The Market for ‘Buy Now, Pay Later’ Services in Vietnam

With a low rate of credit card use and high consumer demand, the race is on to become the number one provider of buy now, pay later services in Vietnam. Here’s what foreign firms entering the fray should know.

Based on data from the General Statistics Office, it is estimated that the overall retail sales of consumer goods and services in Vietnam grew by 19.8 percent in 2022 compared to 2021. The majority of these sales, however, were not made with credit.

In fact, the proportion of the Vietnamese population who own a credit card is relatively low, at approximately 5-6 percent of the population. Nonetheless, Vietnam’s middle-class is growing and consumer demand is rising.

Fintech companies are now trying to capture this middle segment, with a range of buy now, pay later (BNPL) services.

These services allow customers to purchase products or services and defer the payment for a later date or convert the full price into smaller, regular installments. This has proved very popular around the world, particularly with younger consumers who may have difficulty accessing credit.

This is true of Vietnam as well, where the uptake of BNPL services is growing rapidly.

See also: Google Wallet’s Arrival Highlights Fertile Fintech Sector in Vietnam

The growth of buy now, pay later services in Vietnam

The BNPL sector in Vietnam is expected to grow steadily over the next few years, with a compound annual growth rate (CAGR) of 45.2 percent between 2022-2028, according to Research and Markets. This translates to an increase from US$496 million in 2021 to more than US$4.7 billion in 2028 in purchases made using BNPL services.

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Notably, BNPL has gained significant prominence in the Asia-Pacific region, with 83 percent of the Mastercard New Payments Index 2022 survey respondents stating they were familiar with this particular payment method. It also reported that 62 percent of individuals were comfortable utilizing BNPL to make purchases.

The top reasons for using BNPL include low or zero-interest payment options (57 percent), the ability to expedite a purchase (55 percent), and emergency purchases (55 percent).

Why is buy now, pay later so popular in Vietnam?

E-commerce

In 2022, the value of Vietnam’s e-commerce market amounted to US$14 billion, and it is projected to increase by up to US$32 billion by 2025, according to Google’s e-Conomy SEA 2022 report.

However, with just a fraction of the population using credit cards, alternative payment methods will be needed. BNPL is one alternative currently being trialed by Tiki and Sendo, two of Vietnam’s most popular e-commerce marketplaces.

The growth of mobile payments

In the initial 11 months of 2022, payments made through e-wallets, apps, and bank cards increased 85 percent in volume and 31 percent in value over a year earlier.

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According to data from the State Bank, there are a total of 45 electronic wallet providers in Vietnam whose collective wallets contain VND3,300 billion (US$140 million) and this number is growing particularly among young people.

Mobile payments have made it easier for BNPL services to flourish in Vietnam as they offer a simple and streamlined payment process. BNPL services often require only basic personal information and can be accessed directly through a mobile device, making them an attractive option for many consumers.

Key BNPL partnerships in Vietnam

Sendo (Vietnam) and Kredivo (Indonesia)

Sendo’s BNPL service is made possible through a partnership between Kredivo, an Indonesian online credit platform, and local financial firm, Tin Viet Finance Joint Stock Company (VietCredit), which operates in the fields of finance, credit, and capital mobilization.

Users can register for an account to obtain a credit line and use it to pay for purchases on Sendo’s e-commerce marketplace.

Kredivo and Phoenix

Kredivo also has a BNPL arrangement with Vietnam’s Phoenix Holdings. Phoenix Holdings is a corporation that offers investment, retail, and financial services. The first joint venture between Kredivo and Phoenix Holdings was also established in partnership with VietCredit.

Momo and TPBank

In July 2021, MoMo joined forces with TPBank to enter the BNPL market. The MoMo Postpaid Wallet enables users to access small lines of credit for a vast range of services within the MoMo application with term limits of 35 to 45 days. This includes various essential services like electricity and water bills, internet services, apartment fees, and tuition fees, and for shopping at supermarkets, convenience stores, and online.

LOTTE and OpenWay

LOTTE Finance Vietnam, a subsidiary of South Korea’s leading credit card company, LOTTE Card, has recently introduced a BNPL service named PayLater by LOTTE Finance to enhance the online shopping experience of Vietnamese consumers. It is among the first BNPL solutions in Vietnam and was developed using Way4 digital payments software provided by OpenWay.

Domestic BNPL firms

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MFast announced its entry into BNPL with the MFast Pay Later service after raising US$2.7 million in July. Another BNPL startup, Fundiin, also raised US$1.8 million for a seed round in the previous year.

Viettel Money has partnered with FE Credit to launch Paynow, a postpaid wallet service that can be activated online within 30 seconds with a maximum spending limit of VND 2 million (US$85). This service offers a deferred payment period of up to 45 days without interest.

Potential benefits of offering BNPL services

The BNPL model has significant advantages for retailers. It can improve their business performance by increasing the purchase conversion rate and the average order value, thereby boosting sales.

Moreover, BNPL service providers and loan partners benefit from the fees they receive from retailers. Compared to regular loans, payments for BNPL services can be collected within a few months, yielding higher profits, over shorter periods of time

Potential risks of offering BNPL services

Lack of regulatory framework

In the context of BNPL services, several challenges exist in ensuring fairness, transparency, and protection of consumer interests. The current regulatory framework in Vietnam poses constraints for BNPL providers, in that it restricts who can and cannot offer credit.

In this light, in Vietnam, BNPL services are offered through a contract to sell coupons with deferred payments between the BNPL provider and the consumer, however, the actual lender must be an authorized finance company.

Consumer over-leveraging

There is also a risk of consumer over-leveraging as BNPL services may encourage overspending and impulse buying through easy financing of purchases. This could lead to consumer default and negatively impact the safety and stability of the traditional credit market.

Risks in data protection

Additionally, the rapid growth of BNPL business models and the expansion of the market may pose additional risks to consumers, such as misuse of customer data and lack of support mechanisms for vulnerable or financially challenged customers. These risks must be addressed to protect consumer interests in the rapidly growing BNPL industry.

A case study from Australia-based Openpay

Openpay’s most recent quarterly report showed it had suffered US$18.2 million in operating losses, and a US$38 million loss over the last two quarters leaving it with just US$17 million in cash equivalents. Its insolvency receiver, McGrathNicol, is yet to confirm whether these retailers will get their money back, while customers will still have to pay off their debts in installments.

As a result, Australia has already begun requiring members of the Australian Financial Industry Association to impose restrictions on overdue payments.

Lessons from the case of OpenPay are notable. When bankruptcy occurs, many service and product providers may not be able to get their money or products back. BNPL service providers need to have specific and effective risk management tools and limit customers from using too many BNPL services at the same time.

Future of buy now, pay later in Vietnam comes with both opportunities and risks

The demand for fast and convenient financial services has made the buy now, pay later trend in Vietnam irreversible. With an increasing number of BNPL projects and partnerships being formed, there is potential for improved performance, increased customer loyalty, and boosted profits for both service providers and retailers.

However, the lack of specific regulations for BNPL in Vietnam means that the risks associated with these services cannot be overlooked. Investors should closely monitor developments in the regulatory environment and be aware of the limited financial literacy among Vietnamese consumers.

Therefore, it is crucial for the development of BNPL products to be sensible and thoughtful to benefit all parties involved.

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