Vietnam’s underbanked: Are fintech startups ready to take on telco giants?
Published 25 March 2021
As the mobile money pilot project takes into effect this March, Vietnamese fintech startups, including over 30 e-wallet providers, will face fresh competition from national telecommunications companies.
At the beginning of March, Vietnam’s Prime Minister has approved the “Mobile Money” pilot project, allowing telecommunications businesses to implement mobile money services in the next two years. The pilot project is expected to strengthen the exponential growth of Vietnam’s financial services, promoting financial inclusion and signalling an initial success of a cashless society in Vietnam.
In a talk with a local newspaper, Trung Thanh Vu, manager of Military Commercial Joint Stock Bank, a partner with Viettel Pay to provide mobile money service in the country, said that this method will be an “extended arm” of the banking industry as it could cover the underbanked market in rural areas.
As recorded in 2018 by Euromonitor, World Bank and Bain and Temasek, 69 per cent of Vietnamese adults do not have bank accounts, the highest rate in Southeast Asia.
Though the number dropped drastically to only 37 per cent as of the end of 2019, according to the State Bank of Vietnam, experts said that the banking industry meet difficulties in serving the remaining potential customers as most of them reside in rural and remote areas, which favour transaction in cash and beyond the reach of financial services.
Meanwhile, by the end of October 2018, Vietnam had 130 million mobile subscribers, 1.3 times higher than its population. Around half of them use 3G and 4G, and 43.7 million, or 45 per cent of the population, using smartphones, as per a report from the country’s Ministry of Information and Communications (MIC). In other words, Vietnam is among the top nations achieving this extensive coverage of mobile telecommunication and mobile money can be the missing piece of the complete picture.
Without linkage to a bank account, a person employing a mobile money service can still make transactions via mobile phone. The involvement of this method can help remove the current incumbent that others have not resolved entirely for the unbanked users, such as paying for small-value goods and services.
From a global perspective, in 2019, more than one billion people have registered mobile money accounts, accounting for one-seventh of the world’s population, according to the Global System for Mobile Communications Association. The total amount of spending via this method is approximately $2 billion daily and has witnessed a 20 per cent growth rate annually.
Imminent competition between fintech startups and telco giants
Vietnamese economist Hieu Tri Nguyen said that mobile money and e-wallet would be each other’s archrivals, BNews reported.
The late birth of mobile money also poses a certain barrier to its future development. People are getting used to other payment intermediaries, such as credit cards, e-wallets, or QR Code by VNPAY.
Before mobile money, payment via mobile phone channels (including mobile banking, e-wallets) has already increased by 125% compared to the same period in 2019, according to the statistics of the Payment and Settlement Department of the State Bank of Vietnam.
In a broader outlook, mobile money will join a crowded market with a marked number of fintech startups in Vietnam, which saw a considerable growth of more than 179 per cent between 2017 and 2020, according to a report by Fintech News Singapore. Payment remains the biggest segment, accounting for 31 per cent of all Vietnamese fintech startups as of October 2020. The country is also home to 39 licensed non-bank payment services providers, with MoMo, Payoo, Moca, ZaloPay and ViettelPay being the five biggest e-wallets.
Challenges in the horizon
But the looming challenges to those startups are not lying on the “mobile money” itself, but the telco giants that embark on this business with their huge customer base and long-built ecosystems.
Earlier last year, three telecommunications giants in Vietnam – Viettel, MobiFone and VNPT, which are serving nearly 96 per cent of Vietnamese mobile subscribers – registered to add payment intermediary to their business lines, paving the way for penetrating the mobile money market.
Kien Trung Pham, CEO of Digital Viettel, a Viettel subsidiary, told ICT Vietnam that the company can immediately provide mobile money services for its 60 million mobile subscribers, leveraging the payment method through its 2,600 stores, malls, post offices, 270,000 points of sale and more than 30,000 employees providing service support for customers nationwide.
VNPT also shared its plan to integrate mobile money payment method into its existing ecosystem, ranging from healthcare, education to television and mobile. Around 100,000 VNPT’s points of sale are ready to provide the new service. What’s more, as VNPT has been assigned to implement the national public service portal since 2020, the company possesses a huge advantage to roll out this type of cashless payment method for public services.
MobiFone representatives once said that they are aware of the fierce competition with other financial intermediaries such as e-wallet providers. Still, they are confident with their reputation within Vietnam, primarily through their countrywide mobile telecommunications network coverage.
Potential collaborations to better serve underbanked people
Some experts said that the direct competition between those telco giants and other payment intermediaries (like e-wallet) might not happen, as mobile money has a slightly different market.
Mobile money will tap into only the “niche” market, which resides mainly in rural areas and prefer a better way to make small purchases. To be more specific, mobile money only allows a maximum transaction limit of VND10 million per month (about $432) for each register, according to the regulation. This is much lower than the current ceiling of VND100 million (about $4,320) per month for each e-wallet account.
In terms of other traditional money transfer operators, they can also work with mobile money providers to offer cross services. In Africa and other developing countries, Western Union has joined forces with Safaricom M-PESA in Kenya and PayMaya in the Philippines to provide cash transfer services through mobile. Bangladesh-based bKash mobile money is also collaborating with Mastercard to deliver remittance services.
Many startups also look at the entry of telecommunications behemoths as an opportunity rather than a challenge.
Gimo, which has just received an undisclosed amount of seed funding from local investors, is a fintech startup employing Earned Wage Access (EWA) platform to address the financial needs of underbanked workers, who are also the target customers of telco giants’ mobile money services.
“We see them as potential partners,” said Quan Nguyen, co-founder and CEO of Gimo, told W.Media. “This is where we could work together to create value for our joint customer base.”
Nguyen highlighted the possible partnerships with telco companies to enable users to route their advance payment to a registered mobile number, supplementing their current option of a dedicated bank account.
“It’s a great opportunity to enhance our user experience and scale our user base,” he stressed.
Experience in other parts of Asia are mixed. In the Middle East, and parts of Southeast Asia, telcos call the shots. In India, fintechs are in the forefront. Ultimately, Vietnamese customers will decide what is beneficial for them.