Vietnam’s high GDP growth makes it an attractive market to watch, particularly given its relative success in curbing the COVID-19 pandemic.
Boston Consulting Group (BCG) just released a report about “Emerging Challengers and Incumbent Operators Battle for Asia Pacific’s Digital Banking Opportunity”, focusing on Potential markets for success in Southeast Asia and India; Planning a strategic path forward; Positive policies and infrastructure to facilitate banking sector modernization and some case studies.
Opportunties
According to BCG, the last decade has seen a remarkable proliferation of Digital Challenger Banks globally, with more than two-thirds of today’s 249 digital banking players established since 2010.
Despite this significant growth, it’s clear that the route to profitability remains challenging for these operators, with just 13—less than 5% of the total—achieving break-even to date.
The Asia Pacific region offers an encouraging outlook within this landscape. It is home to approximately 20% of Digital Challenger Banks as of the end of 2020. Many of these operators are relatively new emerging players, with more than 70% established between January 2016 and December 2020. More important still, of the 13 global players enjoying profitability, ten are based in the APAC region.
Southeast Asia and India now present a new emerging opportunity for potential Digital Challenger Banks. In Southeast Asia, Malaysia, Philippines, Indonesia, Vietnam, and Thailand all offer encouraging signs for the expansion of these operators in coming years, boasting positive market liberalization and attractive market demographics.
Vietnam digital banking market
Vietnam’s high GDP growth makes it an attractive market to watch, particularly given its relative success in curbing the COVID-19 pandemic. In the near term, the Central Bank (SBV) is not looking to provide separate digital banking licenses, but instead angling to issue regulatory documents which guide banks on how to launch specific products online.
This is one of the fastest growing economies, with extremely strong foreign direct investment inflow and high productivity growth. The banking sector is also expanding rapidly, and while cash is dominant currently, use of banking is expanding at a substantial pace, and more than 40% of the population is now banked. Bank cards are also seeing accelerating penetration, with more than 90 million active cards of various types in 2018, up from almost zero in 2001. A photographic national ID system was also recently put in place.
Related: Executive interview with Bryan Carroll: What makes a digital banking superstar?
The current banking landscape is fragmented, with many small players. It is likely industry consolidation will occur in future. Many banks are currently digitizing, but there is no clear dominant winner in the digital banking space yet identified. Incumbents are digitizing to maintain market share and competitiveness, but these efforts have not yet gained significant traction with consumers. (See Exhibit below.)
Vietnam banks digitizing @ BCG
New banks are faced with minimum capital requirements and potential limitations on new licenses. Aggregate foreign ownership is capped at 30% for commercial banks (whether listed or unlisted). Shareholding in commercial banks is regulated such that:
- A strategic foreign investor may hold no more than 20%
- An institutional investor and its related persons may hold no more than 20%
- An institutional investor may hold no more than 15%.
- Foreign investors that are not financial institutions or that do not meet other capital requirements are limited to holding less than 10% of the shares in a commercial bank.
The challenges
Prospective market entrants will have to identify the right model for success, recognizing the importance of leveraging and utilizing existing tangible assets (e.g., offline networks) and/or intangible assets (e.g., online customer access, knowledge and knowhow), building and scaling appropriately, and sustaining success with the right data-driven approach and models. With the right commitment, organizational structure, and strategy—supported by an enabling regulatory framework—both incumbent banking operators and non-financial institution players (e.g., tech players, fintechs, non-financial companies) could access opportunities from DCBs in APAC’s rapidly evolving financial landscape.
Read full BCG’s report here.
Related
Source: Vietnam Insider