that can help them pay their coffee bills every morning without having to swipe cards or paying cash But technology has always played an important role for so long, whether people notice or not And

so on, over the past 65 years, FinTech has grown and transformed unceasingly

In the 1950s, the emergence of credit cards helped ease the carry and use of cash By the 1960s, bank transaction agents and affiliates were gradually replaced by ATMs In the 1970s, trading on the floor of the stock market, digital exchange transactions helped the stock market move more efficiently and quickly The increase

in the number of bank computers, data warehouses and data warehouses became more sophisticated in the 1980s, making the transaction process simpler and customer-friendly In the 1990s, the Internet and e-commerce models grew, resulting in the growth of web-based telephone brokers, expanding the network of pioneering companies in the field

Over the past decade there has been a financial infrastructure that most people never think about, but uses them every day Now, in the 21st century, retail financial services are being digitized through mobile payment applications, robots consulting for personal finance or retirement plans, mutual equity funds to reach out to investors and other forms of online borrowing These are services from Fintech that attract customers and compete with Banks

In Vietnam, Fintech companies have emerged since 2008 with around 70 companies in the financial and banking services sector, operating primarily in payments, deposits, margin lending and finance personal

 Mobile Payments: VTPay, OnePay, VTCPay, BankPlus, VinaPay, VNPay, SenPay, ZingPay, Moca, Vimo, Payoo, Momo, OnOnPay, FPT

 Calling FundStart, Comicola, Betado, FirstStep

 Blockchain: Bitcoin Vietnam, VBTC Bitcoin, Coryrobo, Cardano Labo

 Personal Finance Manager: Mobivi, Money Lover

 Remittance: Matchmove, Cash2vn, Nodestr

 Loans: Loanvi, Tina, TrustCircle

 POS Management: Hottab, SoftPay, ibox

 Data Management: CircleBii, TrustingSocial

 Comparing information: BankGo, Gobear

2017 is an important year for Fintech companies in Vietnam as the number of investment deals doubled compared to last year, reaching 291 million According to

a TFI report, the number of investment deals was 92 6 Startup received the largest share of investment capital, accounting for $ 198 million, respectively, of Foody (82% of shares were acquired by Sea Group for a price) 64 million dollars); Tiki (capital from JD.com worth 54 million dollars); A Startup received $ 20 million from TNB Ventures and VNTrip Chart 2.1 below shows the amount of money invested

by Fintech companies in 2017 and Chart 2.2 shows the number of deals invested in 2011- 2017

Chart 2 1 The amount of money invested by Fintech companies in 2017

In terms of specific areas, Startup Ecommerce leads the way with 21 calls

to businesses, reaching approximately 83 million dollars Followed are the areas

of food technology, communications, transport and online travel Startup market

in Vietnam is increasingly professional, becoming attractive in the eyes of investors at home and abroad

In 2018, economic experts predict a boom year for Fintech companies and are still a new phenomenon in areas such as online payments, loans and loans, asset management, money number In early 2018, Standard Chartered PLC set up a SC Ventures venture capital fund to invest in and test new business models of Fintech companies

Most recently, True Money Vietnam, a subsidiary of Fintech Ascend Money, has received an "Intermediary Payment Service License" from the State Bank of Vietnam for the provision of electronic financial services electronic money, electronic payment, internet transfer and payment facilities So far, the State Bank of Vietnam has granted licenses to 27 non-bank organizations (Fintech news Singapore 2018) Table 2.1 lists the names and areas of these organizations

