DEEP DIVESExclusive to Strategy Plans
March 29, 2019
Over the next few weeks, MEDICI brings you a series of articles exploring FinTech in the ASEAN region. The articles, each focused on a different ASEAN country, provide comprehensive insights into the FinTech investment landscape in the region.
ASEAN in Figures
ASEAN (the Association of Southeast Asian Nations) is the third-largest Asian region. It is home to more than 630 million people and one-fourth of the population lives in urban areas. ASEAN has an annual growth rate of 4.7% and USD 119.97 billion in FDIs; it is also one of the fastest-growing regions as well as the seventh-largest economy globally.
Its population is young and educated with a literacy rate of over 80%, phone-savvy with more than 0.5 phones per person, and enjoys a low-to-mid unemployment rate of 0.5%–6.9%. ASEAN members also have an average to a high life expectancy of 69–82.7 years, and a gender parity of 49.9% males to 50.1% females.
Earlier in this series, we visited Thailand’s and Singapore’s FinTech ecosystems, looking at it from an investment perspective. Before the week ends, here’s an in-depth review of yet another ASEAN country’s FinTech investment landscape – Vietnam.
Vietnam is home to more than 90 million people, among which 33% are living in urban areas. About 8.4% of Vietnamese live below the national poverty line and the unemployment rate is one of the lowest in the region at 2.3%.
The country is growing at 6.7% per year and has a high phone/internet penetration, and high adult literacy, which is close to 95%.
In terms of foreign ownership, there is an aggregate cap at 30% and single shareholder cap at 20%. Vietnam is ranked at number 82 in ease of doing business. The corporate tax rate is 20% – however, tax incentives are available for some technology-related entities.
Macroeconomic Overview
The Asian FinTech landscape is a fascinating one. However, unlike other emerging markets in Asia that experience weak domestic demand and lower exports, Vietnam’s economy is experiencing a GDP growth of 6%+ since 2009 and is expected to continue growing at a solid pace. The Prime Minister targets a CAGR growth of 6.5%–7% for the next five years.
The Vietnamese population is expected to reach 105 million people in 2030, up by 14% from 2014. The demographic expansion is driven by high (albeit declining) birth rates and increasing life expectancy. Additionally, the middle and affluent class (MAC) in Vietnam will double in size between 2012 and 2020, from 12 million to 33 million. It is estimated that by 2020, the Vietnamese average per capita income will rise from USD $1,400 to USD $3,400 a year.
Trends
Environment, Social, Governance (ESG) strategies are expected to grow in Asia. Although actual assets invested in ESG strategies are still very low, interest in ESG funds is expected to increase. Supportive regulatory initiatives, growing awareness among investors and the launch of new green-finance products could drive this trend. Vietnam’s financial services regulator, the State Securities Commission of Vietnam (SSC), has already drafted guidelines for the development of these products.
More ETFs are likely to feature in the market as Ho Chi Minh Stock Exchange (HOSE) has signed several MoUs with bourses in developed markets to create more Vietnam-related ETFs.
A significant growth forecast for Vietnam’s middle-income and affluent groups is expected. BCG forecast this segment to grow at an annual rate of 13%, reaching 33 million by 2020. This could generate more demand for savings and investment products.
Challenges
Despite the government passing Decree 60 in 2015, permitting a number of public companies (including fund management firms) to raise their foreign ownership limits (FOLs) from 49% to 100%, the level of foreign ownership remains low. Complete removal of FOLs, and ensuring that institutional reforms and the legal framework meet international standards could help Vietnam’s bid for emerging market status.
Securities market sustainability requires institutional investors. Currently, ~99% of Vietnam’s securities market is made up of individual investors, according to HOSE. The market needs to attract more substantial institutional investors such as investment and asset management funds to achieve long term sustainability. Improved market transparency, more supportive foreign investment policies, and greater participation by pension funds & insurance-finance firms could expedite this transition.
Opportunities
The fund industry sees new opportunities in 2017 with SOEs established fund management companies raising new funds in anticipation of the opportunities arising from the equitization of SOEs. Since 2012, more than 460 SOEs have been restructured and ~410 ‘equitized’ into common-stock companies to be sold or listed on the stock exchange.
Vietcombank believes that the divestments could generate more than US$4 billion worth of equity listings over the next two to three years.
