Cross-Border Payment in Vietnam (Part 2) - Reasons for The Development of The Vietnam Fintech Industry

The next issue FinFan wants to mention related to cross-border payment is: "The reasons why cross-border payment forces the Vietnam's fintech industry to change and grow stronger."

History of cross-border payment around the globe

Barter System

The need to exchange goods has existed since the early days of long-distance trade. People traveled long distances to exchange precious stones, spices, and fabric. This exchange in value can be seen as the beginning of cross-border transfers as people moved value physically across many borders.

The Rise of Coins and Currencies

Eventually, precious metals were converted into rudimentary coins which could be exchanged as value for goods and services. In the 8th century, the hawala system took shape. In this system, money did not move physically but instead relied on a trust system of money brokers in different countries. To date, the hawala system is still a popular way to send money back home, especially within the Islamic community.

Currency Exchange

The exchange of currencies was an automatic result of different coins/currencies made in cities and countries. As far back as biblical times, money changers existed in markets to convert foreign currencies back to local currencies to enable the purchase of goods and services in that particular market. This still relied on the physical movement of the currencies.

Banking Transfers

Wire Transfer

As the internet began to develop and the dot-com era began to take hold, banks also began to update trends and expand online payment facilities that are still commonly used today.

However, the origin of cross-border money transfers by electronic line took place more than 100 years ago when, at the end of the 19th century, the company that is still operating today and is a giant in the field of cross-border money transfer, Western Union has built its own money transfer system.

At that time, the money transfer message will be transmitted when the sender deposits money at a certain Western Union branch, and electronically, the recipient will receive a money receipt message from the bank or the branch itself. Western Union near your place of residence to receive money.

Since banks act as intermediaries between the sender and recipient, there is no need to link the two bank accounts. Instead, the bank verifies that you have the funds available for the transfer. It will then use the SWIFT system to send the transfer information to the recipient’s bank, instructing it to credit the recipient’s account for the transferred funds.

Today, many remittance companies have millions of agents around the world where recipients pick up cash sent to them such as MoneyGram (FinFan’s partner).

ACH Transfer

In contrast to wire transfer, which works directly between banks or between an intermediary collecting and paying on behalf of the SWIFT payment system, ACH is a common form used for domestic payment.

The ACH system is an automatic clearing system that serves the needs of clearing low-value retail payment transactions (debit/credit) (usually retail transactions, 24/7, small value, large number of transactions per day), processed by transaction or batch among participating members.

Cross-Border Payment Solved by FinTech

This is the period lasting from the 2010s to the present when several new payment gateways and forms of payment began to form and strongly develop thanks to the development of smartphones and applications on these devices such as e-wallets, mobile money, etc.

Furthermore, decentralized payments were born with the foundation of blockchain technology along with the formation of cryptocurrencies (starting with the invention and development of the first coin named Bitcoin).

From here, a new type of service appears embedded finance or fintech enabling service. That is also the premise for the development of the fintech industry up to the present time.

The formation and development of cross-border payment services in Vietnam

The development of cross-border payment services in Vietnam is not out of the general development of the world, however, through a few different historical periods, cross-border payment in Vietnam has taken some steps are a little different from the general development momentum of the world.

As follows:

The barter system phase and the coins and currencies phase will go hand in hand with international development.

Currency Exchange Phase

At the stage of development of international currency exchange, Vietnam was invaded by France. With the plot to merge the three Indochina countries including Vietnam, Laos, and Cambodia into one, France applied the Indochina silver coin as Vietnam's currency at that time at the exchange rate of 1 dong for 10 French francs.

However, the currency unit in Vietnam has therefore been continuously changed throughout the country's long history of invasion. There was even a time when it was divided into two currencies, North and South, with two different countries.

It was not until after 1975 that the Vietnam Dong became the currency used throughout the territory of Vietnam and applied to cross-border payments to Vietnam.

Banking Transfers Phase

Going back in history, both cross-border payment ACH and wire transfer methods were updated in Vietnam quite late (only starting to develop in the early 1990s) due to the previous embargo from the US.

According to the official information from the homepage of the State Bank of Vietnam:

“In the period 1990-1996, the State Bank implemented a positive interest rate policy, combining the use of indirect tools with direct control tools in operating monetary policy; formation of currency markets; Initial steps to modernize technology and enhance human resource training for operating the new banking system.

Credit capital was expanded to all economic sectors and achieved an average growth rate of 36%/year, contributing to economic restructuring towards industrialization - modernization and promoting economic growth in the future. many years.

Also, during this period, the cooperative relationship between Vietnam and international financial and monetary organizations (IMF, WB, ADB) was re-established and opened.

In 1997, the National Assembly passed the Law on the State Bank of Vietnam and the Law on Credit Institutions, creating a more basic legal foundation for the banking system to continue to innovate in accordance with market mechanisms and meet market requirements for international integration.

The State Bank has implemented a flexible monetary policy, contributing to minimizing the negative impact of the 1997 Asian financial crisis; continues to improve the policy management mechanism, especially the interest rate management mechanism.

The system of credit institutions has been rectified and consolidated, gradually handling outstanding debt and improving financial capacity.

Banking technology has developed strongly; the interbank electronic payment system sponsored by the World Bank has been officially operated since May 2002, creating an important premise for the process of innovation and modernization of the banking system; electronic banking services appear (E-Banking, Internet banking...).

The State Bank participates in negotiations to join the WTO and actively implements commitments on international integration in the banking sector.

