Ever wondered how Southeast Asia’s bustling markets can take your business to the next level? As a consultant with over two decades of experience in the FDI landscape of dynamic markets like Vietnam, China and Malaysia, I’ve seen firsthand how strategic insight can turn challenges into opportunities. Today I want to focus on a true […]
Vietnam is believed to be the next booming market for BNPL enterprises in the imminent future by many investors. With its tremendous market potential and a young, smart, and tech-savvy generation of consumers who want to take control of their spending, Vietnam BNPL is expected to take a great leap in its development process. However, given the bumpy road ahead, there still remain many doubts around whether investors can truly find their way to success in this lucrative sector considering all the risks involved.
Top 3 reasons why BNPL is blooming in the upcoming time
Market potential
The Vietnamese BNPL market is displaying great potential for enterprises to jump in and take the initiative.
Statistics from the Payment Department of the State Bank of Vietnam (SBV) showed that by the end of the second quarter of 2022, the number of domestic credit cards in circulation in Vietnam was roughly 543,000, equivalent to only 7% of the number of international credit cards and 0.5% of the total number of cards in the whole market.
Mr. Ho Minh Tam - CEO of VietCredit Finance JSC, Kredivo’s strategic partner in Vietnam commented: "BNPL is gradually becoming a popular form of shopping in Southeast Asia. Considering the domestic market size, low credit card ownership rate will open up many opportunities for us when entering this market”.
Besides, Vietnam’s middle class is growing fast, spending more aggressively, and by doing so, contributing to a change in consumer behavior towards the retail and e-commerce ecosystem. Since BNPL is primarily fueled by e-commerce, the rise of this affluent class in society will help foster a more favorable environment for the growth of the BNPL industry.
Not only that, a report conducted by Statista in 2021 indicates that the number of Internet users in Vietnam is estimated at around 72.53 million people, accounting for 77.4% of the population. Such high Internet and mobile accessibility will allow better and easier access for shoppers approaching this type of monetary solution.
Roaring Gen Z population
This payment method is targeted toward those who do not have a credit card as approval for a loan is nearly instant, with a soft check on a consumer’s credit history. Thus, BNPL is particularly popular among millennial and Gen Z consumers.
Arvin Singh - Co-founder of the “Hoola” BNPL service, pointed out that Millennials and Gen Z shoppers - those born between the late 1990s and early 2010s - are strongly receptive to this type of monetary solution since these generations highly value the flexibility in payment and cash flow management.
The thriving of E-commerce
In an interview with Brandsvietnam, Vlad Savin- Head of Business Development of Acclime Vietnam expressed his great expectation towards the country’s BNPL development after seeing its remarkable growth in both the domestic market and the SEA region.
In 2021, the total value of gross merchandise in Vietnam's e-commerce sector was estimated at around 13.7 billion USD, indicating a surge over $5 billion compared to 2020. Therefore, it is not surprising that Vietnam is expected to have an increase in gross merchandise value from $13 billion in 2021 to $39 billion in 2025.
Not only that, there is the remaining 29.3% of the population in Vietnam who has yet to participate in the digital economy. When comparing this figure with other countries in the area such as Thailand with only 10.1%, we can see a huge expansion prospect for Vietnam's e-commerce industry in the coming years. Even the country’s e-commerce market is predicted to surpass Malaysia and Thailand by 2025 (according to a report by Google, Temasek, and Bain & Company).
Given all the potential, BNPL payments in Vietnam are expected to grow by 126% on an annual basis to reach $1.12 billion in 2022. The BNPL payment adoption is expected to grow steadily over the forecast period, recording a compound annual growth rate of 45% during 2022-2028. BNPL's gross merchandise value in the country will increase from $496 million in 2021 to reach over $1 billion by 2028.
Challenges ahead the road
Cybersecurity attacks
Increased e-commerce sales over the last few years have opened new doors for fraudsters looking to exploit burgeoning payment methods.