The continuing acceleration of capital market developments represents further opportunities, which include:
Merger of the Hanoi and Ho Chi Minh stock exchanges
Derivatives market launch in 2H17
More listings of large privatized SOEs
Auction of government stakes in large caps
Regulatory Developments
SSC plans to increase the size of the securities market and improve its competitiveness among global peers. In order to achieve its goals, SSC needs to develop a robust legal framework, expand product and service offerings for the market and provide appropriate quality control monitoring for products. Conducive investment conditions will help attract more foreign investors and support market sustainability.
Vietnam’s Ministry of Finance issued new derivatives-related circular – Circular 23/2017/TT-BTC which will take effect on 1 May 2017. It amends and supplements Circular 11/2016/TT-BTC issued in May 2015, to enable securities companies (market members) to develop derivatives products.
New laws for venture capital (VC) investments are also part of new regulatory developments which will stimulate the financial sector and overall startup ecosystem. The Vietnamese government is drafting a new law that will formalize the details for establishing and operating VC funds and angel networks.
Key Themes of Vietnam’s Banking Sector
The Vietnam banking sector is under restructuring mode. The State Bank of Vietnam (SBV) continues to push for more consolidation, paving the way for top-tier banks to acquire the weakest banks in the system to help them restructure. The objective is to reduce the number of banks, strengthen financial health, and curb the NPL legacy to ensure macro stability. Until 2017, the government had intended to reduce the number of local banks to 15–17 from 30+. The SBV is looking to amend laws to allow foreign investors to hold a stake of more than 30% in domestic banks.
The banking sector is small and fairly underdeveloped with strong growth potential. The Vietnam banking sector has experienced rapid credit expansion (CAGR 2004–14: 25%) following the accession to WTO in 2004. Profitability of domestic commercial banks is under stress due to rising risk provisions for non-performing loans.
Vietnam’s high level of non-performing loans is a concern. Inadequate quality control has resulted in an increased level of bad debts by 3.7%. According to Moody’s, NPLs in Vietnam’s banking system could be as high as 15%. More government action is expected in the future to clean the problem legacy assets. In July 2013, the government established the Vietnam Asset Management Company (VAMC) to buy bad debts. It is estimated that the VAMC has bought USD $9.9 billion worth of bad assets since incorporation.
Potentially, this is a good time to enter the market. Banks in Vietnam looking for a strategic partner to help fund and advice on future growth. Valuations have come down, and asset quality needs to be reviewed and recognized as a major consideration in Vietnam’s banking sector.
FinTech Investors – Vietnam
As we’ve seen before with Thailand and Singapore, both FinTech-focused VC funds and sector-agnostic funds investing in FinTech have invested regionally in Vietnam.
FinTech-Focused Funds
With four investments in FinTechs,** **IDG dominates the market in the number of deals and is far ahead of Goldman Sachs, Standard Chartered, or Life.SREDA. In terms of financial services technology fundraising values, FinTech-focused funds dominate the market with Goldman Sachs’ and Standard Chartered’s investment in Momo for USD $34 million and Life.SREDA’s investment in SoftPay Mobile (USD $1 million).
Strong Local Investors
In terms of** **volumes, the local player IDG Ventures leads the market by the number of investments. Pix Vine and Mekong Capital may emerge in the future. In terms of value, two local players have a strong presence: Vina Capital through its investment in FPT Shop (USD $11 million) and co-investment in DHG Pharma for a 97-million-dollar (USD) deal, and VNG Corporation through its investment in Tiki.vn (USD $17 million).
Accelerators & Incubators
Vietnam Innovative Startup Accelerator (VIISA): This is a partnership between FPT and Dragon Capital, with $8 million available for investment. The program targets FinTech, InsurTech, B2C/B2B platforms, and any other sector. Each company receives up to $15K and is provided with $200K worth of technical resources, office accommodation, accountancy, bank account services, access to mentors and investors, with the possibility of receiving up to $500K of follow-on funding for promising startups.
Vietnam Silicon Valley: This is a four-month-long intensive program with funding up to $10K for 10% equity. The program provides selected companies with office space, legal & business consulting, and pitching possibilities at the end of the program. It targets gaming, apps, e-commerce, e-learning technology-applied businesses, and digital media. The accelerator has been developed by Vietnam’s Ministry of Science and Technology.
Innovatube: It provides pre-seed funding for 5–10% equity and targets FinTech, Blockchain, AI, IoT, and VR/AR.
