Summary

Financial Technology (Fintech) - one of the indispensable products of Industry 4.0 - is a term
refering to creating new services from the combination of finance and technology in the finance and
banking sector. This term is made based on the basis of IT and telecommunications. For the last 10
years, the participation of Fintech has had significant impacts on changing financial and banking
activities in Vietnam. However, Fintech's activities still have had limits in size, quality and policy to be
overcome in the near future. With the approach to some of Fintech's impacts on the banking and
finance system in the revolution of Industry 4.0, this article shows the affects of its technology and
operations on the commercial banking system. Moreover, it suggests some measures to develop the
operations effectively along with the development of finance and banking system and economy.

1. Introducing Fintech

1.1 Concept:

Fintech stands for financial technology which is a new financial industry that uses technology to
improve financial operation. Fintech is new applications, processes, products or business models in the
financial services industry including one or more additional financial services and provided as an end
process via the Internet.

Fintech is considered as a product of Industry 4.0 in finance and banking activities. Fintech
offers a wide range of financial products and services such as electronic payments, mobile payments,
personal finance, and corporate finance. Some segments which can be list are P2P lending, group
investment, credit scoring, consulting, capital mobilization, and cryptocurrencies.

1.2 . The appearance of Fintech

In the early 1990s, Fintech initiated by Citigroup11 and was called "Financial Services
Technology Association" with the purpose of facilitating technological cooperation activities.
However, it was not until 2014 that it really attracted the attention of managers and had an increasing
number of participants. Fintech has grown very fast as major industry in the US. Some studies show
that Fintech's total expenditure was more than 197 billion USD in 2014. After the global economic
crisis in 2008, Fintech is expected to bring new aspects to the finance and banking industry. Fintech
can reshape the finance industry and make a strong impact on the most important components of this
industry.

Fintech is just a new term for the old industry, but FinTech refers to applying technology to
sponsor at its widest level. Why do you say that Fintech is not a new inherent development of financial
services industry? Go against the flow of history! Indeed, the appearance of the first commercial
electrical telegraph in 1838 and the first transatlantic cable which was laid successfully in 1866 by the
Western Atlantic Telegraph company. These things provided the basic infrastructure for the first phase
of financial globalization at the end of 19th century. After that, the introduction of automated teller
machines (ATM) in 1976 by Barclays bank was supposed to mark the beginning of the Fintech’s
modern development nowadays. According to several studies, the financial services is one of the
industries having the highest number of customers who use IT products and services. Traditional
services are the motivation in the IT industry, and this trend will not slow down because the
transactions used by credit cards, Internet Banking is gradually replacing cash transactions. However,
Fintech’s limit is not only on specific areas such as sponsorship, business model or peer-to-peer
lending, but also on the entire range of services and products like traditional channel provided by the
financial services industry.

1.3. Fintech companies in Vietnam

According to statistics in Vietnam as of March 2017, there were 48 fintech companies in 9

different segments, with 22 units in the payment field (account for 48%).
 Number Field of activity Companies Number of
companies
1 Payment (Mobile) 2C2P, VTPay, OnePay, VTCPay, 22
Bankplus, VinaPay, VNPay, Senpay,
NganLuong, ZingPay, BaoKim,
123Pay, WebMoney, Cyberpay,
1pay, SohaPay, Moca, Vimo, Payoo,
OnOnPay, Momo, FPT
2 Crowdfunding FundStart, Comicola, Betado, Firstep 4
3 Blockchain Bitcoin Vietnam, VBTC Bitcoin, 4
Copyrobo, Cardano Labo
4 Manage personal Mobivi, Money Lover, Timo, kiu 4
finance
5 Transfers Matchmove, Cash2vn, Nodestr, 4
Remittance Hub
6 Loan Loanvi, Tima, TrustCircle 3
7 POS management Hottab, SoftPay, ibox 3
8 Data management CirceBii, Trusting Social 2
9 Compare information BankGo, gobear 2

2. Fintech - formidable opponent of the bank

Fintech is commonly used for all companies using the Internet, mobile phones, cloud
computing technology and open source software to improve the efficiency of banking and investment
activities. At first, Fintech companies are often not respected by the banking sector. However, by
creating dizzying changes in the global financial market, Fintech companies have been considered a
formidable opponent of credit institutions.

