Millions put money into 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 past few months after seeing an advertisement to help “users invest and start accumulating savings from VND50,000 .”

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

These apps offer higher interest rates than banks.

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

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

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

For 12-month deposits, Buff and Finhay pay 9% and 8% against the 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 its launch.

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

Infina, which is integrated into the 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 certificates of deposit 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 the account value and charge deposit and withdrawal fees of 0-1.4% per transaction.

Interestingly, they often guarantee that they will pay the promised interest and ensure that “customers’ accounts will register positive growth.”

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

“Although fintech companies can guarantee profits, their customers must be aware that they are investing in instruments with risks and there is a possibility that they will not get the guaranteed profits.”

Ho Quoc Tuan, a lecturer at Britain’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 basis

Companies acting 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 actually using technology to help clients manage their investments and hedge risks.

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

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

The watchdog said people invest at their own risk.

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

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

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