Millions deposit money in fintech apps despite unadvertised risks

Yen Nhi in Ho Chi Minh City has been putting VND500,000 ($20.94) into a fintech app every month for the last few months after seeing an advertisement about helping "users invest and start accumulating savings from VND50,000."

She can choose for how long she wants to deposit the money -- between three and 12 months – but get high interest even without a contracted term.

These apps offer higher interest than banks.

Tui Than Tai, a product developed by e-wallet Momo and Finsight, offers 6% interest for what are virtually current accounts compared to 0.1-0.2% paid by banks.

Infina also offers 6%, while Tikop pays 5.5%.

For three-month deposits too the difference is substantial: Buff pays 7.7% per annum and Tikop pays 7.5%, while banks offer 3.8-5%.

For 12-month deposits, Buff and Finhay pay 9% and 8% as against banks’ 6-7.7%.

These high interest rates have attracted many investors.

Momo announced in August that its Tui Than Tai product had attracted one million users in less than 10 months since launch.

Finhay said it has over two million users for its investment products.

Infina, which is integrated in e-wallet ZaloPay, had over 600,000 customers as of August, four months after its launch.

Fintech companies act as intermediaries, using deposits to buy deposit certificates from banks or invest in exchange traded funds (ETFs) and bonds.

They then "sell" these investments back to users with a management fee of 0-1.5% of their account value and charge deposit and withdrawal fees of 0-1.4% per transaction.

Interestingly, they often guarantee they will pay the promised interest and ensure that "customers’ accounts will record positive growth."

But a spokesperson for an ETF in Vietnam, who asked not be identified, told VnExpress that ETFs do not guarantee profits to investors and fintech firms need to make this clear to their customers.

"Even though fintech companies can guarantee profits, their customers need to be aware that they are investing in instruments with risks and there is a possibility that they will not get the guaranteed profit."

Ho Quoc Tuan, a lecturer at the U.K.’s Bristol University, said fintech companies need to communicate the risks to their customers instead of using terms like "savings" and "accumulating" with a fixed interest rate.

Legal grounds

Companies that act as brokers for various asset classes have become popular globally and are not banned in Vietnam.

Truong Thanh Duc, director of ANVI Law Firm, said what fintech companies are doing is not illegal, and they are in fact using technology to help customers manage their investment and hedge risks.

But he admitted there is still a risk of losing money, especially if a fintech company is not competent or diverts funds for other purposes.

The State Securities Commission of Vietnam recently advised investors that some platforms such as Passion Invest, Tikop, Infina, Savenow, and Buff have been mobilizing deposits from investors through partnership contracts though they are not licensed for fund management.

The watchdog said people are investing at their own risk.

However, some fintech firms have bought stakes in securities companies.

Finhay owns a 96.62% stake in Vina Securities, while Momo is 49% owner of CV Securities.

Finhay CEO Nghiem Xuan Huy said soon customers doing transactions on the app would sign a contract directly with Vina Securities to ensure legality and protection.