In March 2016, PwC published survey results showing that 83% of traditional financial services
businesses think that one of their business’s parts is at risk of being occupied by independent Fintech
companies. Particularly in banking sector, this rate reaches 95%. On the other hand, Fintech companies
think that they can win 33% of business activities of enterprises in the field of traditional finance and
banking by themselves.
 According to a commission of survey in 2017 conducted by the Basel Committee on Banking
Supervision (BCBS), Fintech companies have participated in almost banking services from credit,
mobilization to payment and investment management in particular: about 41% of Fintech businesses
provide services related to payment and guarantee deposit; 27% is auxiliary services in financial
services; 18% is lending, deposits and capital mobilization; 9% is an investment management service
and 5% is other service.

In Europe, the top 8 banks laid off about 100,000 employees in early 2016 after deploying the
Fintech application. Going along with that, banks such as Barclays, Credit Suisse, Deutsche Bank and
Standard Chartered have lost about US $ 420 billion in market value due to the development of
Fintech.

In Vietnam, the use of electronic wallets (Momo, Vi Viet ...) or online payment gateways
(Payoo.vn, OnePay, Baokim.vn ...) makes payment become convenient. These tools are integrated with
many services such as mobile payment, bill payment, recurring payment reminders, personal financial
management, ... and become the effective "financial assistant" for users. Moreover, instead of using the
traditional service of a bank, the Fintech application offers the opportunity to experience the
advantages of many different financial institutions.

3. The tendency of cooperation between banks and Fintech

The development of Fintech (financial technology) and the cooperation between Fintech and
bank are considered as a premise for improving access to financial-banking services for users in
Vietnam. The partnership between Fintech and banks helps maintain and develop a modern financial
and banking system with innovative financial products and services meeting customer expectations.
The State Bank of Vietnam (SBV) always supports and promotes cooperation between Fintech and
banks in Vietnam. Therefore, the management agency has been constructing the legal framework as
well as the ecosystem for the development of Fintech in Vietnam.

In May 2018,a consulting firm called Solidiance released the report "Unlocking Vietnam's
Fintech Growth Potential" (unleashing the growth potential of Fintech in Vietnam). Solidiance said that
Vietnam's Fintech market reached 4.4. billion USD in 2017, and will increase to 7.8 billion USD by
2020. The report also recognizes the plus points for a number of factors including: the proportion of
Internet users and large smartphone users in urban areas; the becoming popular of e-wallets; the
increase of income and consumption; and the growth of e-commerce. These figures have shown a rapid
development of the Fintech market in Vietnam.
 The establishment and development of Fintech companies not only changed and promoted the
distribution channels of traditional banking products and services but also expanded online transactions
through Internet Banking, Mobile banking, social networks, and banking. paper aviation ... This partly
explains why the market share of banks tends to decrease and be gradually shifted to Fintech
companies. According to an analysis of McKinsey Management Consulting, by 2025, Fintech may
affect the downward trend of 10-40% of the banking sector in profit.

In fact, the cooperation between banks and Fintech companies is an indispensable requirement
to compensate for each other's defects. The cooperation between Fintech and the bank is considered as
a premise for improving access to financial services - banking for users in Vietnam.

In terms of benefits, the changes of Fintech have greatly contributed to expanding access to
financial services (universalization of finance), reducing transaction costs, improving transparency with
simple products, advantage and efficiency, and also contribute to cost control and income control.