Table 2 1 Non-bank organizations licensed in Vietnam

NAME OF

NAPAS A provider of financial transaction services and payment services

VNPay An electronic payment service provider for over 40 banks, 5

telecom companies and thousands of businesses in Vietnam

Momo Mobile payment application

BankPay Vietnam Australia Online Stocks Company

Payoo Operating in the area of payment intermediation

Vietnam

Esports

Providing payment services on AirPay and Ocha POS phones

ECPay Services for the electricity sector

ZaloPay Payment by mobile device

VNPT Epay E-wallet and payment company

BaoKim The company provides online payment services

Vimo

Mobile multi-platform and multi-platform mobile payment services

VTC pay E-wallet, online payment gateways

Moca Online mobile payment application

FPT wallet E-wallet FPT

M-Pay Mobile payment facilities

OnePay Online payment via card

Wepay Electronic wallet

NgânLượng.vn E-wallet and online payment gateways

1Pay Online payment gateway

VNPT Pay Payment application

Monpay New payment method with open ecosystem

Viettel Online payment gateway

VINATTI Comprehensive implementation of payment services at counters

and solutions for providing electronic card code

VinaPay Payment gateways

2.1.1 The main segment and products of the FinTech

a) Main segments

Fintech is having a tremendous impact both in terms of quantity and quality

on financial services globally as well as in each country It is based on modern technology, helping businesses reduce costs, increase efficiency and shorten operating procedures, so now Fintech is present in most of most financial services Table 2.1 shows the main segments of Fintech

Diagram 2 1 The main segments of Fintech

(Source: FinTech News)

b) Products of Fintech

The development of Fintech in the world has enabled users and society to experience the new gadgets Due to its advanced technology, Fintech helps businesses reduce costs, increase efficiency, shorten operating procedures and contribute to the improvement of financial market infrastructure In addition, through the ability to analyze large data, forecast user needs more accurate, Fintech also help diversify and improve the quality of products and services of enterprises

Asset Management

Automatic advices

Social transactions

Personal asset management

Investment

& Banks

Payment

Deferred payment

Blockchain &

digital currency

Searching tools &

Comparision

Others

FINTECH

Fintech has been present in most financial services products For example, for traditional savings services, banks also apply technology so that customers can check their books online, know the current balance, interest rates, and maturity dates In addition, with the support of technology, many Fintech products are completely different from traditional financial services products have emerged

 E-wallet: (PayPal case)

E-wallet is a type of electronic account, playing a role as online payment for customers, helping customers pay bills, send and receive money through the Internet quickly Launched in the early 1990s, along with the popularity of mobile phones, electronic wallets tend to dominate Mobile Banking PayPal e-wallet was created in

1998 in the US, allowing users to set up an account for online payments or easy withdrawals PayPal allows paying of 26 different currencies, and has become the method payment used by the majority of eBay users with over 160 million registered accounts in more than 200 markets

 Electronic Currency: (Bitcoin Case)

Bitcoin is a decentralized digital currency in the form of open source software since 2009, which can be exchanged directly with an Internet connection device without the need of an intermediary financial institution Bitcoin has a different approach than typical currencies: there is no central bank and the system operates on

a peer-to-peer network protocol At first, Bitcoin was known as a form of super-fast, safe and applied to online services From 2015 to now, many businesses use this currency as a form of payment both online and offline The total number of companies accepting Bitcoin payments is over 120,000, with many large companies such as Dell and Microsoft Bitcoin ATMs have also become popular in the US, Japan and Europe

By 2017, there are about 900 Bitcoin ATMs globally Currently, Bitcoin is considered Gold 2.0 because of the basic features of currency such as: valuable, the movement, reservation and payment

 Peer-to-peer Transactions: (TransferWise case)

Launched in early 2011, this application was originally intended to provide overseas remittance services in London at reasonable rates Later, the application was developed in Europe, Latin America Today, TransferWise is trading at over eight hundred million pound per month, and is working with Apple Pay and Facebook Messenger to expand the transfer business through exposure to Apple's customer base and Facebook

 P2P - peer-to-peer lending: (Lending Club case)

P2P is a business model that uses online services to connect investors to individuals or businesses that want to borrow P2Ps have worked well, shortening loan approval time to just a few hours Because of the low cost of services, people with lower interest rates will have lower interest rates, and investors will receive higher returns when compared to depositing or investing in other bank products Lending Club is a specialized application for enterprises and small businesses in the United States, starting in 2015, providing peer-to-peer loans platform that allows customers to receive loans, and the startups can buy debentures supported by payments from borrowers So far, loans from the Lending Club have reached sixteen billion dollars

 Crowd-funding: (the case of Kickstarter)

This is a call-to-action site, established in 2009, which allows developers, entrepreneurs, and creators to bring their projects to mobilize capital from ordinary consumers on the internet This application makes it easy to get started on startups

To date, more than $ 2.8 billion has been successfully mobilized for 280,000 projects from nearly 10 million donors

 The online brokers: (Go Bear case)

This is an online comparison application that helps users find and compare the first Asian financial products, set up in 2015 in Singapore This tool assists clients in

searching for financial-related information to select financial products such as insurance, credit cards and loans After more than two years of operation, more than

