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Banking & Finance

Mobile payments reshaping banking

Released at: 11:50, 03/08/2019

Mobile payments reshaping banking

Photos: Viet Tuan

Vietnam is experiencing a boom in mobile payments as more and more e-wallet providers have aggressively joined the market.

by Hong Nhung

The recent entry of Moca and ViettelPay into Vietnam’s e-payment services market has sparked new competition among mobile wallets and the country has become a “battlefield” not only for e-commerce retailers or ride-hailing apps but also for fintech investors. Vietnam is turning into the ASEAN region’s fintech hot spot, as it has been on the cusp of a mobile payment revolution with rapid increases in the number of startups operating in the financial services sector, along with a corresponding rise in investment in the sector.

Crowded space

Vietnamese fintech startups have diverse offerings, including credit scoring for mobile payments and various lending services. Around 100 fintech startups have been launched in the country, operating primarily in the field of payments. In the fintech segment, digital payment is one of the hottest areas of activity, with 29 e-wallet providers being licensed to date, and with e-payments’ rapid growth, investors are aggressively seeking exposure.

There are a few big players in e-payments, like Moca and AliPay, but local fintech firms are giving them a run for their money. One of the pioneering Vietnamese startups in the e-payment space is Momo. The country’s best-known e-wallet provider announced early this year it had landed a large Series C investment led by leading global private equity firm Warburg Pincus, following on from funding from Standard Chartered Private Equity in 2016 and Goldman Sachs in 2013.

Momo started out offering digital payments via an e-wallet app. It has since expanded into utility bill payments and mobile top-ups, as well as other areas and the payment for goods and services at 110,000 payment points nationwide, including popular chains. Most recently, it is offering payments on loans and is developing a credit scoring system that will allow it to introduce financial services to users in partnership with financial institutions. With the Warburg Pincus funding, Mr. Nguyen Ba Diep, Executive Vice Chairman of Momo, told VET it will continue to reinforce its resources to invest heavily in adopting new technologies, expanding customer and partner networks, increasing payment points, and developing its human resources.

It remains the leading Vietnamese e-wallet provider, with 10 million customers and 8,000 transaction points around the country. But the distance between MoMo and other e-payment providers is not so wide, as rival apps can now offer similar features. The trailblazers - Momo, Bankplus, VNPay, and Vimo - and newcomers such as AirPay, ZaloPay, and Moca are fiercely competing to seize share in the intermediary payment market, in which only bold spenders have taken the upper hand, no matter when they joined the market.

The way is now open to giants with enormous financial resources to make inroads into Vietnam’s intermediary payment services. The market is entering a new stage of reshaping, with a rising number of large businesses engaging in e-wallets and acquiring unprofitable startups and fintechs. For instance, the Singapore-based leading internet company the SEA Group partnered with Vietnam Esports Development to launch the AirPay service in 2015 and has cooperated with the Vietnam Payment Solution JSC in VNPay since 2017.

Being part of the SEA Group ecosystem allows AirPay to integrate deeply with Shopee, Now Delivery, and Garena, according to Mr. Tran Tuan Anh, Managing Director of Airpay. “We have integrated with Garena and Now Delivery since 2017 and then with Shopee in May,” he said. “The initial results are optimistic, as the number of users is growing quickly and our deep integration with partners in the SEA Group ecosystem helps us provide a better cashless payment experience that other independent e-wallets can’t offer.”

Another rising mobile app is ZaloPay. Since its debut in 2017, the app has made good use of users registered with its parent company VNG, an online entertainment and social media platform. After a long presence in other markets, Grab launched GrabPay in Vietnam and became a strong competitor in the domestic e-payment battlefield. They are all spending large sums to conduct promotional and advertising campaigns to attract more customers.

Lucrative market

Digital payment solutions accounted for about 89 per cent of the fintech market in 2017, according to the Asia-Pacific-focused consulting firm Solidiance, personal finance 9 per cent, and corporate finance 2 per cent. In the years to come, personal finance and corporate finance services are expected to grow faster than digital payment solutions and will account for 24 and 6 per cent, respectively, by 2025.

According to Solidiance’s latest white paper released in May 2018, Vietnam’s fintech market was worth $4.4 billion in 2017 and is predicted to reach $7.8 billion by 2020, for a 77 per cent increase over three years. This anticipated rapid development is being driven by numerous factors, including technological infrastructure improvements, high internet and smartphone penetration rates, regulatory efforts to increase financial inclusion and reduce cash payments, rising income and consumption, which fuel the e-commerce sector, and a young and tech-savvy population.

Mobile payments in Vietnam surged from 37 per cent the total to 61 per cent last year. The 24 percentage point increase made the country the fastest growing economy in mobile payments in Southeast Asia, according to the Global Consumer Insights Survey 2019 released by PwC in April. “Mobile payment services are also gaining widespread acceptance, especially in emerging regions that have leapfrogged past landline-based telephone systems and gone straight to mobile and smartphones,” the report noted.

There is tremendous potential in Vietnam’s fintech and e-payment market, according to Ms. Chyi Lee, Head of World Business Strategic Intelligence at Kasikorn Bank. “Banks are undergoing digital transformation and the number of fintech startups is growing,” she said. “Banking adoption is still relatively low owing to the high cost of serving the underbanked population, so there are ample opportunities for digital solutions. Fintech, particularly e-payments, will continue to expand as we see continuous growth in e-commerce, and non-cash payment is also beginning to gain traction in offline commerce. We also see more collaboration between banks and fintechs that allow fintechs to scale even faster.”

She believes Vietnam has all the right ingredients to become a fintech hot spot, with a sizable market and young population that is ready to adopt new digital technology, an economy growing strongly, and being home one of the most active venture capital (VC) markets in the region, where startups have access to local and international funding. The country also has a strong tech talent pool and supportive government.

New age of financial services

After setting up a Fintech Steering Committee in 2018, the State Bank of Vietnam (SBV) has been releasing regular updates to support fintech growth in the country and seek ways to protect consumers from potential risks. Such moves will set clearer standardization for the market, lowering market entry barriers for new players, which in turn will allow more innovation in the payment space and boost the adoption of non-cash payments.

On the policy front, Ms. Lee emphasized that a comprehensive legal framework needs to be established to address loopholes and ensure regulatory clarity to mitigate investors’ hesitation to invest in the industry, in which significant capital is required. The business environment also needs to be streamlined to create more opportunities for new players to enter the market and increase market competitiveness to benefit users.

Technology and capital resources, previous experience in operations and management, as well as insights into customer behavior from other markets provide advantages for fintechs entering Vietnam, posing would-be challenges for local players who are typically still relatively smaller in scale. Moreover, she added, improvements to the country’s technological infrastructure should continue to facilitate exposure and the use of digital technologies while providing support for local startup activities to encourage the younger generations to contribute towards fintech innovation.

The entry of new players in the market will, of course, result in more competition, and eventually only the stronger players will survive. On top of launching successful products and services, fintechs will be prompted to innovate faster to keep up the pace, to be able to offer solutions at competitive pricing, to expand swiftly to achieve mass adoption, and to strategize to grow sustainably. These challenges could be turned into growth opportunities for fintechs to accelerate. 

Advancements in digital technology have facilitated the growth of e-payment in both the demand (consumers) and supply (fintechs) sides. Ms. Lee said growth in mobile penetration and exposure to e-commerce and related services such as mobility has driven up demand for convenient digital payment services. Improved technology infrastructure such as cloud computing and API technology also allow fintechs to come out with new innovations and form partnerships within the ecosystem to expand their footprint more effectively. 

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