This cooperation also helps banks and Fintech take advantage of their strengths to provide
better banking services and solutions, safer and more aconvenient for users. It can be seen that the
strength of the bank is compliance with the regulations of the law. In addition, customers see that banks
have good reputation and credibility; The community know banking services well. However, the
weakness of banks is often slower than other technology companies in creating technology innovation.
Meanwhile, Fintech companies are startups so they are very creative and dynamic. They assess banking
services from the perspective of their customers and are willing to provide services for better user
experience. Furthermore, the growth of Fintech company is more flexible. However, the weakness of
Fintech companies is the lack of support for legal compliance, monetary policy, prevention of money
laundering, ... so it is difficult to create trust and brand for the financial activities. Meanwhile, the bank
has a number of traditional customer, brand, reputation and network. The trust in banks to be
responsible for risk management and legal governance. Therefore, banks need select to cooperate with
the appropriate Fintech company.

Thus, the cooperation between the bank and Fintech company will be the perfect complement.
They help each other create value for users and society and promote the dynamic development of the
market in the future. This is the trend of many banks in the region and the world.

Key success factors for the partnership between the bank and
 Fintech companies
Number Factor Content
1 Market scalability Partnering with banks can
help reduce the time it takes
to market new solutions by
leveraging the existing
banking network.
2 Product Life Cycle The cooperation and
development between banks
and fintech companies can
reach the influence of existing
financial products, and also
affect existing customers,
especially those with little
knowledge. about technology.
3 Customer’s Trust Customer’s trust in the bank
is built over many years about
risk management
responsibility and legal
experience. Banks need to be
selected to partner with the
appropriate Fintech company.
4 Vision Fintech companies need to
have a vision to create
innovative solutions for the
financial services ecosystem.
Meanwhile, banks must see
their role as an active partner
in cooperation with Fintech
companies.

However, besides the clear benefits above, the rise of Fintech is also accompanied by many
challenges which directly impact contemporary banks and new Fintech members on joining the
financial sector especially in controlling network security, investment in technical infrastructure,
technology, human resources training ..

4. Impact of Fintech on commercial banks:

4.1. Positive:

Fintech's diverse applications are impacting almost sectors of the banking and financial system.
Although it has only been formed for 10 years, Fintech's products have completely changed the
appearance, the system as well as the traditional methods of financial transaction.
 Firstly, Fintech creates new business models that change distribution channels and traditional
financial products and services, especially banking services such as Internet banking, Mobile banking,
QR code, banking digital goods, electronic wallets ...

Secondly, the development and application of new technologies such as Big data, blockchain,
biometric personal identification system, electronic customer identification,... will help financial
institutions to collect data, simply the process of analyzing customer behavior, improve service quality,
reduce technical infrastructure costs, enhance transparency, but still ensure safety, quickness, efficiency
especially in transactions. The bank brings added value as well as satisfaction to customers.

Thirdly, Fintech attracts a lot of start-ups in the past decade because its development based on
the basis of information technology and telecommunication systems so it does not require large capital
and branch networks like traditional bank.

Fourthly, Fintech creates financial solutions for customers in remote areas or those who have
difficulty getting access to financial services due to procedural or geographical barriers. In particular,
Fintech provide better support for individual customers, small and medium enterprises, or micro. These
customers are often rejected by banks because of failing to meet capital and asset requirements.

Fifthly, Fintech provide a diversified portfolio of financial products to customers through the
development of technology, which helps to ensure 24/7 service delivery both in space and time.

Going along with the development of Industry Revolution 4.0, more and more consumers are
using Fintech products and services. Through Fintech, getting access to financial and banking services
has been enhanced and added value to customers using the service. Because of the advantage of
developing on the IT foundation without the need of transaction network offices like banks, the
products and services provided by Fintech enterprises have been attracting a large number of customers
especially those who have difficult banking services access.

In general, the whole world welcomes Fintech wave because it makes financial transactions
easier, more transparent and more lower-cost.

4.2. Negative:

Besides the benefits of Fintech, its activities can bring some adverse impacts on the financial
system.
 First reason is the risk of being attacked by its technology. The foundation of Fintech products
are technology, so the risk of the attack from technology is inevitable. The more modern IT are, the
more risky Fintech are. An incident can lead to the risk of the whole system. Businesses face many
potential risks: financial fraud, system errors, data crimes, and spreading malware.