4 million people have used Go Bear to compare financial products across Asia

 Securities trading support: (Robinhood case)

This is a mobile application, launched in 2013, that allows individuals to invest

in publicly listed companies and transaction funds listed on US exchanges without paying brokerage fees The number of Robinhood's customer has grown to over one million, with a total of nearly a hundred million dollars

2.1.2 The impacts from FinTech changing financial background

These developments are reshaping the financial system around the world, automating threats that will completely replace the current 9% of jobs and 47% of jobs in the United States will disappear completely; 30% of the work will be reshaped into new skills (OECD 2017)

The biggest impact from Fintech is clearly visible in the payment, financial and insurance systems, if in 2016 the payment sector accounts for just 22%, the number is expected to rise to 25% in 2017 Similarly, in the field of asset management and other sectors (securities, investment management) are rising in the south of 2017

In contrast, the lending sector has occupied a high market share in 2016 (29%), in

2017 has fallen sharply to 22%, only the insurance sector retains its own market share (see table 2.1) Currently, Visa and MasterCard are still dominating the payment market, but PayPal, Apple, or Google are gradually replacing these cards Especially with African countries, a report showed that, for four people, only one person owes money to a bank account, but all four use a smartphone, which allows access to the bar By telephone banking without their bank accounts, they will become the land of choice for mobile payments

Pie chart 2 1 The change in the structure of services from 2016 to 2017

(Source: KPMG)

In other cases, in the credit granting service, Fintech provides borrowers, a record of customers or companies that help the borrower and lender choose a loan or loan package Provide adequate online trading floors, update your regular credit ratings and use large data blocks to filter your customers Therefore, customers can choose their customers and loans without consultation or spending money Peer lending was initially a modest, but fast-growing industry in the United States (Lending Club, Prosper) and in the United Kingdom (Zopa), in Europe, leading nations in the field This is Germany, France and Finland

In Japan, the Japan Times Muziho Financial Group, one of Japan's three biggest banks, has announced plans to cut 19,000 jobs both domestically and abroad over the next 10 years Because corporate profits have tended to level off due to low interest rates and are aiming to improve this through digitization In addition, 800

Payment transaction Loan

Asset management Insurance

Others

domestic branches of Muziho are also in the cutting-edge plan, since the trend of money transfer via PC or smartphone is increasing, resulting in the number of visitors

to the transaction bank decreased In addition, the company will focus on customer consultation through Al

The strong development from Fintech making the head of a country cannot ignore The legal framework is always important in deciding the investment of investors, so the legal framework for Fintech is being developed in developed countries South Korea, Singapore, Thailand, and Malaysia are not coincidental, but have organized regional conferences to find solutions to boost Fintech's growth Or developing a legal framework for the Sandbox model in the UK - setting up a "safe space" so that new development paradigms can be freely experimented, in which business products and services are modeled highly creative is controlled without the need to strictly adhere to the full volume of legal documents prescribed in the host country

Singapore is also slowly becoming the smartest country in the world to become a financial center and innovation center based on maximizing the benefits of technology, fostering the growth of public Fintech and a rapidly growing Fintech ecosystem in Singapore

From the above examples, it can be seen that the trend of appearance and spread of Fintech companies is increasing, affecting the economy in the world

2.2 The theoretical basis of commercial banks

According to the Law on Credit Institutions issued by National Assembly of Vietnam "Commercial banks are banks which carry out all banking activities such as demand deposit, term deposit, savings deposit and other types of deposit, issuance of certificates of deposit, bills of exchange, bills and bonds to mobilize domestic and foreign capital, credit granting, opening payment accounts for customers Providing payment facilities; Providing payment services " Commercial banks deal directly with companies, enterprises, economic organizations and individuals, by taking

deposits, savings, using them to borrow, discount and provide payment facilities and banking services for the above-mentioned subjects (Nguyen Dang Do 2009)

