Vietnam’s total retail sales of consumer goods and services in 2022 rose 19.8 per cent compared to 2021, according to the General Statistics Office. Consumer demand is on an upwards trend but a large number of people don’t have access to credit at traditional credit institutions like banks, with credit card ownership in the population estimated at just 5-6 per cent. Pawn shops, meanwhile, are often associated with high interest rates and poor customer service.
In this context, “Buy now, Pay later” (BNPL) services have emerged as an advantageous option. BNPL is a form of instalment payment suitable for products and services with small or medium value, usually less than VND10 million ($425)). It allows customers to make a purchase now and divide the sum owed into instalments, often monthly, without the need for a credit card, proof of income, or a bank account.
Most notably, if customers pay all instalments on time, they aren’t charged interest. With this form of payment, the customer’s BNPL application is usually approved automatically and quickly.
BNPL can be an attractive option for a segment of the populace, as it provides access to credit to those who don’t have a credit card or the means to take out a bank loan. It is, for example, accessible to young people in Gen Z who are over 18 years old but don’t have a job as yet and are still receiving monthly allowances from their family.
The focus on small and medium-value purchases is among the factors behind BNPL’s relatively fast growth in Vietnam. BNPL services can be cheaper, faster, and more convenient than similar options provided by traditional financial institutions through credit cards or by other financial companies through consumer loan products. An additional plus point is that BNPL can help customers build and improve their credit scores.
The development of BNPL in Vietnam is reminiscent of the e-wallet boom a few years back. A similarity shared by the pioneers in these two industries (Momo in e-wallets, Fundiin and Kredivo in BNPL) is that they hold major market share thanks to their first-mover advantage. Another similarity is that both BNPL and e-wallets are apps, so the competition will also be based on which market player offers the most enjoyable, convenient, and comprehensive customer experience.
However, BNPL focuses almost exclusively on the lending market, so it may face greater competition from traditional financial institutions because lending is one of the latter’s main businesses. This will become more obvious as the competition among BNPL companies intensifies and the market gradually becomes saturated. When that’s the case, BNPL companies may have to look for other sources of revenue such as short-term loans.
Meanwhile, e-wallets and traditional financial institutions like banks are exhibiting strong symbiosis with each other. E-commerce platforms like Shopee have also joined the BNPL race, benefitting from the large pool of potential customers already active in their ecosystem.
Many BNPL providers are currently focusing on two main tasks: expanding the network of merchants linked to their services, and improving the ability to accurately calculate loan repayment capacity.
In my opinion, risk management and user protection are two other highly important priorities. Many consumers in Vietnam don’t have adequate financial literacy, which can lead to overspending and insolvency, especially when BNPL service providers misjudge a customer’s capacity to pay off debts. BNPL companies need to have targeted, effective risk management tools, and limit their customers’ use of BNPL to purchase several products at the same time.
If BNPL companies are not able to manage their risks properly, it can lead to failure to make a profit or even collapse, as was the case with Openpay in Australia recently. When a BNPL business goes under, many merchants may not be able to recover money from the products and services they have already provided.
Moreover, with the current economy marked by high inflation and high interest rates, investors are tending to switch their portfolios away from risky investments and technology companies are tending to lay off staff. As a result, BNPL companies are likely to suffer a wave of liquidity shortages, which could negatively affect the growth of the industry.
In addition, the current legal framework for BNPL is still unclear. If it grows widely without strict governmental regulations, it will likely lead to increased bad debt and a serious impact on credit scores, since some consumers tend to spend more than they can afford. This in turn can negatively affect the economy.