However, on the condition that organizations are prepared to put in the initial work of accommodating a new payment method in their fraud prevention systems, they can reap big financial gains and contribute to a more flexible consumer landscape. Overall, it all comes down to building a collaborative and proactive anti-fraud approach for BNPL transactions.
Cash is still taking the lead
Despite the rise of BNPL in recent years, cash is still the overall preferred payment method for Vietnamese consumers with 73%; e-wallets take second place at 37%; followed by Domestic ATM cards and credit cards with 27% and 24% respectively.
In a recent survey conducted by PwC Singapore and the Singapore FinTech Association, when asked about preferred pay-later methods, 51% of survey respondents expressed greater interest in credit card installment plans and upfront payment (39%) over BNPL (24%) for future purchases.
When non-BNPL users were asked why they did not use that payment scheme, 25% said they were already satisfied with their credit card. 32% of respondents cited difficulty in keeping track of outstanding bills owed across different BNPL providers as a key point of resistance.
As of now, despite the low ownership rate, credit cards may stay Vietnam’s preferred pay-later method for some time to come. Therefore, it would be a challenge for any BNPL developers to come up with new strategies to compete and carve their names in this competitive industry.
The absence of specific BNPL regulations
Despite the opportunity, BNPL in Vietnam remains slow-moving. This is partly due to the fact that Vietnam does not yet have a clear legal framework regulating the method. Even the sandbox scheme for fintech activities still remains in the legislative pipeline.
What are the risks involved?
Lack of Transparency
Up to this point, the majority of BNPL’s contracts are quite arbitrarily drafted without the appearance of much necessary legal information. Consumers may not know who the real lender is, who they are actually paying to, what grounds to stand on in case they want to make a complaint or take legal action against the providers.
Bad debt & Overspending
Since using BNPL can trigger impulsive purchases in young people, and if they fail to pay the loan in time, it's a high possibility that they have to pay late penalties. That said, these penalties have raised concerns over future repayments being declined by BNPL service providers and thus, pose a negative impact on the safety and stability of the traditional credit market in the long run
Under-developed customer service system
The rapid growth of BNPL business models and the rapid expansion of this market sector may pose additional risks to consumers. One of the most typical problems is the misuse of customer data and the lack of support mechanisms for consumers who are in financial trouble.
How does it affect investors?
The lack of specific regulations could be seen as a good thing as it keeps an open door for investors to enter the market without worrying about legal barriers. However, a set of underdeveloped legitimate regulations might slow down the process of market management and business quality improvement. It now calls for competent authorities to establish a complete and unified legal framework to better protect the benefit of both users and investors, as well as foster a more healthy and sustainable environment for businesses to thrive.
What’s coming next?
Close up to 3 years after Vietnam’s first move into the pay-later industry, it is still in the early stage of development. The thriving e-commerce ecosystem, young population, and low credit card rate are offering countless opportunities for investors to jump in and spice up the game. However, the lack of legal regulations, cyber insecurity, and high COD rate still present themselves as the biggest obstacles that require companies to make constant effort to break through.
The journey to win consumers’ faith is never easy, especially when Vietnam’s BNPL system is not yet fully developed and still has many unsolved problems. Thus, in order to succeed in this fierce competition, BNPL entrepreneurs should consider adopting the strategy of “Think Global, Act Local” and continuously invest in Brand Building to create sustainable development. Keeping deploying extensive promotions to win over customers and gain market share in this era is no longer a good strategy since customer loyalty, organic growth, and consistency are the key factors leading one business to the mount of victory.
Thus, if you’re still looking for a safe set of hands to assist you with your first steps into Vietnam’s BNPL market, connect with Viettonkin for more in-depth, up-to-date, and personal investment advice. Here, we gather a community of reputable consultants, with highly developed communication channels along with a network of diverse connections of domestic and international businesses. Contact us now to enhance your chance of business success!