Commercial banks are also specialized in credit card business They perform mainly in-house transactions such as Debt Asset Management and Asset Trading (Le Thi Man 2008) In addition, according to (Nguyen Duy Ngoc 2016): "Commercial banks are a financial intermediary that bridges the savings and investment sectors of the economy with the primary function of credit intermediation Accordingly, commercial banks will mobilize and concentrate on temporary idle capital sources in the economy to create loans to meet the capital shortage needs of the economy Commercial banks' activities provide the most diversified financial services, including credit, deposit and payment services " Meanwhile, in France, commercial banks are businesses and establishments frequently receive the public in the form of deposits or other forms of money they use for themselves into credit and securities business or financial services In the US, commercial banks are a money-trading organization that specializes in providing financial services and operations in the financial services industry

2.2.1 The appearance of commercial banks

Bank plays an important role in the economy of a country The emergence of the Bank is linked to commodity production, which arises from the exchange of currency when carrying out commodity transactions and currency exchange for currency In 1875, the banking system of Vietnam was named Indochina bank by the French colonialists to serve the French Expeditionary Force After the August Revolution in 1945, the Credit House was established and a precursor of the State Bank of Vietnam On May 6, 1951, the National Bank of Vietnam was renamed and renamed the State Bank of Vietnam in 1976 On March 26, 1988, issued by the Council of Ministers The mechanism of the State Bank of Vietnam is divided into two levels: the State Bank and commercial banks

Commercial banks now include: State-owned commercial banks (commercial banks established with 100% state budget capital) occupy the largest market share, being the core force in the Vietnamese financial system The Joint stock commercial

banks (joint stock credit institutions of the state and people) contribute to the diversification of financial services providers, increasing the competitiveness of banks, boosting the economy works effectively

Over the years, with its services, commercial banks play the role of providing capital for the economy, bridging businesses with markets, a tool for the State to regulate macro the economy and especially bridge the national financial system with international finance These activities confirm the importance of banking services and contribute to promoting a fast and sustainable economy

2.2.2 The main segments of commercial banks

In order to easily reach and accurately identify the needs of customers, commercial banks in Vietnam mainly divide the market into three main segments: personal customer segmentation, customer segmentation and financial institutions

• Personal market segmentation

(Source: Vietcombank 2018)

Personal customers

Personal loan

Bancassu rance

Internet Banking

• Segmentation of corporate customers

(Source: Vietcombank 2018)

Corporate customer

Business Account

Payment &

Currency management

Corporate credit

foreign exchange &

capital markets

International paymentCommercial

financeGuarantee

• Market segmentation of financial institutions

(Source: Vietcombank 2018)

2.2.3 The financial services of commercial banks

Business activities of commercial banks are mainly for the purpose of generating profits, through the provision of services:

 Capital mobilization: This is a regular profit-making activity for the Bank

Customers have a free cash flow, take deposits at banks to earn a profit within a certain period, fully repay the principal and interest under the agreement Banks can mobilize capital through demand deposits, term deposits, savings deposits, certificates of deposit, promissory notes, bills and bank bonds Then, the bank uses this money to lend or invest to make more money

Financial Instituitions

Correspondent banks

Account service

Money

VCB-Business capital

Commerci

al financeFactoring

 Demand deposits: Or withdrawals can be withdrawn at any time with any

amount demanded without notice to the bank Demand deposits are mainly used for payment, purchase of goods, services, fees; The bank facilitates transactions for customers through this amount

 Time deposits: The amount of money deposited into a bank for a specified

period of time and enjoy the interest rate according to the term as signed between the bank and the customer In fact, in order to entice customers, banks allow customers to withdraw money ahead of time, but with interest rates similar to interest rates on demand deposits or low interest rates

 Savings: Includes term deposits and non-term deposits, which are idle funds

deposited in a bank for interest payments at a fixed rate, which is the amount

of money a bank needs for the investment

 Issuance of valuable papers: This is the most effective way banks mobilize

term capital with higher interest rates than term deposits Banks may issue promissory notes, term deposit certificates, savings certificates, bonds

 Credit granting: A form of capital-using bank, the Bank provides capital to

the economy, provides loans to borrowers in the economy, and uses a certain amount of money, such as loans, guarantees bank, factoring, discount, rediscount, currency brokerage, payment account, derivatives, capital contribution, share purchase of credit institutions This is the most important and profitable business for the Bank

 Lending: a form of credit granting, the Bank lends to organizations and

individuals in need of short, medium and long term loans under the contract signed between the bank and the customer on the principle of Reimbursement

of both principal and interest to serve the development of production, business, investment projects, services and daily consumption