Expara Vietnam Accelerator: This is the first venture-funded accelerator in Vietnam that enables first-stage entrepreneurs to catapult their businesses to the next level initiated by Microsoft Vietnam. Microsoft Vietnam also develops go-to-market plans with startups whose solutions meet the needs of Microsoft’s customers. CLAS will provide the facilities, management, and operation of the accelerator. Expara Vietnam will provide workshops on entrepreneurship, business plan and model, competitive strategy, fundraising & financial plan, and investor pitching (valued at $10,500). Expara Ventures III will invest $10K into each startup in the form of a SAFE and will invest up to $500K in successful graduates after Demo Day. It is a 120-day program.
NextTech: This is a group of companies pioneering the emerging digitized commerce industry in Southeast Asia. It targets e-commerce, e-payment, and e-logistics.
Founder Institute: Offers a 15-week, part-time program.
PVNI: It provides seed financing focusing for education, cloud computing, green food, high tech, and social media with up to $7K at ideation phase, up to $45K at the seed stage, and up to $250K for Series A.
Others providing seed funding or accelerators/incubators: IDG Ventures, DFJ Vinacapital, Vivi, CyberAgent Ventures, Mekong Capital, Saigon Hi-Tech Park, KisStartup, 5desire (IT), Hub IT, BK Holdings, etc.
Associations & Angel Networks
HATCH!: In 2012, the mission of HATCH! was to promote effective entrepreneurship. Within months, HATCH! became the go-to resource for entrepreneurship in Vietnam.\ \ Key people
C. Bundik
G. McFall
Dat Pham
AnhNgoc Vu
M. Truong
A. Everhart
H. A. Tran
AngelList’s Most Active Individuals
W. Bao Bean (SOSV)
M. Pui (PwC)
J. Chan (Neoteny Labs)
V. Lauria (Golden Gate Ventures)
J. L. C. Yau (Kyosei Ventures)
Z. Piester (Intrepid Ventures)
B. Jones (Angel Investor)
D. Chang (MindWorks Ventures)
T. Soichi (Genesia Ventures)
B. Chew (Strategia Ventures)
Top Investors in Vietnam
IDG Ventures: A US venture capital firm specialized in seed, startup, early-venture, and growth capital investments. The firm targets the information technology, internet, and healthcare technology sectors. IDG has participated in four FinTech fundraising in Vietnam among which are VinaPay and Vietstock. The FinTech industry represents one-fourth of the fund portfolio allocation in Vietnam. IDG is the most active FinTech and cross-industry investor in Vietnam.
Standard Chartered Private Equity: The private equity and venture capital arm of Standard Chartered PLC specializing in mid-to-late-stage companies and middle-market companies in the FinTech Sector. The firm typically invests between USD $10 to USD $100 million in a single transaction, with a preference for deals greater than USD $25 million. The firm has participated in one FinTech fundraising in Vietnam, which happens to be the largest in the country: Momo (USD $33 million). Standard Chartered Private Equity’s investment in Momo is a co-investment with Goldman Sachs.
Goldman Sachs Private Equity: An investment firm that specializes in fund of funds and direct co-investments. Goldman Sachs Private Equity invests in other funds that invest in leveraged buyouts, growth financing, natural resources, venture capital, and distressed securities. It also acts as a co-investor in direct investments. Goldman Sachs Private Equity typically invests between USD $50 million to $800 million. The firm has participated in one FinTech fundraising in Vietnam, Momo, which has raised over USD $33 million from Goldman Sachs and Standard Chartered.
Voyage Ventures: Formerly known as EC Navi Ventures, it is the venture capital arm of Voyage Group which was established in 2011. The fund specializes in seed/early-stage investments and targets the internet & mobile internet sectors. It invests from JPY1 million (USD $.01million) to JPY to 10 million ($.12 million). The firm has participated in one FinTech fundraising in Vietnam out of two investments in total in the country, for a deal value lower than USD $1 million.
CyberAgent: CyberAgent has participated in one FinTech fundraising in Vietnam, which raised less than USD $1 million from its investors. However, with 17 investments made across industries, CyberAgent is a major investor locally. CyberAgent has co-invested in Tiki.vn, which is the third-largest fundraising in Vietnam (USD $17 million).
Life.SREIDA: Life.SREIDA is a Singapore-based Venture Capital firm which has invested in more than 150 companies in Asia in the range of USD $0.3–$0.5 million, going up to $4 million. Life.SREDA has participated in one FinTech fundraising in Vietnam: SoftPay Mobile (USD $1 million).
Note: The views reflected in this article are the views of the author and do not necessarily reflect the views of his employer or any other professional affiliations.