Buy now, pay later (BNPL) apps are increasingly gaining traction in Vietnam with both startups and corporates betting big on it to woo consumers.
There were three significant transactions in August alone, signalling increasing competition, and a wave of consolidation in the BNPL space in the years to come.
Indonesia’s leading digital credit platform Kredivo announced its foray into the country through a joint venture (JV) with family investment office Phoenix Holdings, while local giant MoMo officially launched its BNPL product in partnership with Tien Phong Bank.
Meanwhile, Fundiin, one of the first movers in Vietnam’s BNPL sector, raised a fresh round of capital from Japanese VC firm Genesia Ventures, 1982 Ventures and Zone Startup Ventures, among others – five months after it garnered its first round.
Factors such as low penetration of credit cards coupled with increased internet usage are making Vietnam an attractive market for BNPL apps that enable users to pay later for their e-commerce buys with limited credit cheques and a slick payment experience.
For Kredivo, however, the JV in Vietnam marked its foray into its first foreign market.
“Vietnam came as a logical choice given the low penetration of credit cards in the country and a rapidly growing middle class; the fast-growing e-commerce market; and the similarities in the demographic and consumption patterns to Indonesia,” Valery Crottaz, chief operating officer at Kredivo, had said last month.
According to experts tracking the sector, the pandemic, too, has spruced up demand for BNPL apps with the concept of cashless payments gaining prominence in the country.
“Fundiin describes itself as a budgeting solution to balance income and expenses for customers. It does not charge any interest or fees from users, but only collects penalty fees when users do not pay on time,” said veteran fund manager Nguyen Anh Cuong, who is also the co-founder and CEO of Fundiin.
Fundiin claims that its BNPL solution can increase a retailer’s sales by 30% due to its zero-cost model and seamless checkout process that apparently eliminates the need for an app download or a tedious application. The startup said it has served about 100 merchants in 400 stores across big cities in Vietnam since its inception in 2020.
Earlier, in June, the LITNOW app developed by LIT Australia Technology Group was launched, which paved the way for Vietnamese users to buy their favourite products and pay later in four installments.
“BNPL is definitely here to stay in Vietnam. Similar to the rest of the world, there is a ‘shopper generation’ who do not have credit cards or do not like to use them… they generally like to manage their cash flow. They represent the BNPL’s primary market,” said Dragan Bozic, CEO at Ree-Pay, a shopping company.
According to a loan portfolio report at a major consumer finance company, more than 70% of loans in Vietnam are done in cash.
Being one of the first BNPL companies in Vietnam, Ree-Pay targets young professionals who do not have a credit card or are hesitant to use it.
Other players in the market include names such as Wowmelo, Movi, and Atome.
According to a 2020 report, that was released by Google, Temasek and Bain & Company, Vietnam ranks first in terms of new consumers in the Internet economy, registering a growth of 41%, followed by Indonesia and the Philippines (37%), Malaysia (36%), Singapore and Thailand (30%).
Meanwhile, the rate of smartphone usage in the country is also very high comprising about 94% of 65.8 million mobile internet users, according to the latest data of We Are Social.
“Vietnam has a young and tech-savvy generation who love experiences in modern services. In addition, they were born when traditional banking services were not accessible,” Nguyen Ba Diep, co-founder & senior vice president at MoMo said.
In the near future, the BNPL sector in Vietnam is expected to grow to $33.6 billion in 2027 from $7.3 billion in 2019 at a CAGR of 21.2 per cent, according to projections by Coherent Market Insights.
“The drivers for adoption and growth are to partner with industry leaders and financial institutions and join forces in the areas of financial education,” said Bozic of Ree-Pay.
Pain points for BNPL in Vietnam
Credit gap and lack of knowledge about digital payments is a challenge in the country and has resulted in the majority of transactions being carried out in cash.
Recent data show that Vietnam is one of the countries with the lowest credit card penetration in Southeast Asia besides Indonesia and the Philippines, with only 4.1% of the population owning a credit card, per a Standard Chartered report released in 2019.
Awareness about consumer credit in Vietnam is still low, according to VC firm Nextrans’s general manager Le Han Tue Lam. “The market demand is very large, but the solution must match the perception of users,” she added.
Meanwhile, the zero-cost BNPL model has risks as it is not easy to sustain. Nguyen from Fundiin said that it is important for the industry to find out an effective credit scoring model to maintain risk at a comfortable level, given that minimum information can be collected from users to ensure a seamless experience.
MoMo, meanwhile, believes that artificial intelligence (AI) will help process all customer information within a minute. “Many millions of users of MoMo form a community… responsible behavior is recognized with benefits that will motivate users to pay on time, build a good transaction history,” said Nguyen of MoMo.
Vietnam currently has about 10 BNPL players, which also include a host of P2P lending startups. Experts believe there will be fierce competition in this sector as more big players flock into the market – similar to what happened with e-wallets.
“We see a number of players trying to enter the BNPL space from other categories in lending,” said Scott Krivokopich, co-founder and managing partner of 1982 Ventures.
Mastercard and Pine Labs are also set to launch their integrated BNPL solution in five Southeast Asian markets, including Vietnam.
Meanwhile, witnessing strong growth in the BNPL space, some banks are already allowing users to link their purchases to existing debit and credit cards and make payments in installments. In Vietnam, Sacombank allows customers to use the pay later feature for purchasing train and air tickets.
According to Krivokopich, many P2P lenders are ‘pivoting’ their marketing and branding to BNPL, but aren’t changing their business model. This is especially with predatory lenders who previously hid behind buzzwords like ‘micro-lending’. These lenders have low customer satisfaction and better merchants will avoid being associated with these types of partners, he added.
However, experts also believe that there’s much more to BNPL doling out loans at the time of sale.
“We’ve already seen some of the large digital payday lenders trying to enter Vietnam as BNPLs, only to fail and pull out. Building a good BNPL business takes certain competencies that these pivoting players don’t have and will have difficulty developing,” Krivokopich emphasized.
“We believe that the Vietnamese market is big and the market will reward who brings more value in the marketplace. The market will also decide who is to stay and who is “to be absorbed” by others,” said Bozic of Ree-Pay.