Secondly, Fintech grows too fast compared to the current legal system. Fintech products are
based on continuous creation and innovations of technology, so there are many cases which current
laws have not kept up with. This is one of the causes of a series of frauds related to fintech in the past
such as fraudulent in terms of capital contribution to buy bitcoin mining machines, ICO scams,
cryptocurrency trading, etc.

Thirdly, the convenience of Fintech makes customers use without understanding the product,
basic financial knowledge, or even protecting personal information. This is a loophole for financial
crime to attack like setting up fake websites which can expose passwords and accounts.

Fourthly, Fintech is a potential competitor of the bank. It affects the customer market share of
the banking system.

Fifthly, the strong development of technology can replace the large number of bank employees
who are working directly at transaction counters. The trend of "paperless banks", "paperless financial
institutions", artificial intelligence and robots will become increasingly popular. The branches and
transaction offices of banks are increasingly shrinking in both scale and quantity.

Sixthly, the risks caused by the development and application of technology in the banking
sector affect not only customers but also the banking system. The banking industry may face threats:
profits, the increase in the level of business risk, failing of meeting or violating the requirements of
regulatory agencies such as customer information security,money laundering, terrorism financing ...

5. Solutions

5.1 Supplement and finalize mechanisms, policies for Fintech activities

Completing fully and synchronously the legal framework, mechanisms and policies is the most
important and urgent requirement to develop Fintech activities today. The Government needs to
supplement specific regulations about Fintech in laws, decrees and circulars to handle security, cyber
security, intellectual property and consumer protection.
 Construting a Fintech development policy must be linked to national monetary and economic
policies. Fintech is part of the banking and finance industry. The Ministry of Finance and the State
Bank must have a specialized supervising and managing department for Fintech's activities to ensure
the stability of the financial and monetary system. As the current situation, the Government should
encourage Fintech startups by specifying regulations that allow Fintech companies to participate in
testing financial services for a certain period of time (maybe 12 months) before being officially
licensed. In addition, it is necessary to develop tax exemption and reduction policies, support policies
and create an investment environment for Fintech startups to develop.

5.2.Human resource training

Strengthening human resource training and attracting high-quality human resources for Fintech
application, management and development by: Supplementing the training content for finance and
banking students with in-depth knowledge of technologies such as big data, peer-to-peer networks,
digital banking, security, information security, financial information systems. IT students who want to
join Fintech also need to have knowledge about banking and finance. Schools need to cooperate with
banks, Fintech company to regularly organize internships and exchanges. It enables students to gain
access to practical experience and research innovative solutions about technology, business models,
products and services

5.3.Diversifying Fintech products

Product development is not just focused on payment and money transfer as today. Fintech needs
to expand other potential products such as financial management, lending, savings, online investment,
consulting, ranking. information ... to meet the diversified needs of customers. The State should have
policies to sponsor and support for research and application of technological advancements in the field
of finance - banking and other fields. Vietnamese Fintech can develop strongly together with other
countries in the region only in this way.

5.4. Promoting communication

Fintech businesses need to actively promote and disseminate knowledge about Fintech in order
to help communities and businesses recognize the benefits that Fintech brings and to minimize risks in
Fintech transactions. The government also needs to publish information widely on the mainstream
media to help people have certain awareness about Fintech of how to keep personal information
confidential, how to regularly update translated products, and how new Fintech services and businesses
are licensed,… That way can not only prevent ignorance of people from being attacked by the crime,
but also create conditions for Fintech to develop.

In short, "Paperless banks" and "Paperless financial institutions" are the inevitable development
trends of the banking and finance industry in the Industry 4.0. Fintech has brought a new paradigm in
financial services, which changes the customer experience in financial-related transactions by the
convenience of space, time and cost. However, there are still many challenges such as the legal
corridor, products, investment capital, market, and customer approach that Fintech Vietnam enterprises
need to overcome to develop a healthy, safe and effective market during the revolution of Industry 4.0.