Vietnamese approves two-year sandbox trial of P2P lending

Vietnam will roll out a two-year sandbox trial of peer-to-peer (P2P) lending, credit scoring, and data sharing via open application programming interfaces, starting July 1, according to a newly-issued government decree.

Decree 94, dated April 29, establishes a regulatory sandbox - a controlled testing mechanism - for fintech solutions in the banking industry.

One of the fintech solutions approved for controlled trial is P2P lending that connects borrowers directly with lenders through an online platform, bypassing traditional financial institutions.

Only P2P lending companies licensed by the State Bank of Vietnam (SBV) - the central bank - will be allowed to operate. Foreign banks are excluded from participation.

Credit institutions and fintech firms can apply for the regulatory sandbox, but this does not guarantee their future compliance with business and investment regulations once formal laws are enacted.

The results of the trial will serve as the basis for regulators to research, develop, and refine the legal framework for this lending sector.

The latest decree also permits the trial of other fintech activities, including credit scoring and data sharing via open application programming interfaces (Open APIs).

Each fintech solution may be tested for up to two years, depending on the specific area and type of service, starting from the date the central bank issues a certificate of participation. However, the trial period may be extended in accordance with regulations.

The rollout of the fintech trial is limited to Vietnam’s territory and may not be conducted across borders.

P2P lending companies participating in the regulatory sandbox are prohibited from engaging in any business activities not specified in their participation certificate. They are also barred from providing guarantees for customer loans, acting as borrowers themselves, or offering P2P lending solutions to pawnshop businesses.

Credit institutions, foreign bank branches, and fintech companies that choose not to participate in the regulatory sandbox or have not been approved for it must operate in compliance with existing laws on enterprises and investment, and other relevant regulations, according to the decree.

Vietnam currently hosts around 100 companies operating in the P2P lending sector, many of which have foreign investment.

However, the central bank has previously flagged concerns over a lack of transparency in some agreements between participants in the lending model, as well as the absence of mechanisms to oversee the use and management of borrowed funds, which could lead to disputes.

As such, establishing principles and regulations for a controlled trial of P2P lending fintech is deemed necessary.

Alongside P2P lending, Vietnam is home to approximately 200 fintech companies, with 90% operating in the banking sector, offering services like payments, rating apps, and credit scoring.

The government said the initiative is to foster innovation and modernize the banking sector, while enabling individuals and businesses to access transparent, efficient financial services at a low cost.

It also aims to assess the costs and benefits, while mitigating risks for customers using these solutions.

According to Robocash Group, Vietnam's fintech sector is experiencing the second-fastest growth in the Association of Southeast Asian Nations (ASEAN), just behind Singapore, and is projected to reach a market value of $18 billion in 2024.

Le Thi Le Hang, chief strategy officer at SSI Securities Corporation, noted that the growth of fintech is fueled by widespread applications in financial solutions and digital assets.

Analysts predict the fintech market could grow at a rate of 25-30% annually over the next 5-10 years, driven by advancements in AI, machine learning, and increasingly borderless access.

Fintech innovation in Vietnam has already made notable strides, from digital payments and e-wallets to P2P lending platforms and purely tech-based securities firms.