 Bank Guarantee: A form of credit granting, including various forms of

guarantee such as loan guarantee, payment guarantee, bid security, contract performance guarantee, quality guarantee product, guarantee of advance

payment, counter guarantee, confirmation of guarantee Credit institutions will

be fully financially liable in the case where the customer is unable to repay or fail to fully meet the financial obligations as they fall due

 Factoring: As a form of credit granting to the seller, the Bank acquires

recourse rights, receivables arising from the sale of goods agreed in the contract between the buyer and the party sell

 Discount: Is the acquisition or repurchase operation of a bank which reserves

the right to reclaim valuable papers and negotiable instruments before maturity

 Re-discount: A discounted transaction of valuable papers, negotiable

instruments discounted before maturity

 Currency Brokerage: A banking operation that mediates transactions related

to banking activities and business activities between credit institutions and other financial institutions

 Payment account: A customer's demand deposit account opened at a bank for

use in payment activities provided by the Bank at the request of the client

 Derivative: A financial instrument valued at the price of a underlying asset

such as exchange rate, interest rate, foreign exchange, currency and other financial assets

 Capital contribution, purchase of shares of credit institutions: using charter

capital and reserve fund to contribute capital, or to purchase their shares from the charter capital of credit institutions or enterprises, subsidiaries, companies affiliated, investment funds, entrusted capital to other organizations to contribute capital to buy shares

 Intermediary services: As the name implies, in this operation, the Bank plays

the role of intermediary, providing the services required by customers, some main services such as payment services, customer collection; security services for assets of customers; preservation, purchase of securities; liquidation of assets of bankrupt enterprises; To carry out the money transfer

inheritance mandate; check payment; Bank card; letter of credit and other payment services

2.2.4 How to the commercial banks affect on financial institutions

For an enterprise that wants to operate effectively, it needs a large amount of capital for its production and business activities Individuals and businesses are having an idle capital with the desire to make a profit At this point, the bank is a stand-alone entity for gathering these idle funds and providing funds to those who need it Thanks to this activity, the Bank has acted as a bridge between businesses and the market, promoting the flow of capital to society, helping businesses and individuals in the investment economy to profit Banks help shortage of capital to expand production, improve technology and machinery to improve labor productivity

Commercial banks are one of the tools to help the state regulate the macro environment in which the activities involved in the process of money supply of commercial banks play the most important role After receiving a deposit, the commercial bank will leave a required reserve, the remaining amount that the bank will lend or invest will generate a higher return than the reserve amount head This activity has inadvertently participated in the process of creating money for the economy and help the State regulate the amount of money circulation and stability of the currency

Economic integration is essential to bring greater economic benefits to the national economy Commercial banks with services such as international payment and foreign exchange have contributed to promoting the payment of import and export This contributes to expanding relationships with countries around the world, contributing to the attraction of additional capital, learning work processes and experiences from abroad

2.3 The relationship between FinTech and commercial banks in Vietnam

According to BBVA Research (2017), Vietnam is an emerging market with a population of 92.5 million in 2016 and Internet penetration of more than 48% of the total population, in the top three ASEAN regions Wave of financial services is still very low when statistics show that only 30% of the population have bank accounts, especially only 2% of the population use credit cards Vietnam has low quality of investment, technology transfer in the medium term so it has the advantage of attracting foreign investment compared to other countries in the region This is likely

to lead to a rise in the number of non-bank financial services providers and the risk

of investing in the payment sector

The Topica Institute's annual report provides financial industry data in Vietnam has raised 129 million dollars in 2016, prominently one of the top five startups in Southeast Asia The report also found that Vietnamese startup deals reached 205 million dollars, up nearly 46 percent from 37 million dollars in 2015 (Topica Founder Institute, 2016) Prominent is Payoo with the largest connectivity system today thanks to the strong support of NTT-Data; Tima launched in 2015 as the first enterprise to provide a P2P technology platform with deposits of 115.45 million dollars from its lending partners The Table below will show

MoMo Standard Chartered &

Goldman Sachs

28 million dollars

VNPT E-pay UTC Investments 33.8 million dollars

Partners và Mirae Asset Venture

10 million dollars

OnOnPay Gobi Partners 800 thousand dollars

Starting from a few licensed companies, the State Bank has actively supported and licensed more than 20 companies operating in providing payment services By