After Vietnam officially became a member of the WTO (late 2006), banking activities continued to have many innovations in governance, institutions, professional mechanisms, and technology. In June 2010, at the 7th Session, the 12th National Assembly passed the Law on the State Bank of Vietnam and the Law on New Credit Institutions, creating a legal foundation for continuing to innovate banking activities to meet the requirements of increasingly deep international integration.”

Fintech Development Phase

Although it had a slower start, Vietnam has always been one of the resilient peoples and is always ready to integrate and learn the best things and developments in the world.

The proof is that after just over 2 decades of development, Vietnam's fintech industry has been no exception to the general development of technology, as we still make outstanding progress and update the latest trends in the international payment industry.

Notably, from a backward country in payment technology in the 70s and 80s of the last century due to the effects of wars, Vietnam is now a very potential market in Southeast Asia for fintech investment.

Many of our financial technology projects are invested in by large investment funds specializing in startup investment at the bootstrap and seed stages.

Vietnam today is not only catching up but also has startup companies reaching out and becoming unicorns in the payment field like the story of the super app MoMo originating from providing phone card top-up and money transfer services.

With the above continuous development, MoMo is a strategic partner of FinFan in receiving international money through the MoMo super application from FinFan's international partners, typically is FinFan's payment partners abroad, MoneyGram.

Nowadays, customers have 2 ways to transfer money to Vietnam directly into the recipient's MoMo super app account.

Method one includes the following 3 steps (this method applies to all 200 countries and territories where MoneyGram payment counters are present):

Step 1: The sender needs to find the nearest MoneyGram branch in his/her location and complete the procedures to be able to transfer money to the Recipient in Vietnam through MoMo.

Step 2: Make a money transfer order, then write recipient information in the form with payment method instructions via MoMo (information must be matches the recipient's MoMo account registered phone number).

Step 3: Complete the money transfer order and the money will be transferred to the Recipient via MoMo, after FinFan has completed the transaction processing.

With method 2, customers only need 3 simple steps to send money from the United States (the US) to Vietnam through the API connection system between FinFan - MoneyGram and the super app MoMo.

Step 1: Send information to your relatives abroad to log in to the sender’s MoneyGram account.

🖥 On the computer: Through the website: https://www.moneygram.com/mgo/us/en/

📱 Download the app on the app store:

o Appstore: search for the keyword MoneyGram

o Google Play: search for the keyword MoneyGram

Step 2: Make a money transfer order, then enter recipient information and select MoMo payment method (information must match the phone number registered to the recipient’s MoMo account).

Step 3: Complete the money transfer order and the money will be transferred to the Recipient via MoMo, after FinFan has completed the transaction processing.

Reasons for The Development of The Vietnam Fintech Industry

FinFan can explain the development of fintech technology in general and cross-border payment in particular in Vietnam based on the following 3 factors:

The global development of fintech technology

Living in an increasingly developing world, what you need to do is develop yourself or you will automatically go backwards.

The above saying always motivates and motivates Vietnamese startups to constantly create new practical daily applications with high technology content and extremely trendy.

IT infrastructure, legal environment are two of the main supporting factors.

Policy support comes from competent authorities in Vietnam.

It can be said that the positive policies of the state bank have contributed significantly to promoting the development spirit of Vietnamese fintech startups, although there are still some problems with some new payment methods related to cryptocurrency.

Read more:

.Support from state policies and required licenses for fintech enabling services.

Technology infrastructure in Vietnam has been invested very well in recent years.

Countries have more Fintech startups when the latest technology infrastructure is available and people have more mobile phone subscriptions. Additionally, better access to IT infrastructure, measured by Internet and mobile phone availability, is often associated with greater use of digital financial services.

In particular, the report states that IT payment infrastructure is playing an important role in the use of digital payment services.

In Vietnam, government agencies have greatly facilitated the infrastructure to develop fintech technology, especially in the most economic growth - Ho Chi Minh City, as this city aims to become a fintech hub.

The change in the axis of the world economy

Today, the world economy is gradually pivoting to the East, especially the Asia Pacific region (especially with the latest technological updates).

The evidence is that many countries in this region have been receiving a lot of important investments from large funds around the world to support the country's startup community as well as the fintech industry in particular.

In Southeast Asia alone, there are up to 23 technology unicorns with huge investments in 2021 (this number decreased to 8 by 2023), and 2 of them are Vietnamese and are all related to the online payment fields including the super app MoMo.

Most easily recognized in the Vietnamese market, in 2024 alone, fintech enabling services will be invested up to 18 billion dollars in Vietnam.

The creativity and willingness to update, learn, and use new things of Vietnamese people.

This is shown by the fact that more than 1/3 of Vietnamese people have registered and used e-wallets in recent years and this number is expected to increase to 67.6 million users by 2026.

Notably, e-wallet technology was only introduced to Vietnam about 10 years ago (2014 with the presence of MoMo in the market).

Read more:

. User demands of fintech enabling services.

For that reason, Vietnamese people's need to receive cross-border remittances via e-wallets also increases significantly every year following the growth momentum of the remittance market to Vietnam in recent years.

This article was curated and authored by FinFan's market research and development team, alongside our marketing department.

About FinFan

FinFan is a cross-border embedded financial services company that focuses on mass disbursement, fund collection, card processing, IBAN, and digital APMs solutions, which can provide valuable input and integration on and for the same.

FinFan is already integrated with almost the world's well-known MTOs, PSPs, switch, and core fintech platforms such as Money Gram, Thunes, Qiwi, Remitly, World Remit, Bancore, PaySend, Terrapay, Ria Money Transfer (Euronet), Dlocal, Ripple, TripleA, FoMo Pay, Wings, etc.

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