|E-commerce - illustration photo. Source: freepik.com |
Yuan Fang, director of Southeast Asian investment at BAce Capital, a fintech-focused venture capital fund backed by Ant Group and Alibaba said, “Last year, BAce capital only invested in Singaporean and Malaysian markets. This year, we are paying more attention to the Vietnamese market. We really value companies and entrepreneurs who work to create value for consumers and society.”
“There’s still a lot of room for improvement in the e-payment and fintech industry in Vietnam. Vietnam’s credit growth and banking penetration rate are still low. Many Vietnamese people aren’t able to enjoy the benefits of cashless payment. The fintech industry is still in its infancy and we’re very positive about its future growth,” Fang said, adding that Vietnam can apply the story from China to drive its digital economy.
Specifically, the original idea of Alipay was to provide add-on services and resolve the trust issues of customers. Alipay was born in 2004, in the context of Alibaba just starting to enter the e-commerce market, needing a tool to ensure online transactions will take place safely and create confidence for consumers. Since then, the e-payment revolution in China began.
“To further drive e-commerce growth, the first step is to bring whatever is available offline to online; then the next step is to create what is yet to exist offline in the online platform. That is similar to how Alibaba created Alipay, which was a completely new concept,” Fang noted.
Vietnam already has a very good foundation in the form of an excellent manufacturing industry and logistics systems.
Likewise, Vu Nguyen, vice president at Singaporean sovereign wealth fund Temasek, is upbeat about the potential of the Vietnamese market.
He said, “The popularity of smartphones and rising internet penetration are amongst the major growth drivers of e-commerce in Vietnam. One more driving force is the large population of millennials and Gen Z, who actively engage in online shopping and social media. This leads to the growth of social commerce in Vietnam, combining the ease and accessibility of e-commerce with the community engagement of social media. Other enablers for e-commerce growth are logistics systems, payment systems, and a regulatory environment.”
To tap into the market’s growth, Temasek has stepped up its activities in Vietnam’s digital economy with investment in Vietnam’s first unicorn VNG, as well as Scommerce - the parent company of startups GHN and AhaMove.
Vietnam’s digital economy is forecast to grow to $52 billion by 2025, an annual 29 per cent increase from 2020, according to a study published by Google, Temasek, and Bain & Company at the end of last year. It noted that Vietnam’s e-commerce market value reached around $12 billion in 2020, ranking after Indonesia, Thailand, and Singapore.
Moreover, the work-from-home trend has expedited delivery and ride-sharing, as well as the desire to avoid contact with shops and food and beverage outlets. This, combined with the meteoric rise of e-commerce, has also boosted demand for delivery and ride-sharing services. E-wallets have also benefited since the use of cash-on-delivery has decreased marginally.
Despite the potential, there are some challenges for Vietnam to unlock the full potential of the market. Trung Nguyen, co-founder and CEO of Loship said, “It’s all about payment. Our platform processes about 100,000 transactions a day, 80 per cent of which is cash-on-delivery. Vietnam is mainly a cash-based economy, with most transactions conducted using cash as payment. Customers don’t want to pay upfront, which can lead to a situation where customers want to return the product, further increasing operational costs. If the ratio of e-payment can go up to 50-60 per cent, it will bring about a sea change in the logistics and e-commerce industry.”
“Meanwhile, the more e-commerce grows, the more logistics services and last-mile delivery are forced to grow alongside it,” Nguyen added.
Fast fulfilment is becoming an industry expectation, as consumers now expect fast, free shipping and competitive pricing.
“This customer demand challenges logistics and last-mile delivery companies, and companies are now forced to adjust their strategies to provide the low-cost and on-demand delivery service that meets the customer needs,” he explained.
Long Pham, country manager at Hong Kong-based capital fund Access Ventures, said that the concept of e-wallets and digital payment is dominant in top-tier cities in Vietnam. The adoption of cashless payments in the country is high, not only in terms of e-wallets but card-based payments as well. Meanwhile, in lower-tier cities, cash is still king.
“The digital payment space in Vietnam has been growing tremendously in recent years, with the surge of e-wallet platforms like MoMo or the integration between digital payment and banks such as VNPay. However, Vietnamese consumers still prefer cash payments, which is a significant challenge hindering the growth of e-commerce.”