How To Create The Mobile Payment Revolution In Vietnam In 2021 (Article 1 of 2)

Disclaimer: This article is written based on public information and my own views. As all hypothesis does, they can be proved or disproved by further data and investigation. I do welcome the comments of your opinions on the same issue.

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THE CONTEXT

Challenges of the mobile payment industry in Vietnam.

According to Cimigo's report, by the end of 2019, 90% of the Vietnamese e-wallet market comprises three companies: MoMo, Moca (Grab ecosystem), and ZaloPay. However, this fact has certainly changed a lot. 2020 was a year big companies continue the game of "burning money" on promotions to attract new users.

VinID and VinShop (under One Mount Group), ViettelPay, AirPay (part of SEA, co-owner of Shopee, Foody), and many others all have their own calculations and determination. In March 2021, the Prime Minister has also issued a decision approving the pilot of mobile money for small-value goods and services (capped at under 10 million VND per month). This decision will pave the way for major carriers like MobiFone, Vinaphone to participate in the mobile payment game. As a result, the market is getting more excited.

The potential is still great, but it comes with many challenges. Statistics of the State Bank show that Vietnam currently has 89 million personal payment accounts, equivalent to nearly 70% of adults with bank accounts, but only 10 million e-wallet accounts. In terms of transaction volume, mobile payments are only 1% of card payments via POS machines in 2019. But in the end, the total amount of non-cash payments is only a small part of life, as 80% of Vietnamese still use cash in daily life, 98% use cash for transactions under 100,000 VND (according to IDG survey). 

A critical mass of acceptance points prevents mobile payment from fulfilling the promise of a convenient cash-less lifestyle. A typical user can only use an e-wallet within digital services, which is similar across players, and F&B, which is heavily promotion-driven and competitive. On a broader scale, mobile payment is missing in the most important and frequent use-cases, most notably is grocery purchases.

Even in best use cases, coverage of mobile payment over cash is still tiny because each player is 'just another method' to accept payment. In most cases, merchants will prioritize cash and reluctant to accept card or mobile payment. The mass individual sellers, who are not tech-literate, cannot handle a complicated process to go digital. Even for merchants who went digital, maintaining multiple payment gateways is complicated and confusing. 

With limited use cases and the way mobile payment players operate with games and youthful manner recently, this solution is only attractive to younger people with limited purchasing power. A large portion of the population, who are main purchase decision-makers, remains unserved, uninspired, unengaged. 

Today is an easy time to get users excited but hard to gain traction among merchants. All players lack a scalable and efficient solution to expand the network. Eventually, all those excited users, who enjoy promotions and games, will quickly be disappointed by the lack of acceptance points. The 'later' reality of being financially sustainable might never come, and the product may never recover. 

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ROOT CAUSE ANALYSIS

What causes those challenges to happen and continue?

From the merchant side:

There is no transaction problem to fix. Cash is already perfect. It is free to use (from both ends) and convenient (everyone has it, and every merchant accepts it). Meanwhile, although lower than card charges, mobile payment transaction fees are still a turn-off to any merchants and users. If they have to, they will use mobile payment, but THEY HATE TRANSACTION FEES. Cash is still king. 

Meanwhile, things that mobile payment providers promise to merchants are not realistic. Merchants do not gain access to millions of active users because those users themselves also have cash, card, or another e-wallet. Instead of a simpler life, they live a more complicated one maintaining cash and multiple e-wallets, each with different hardware, processes, settlement accounts, and so forth.

To merchants, what really matters are 

• How to grow customers who have never bought in their shops, 
• How to keep them coming back after that first visit
• How to engage with them, make them love the shop, and become loyal customers
• How to look back at customer profiles and behaviors to inform future improvements
• How to restock inventory effectively and reliably, when all they have are Zalo chat history, phone calls, pen & papers, and arbitrary memory
• And lastly, how to access the working capital loans, when 100% of their revenue is by cash, unverified.

These are real needs, real pains, that cash fails to fulfill, yet so does any mobile payment player. 

A typical vegetable/fruit wholesaler sell their products to multiple market resellers and small restaurants. They have to fulfill products from multiple Zalo chats on ordering, endless paper for delivery confirmation, quote changing price via Zalo, and maintain a separate Excel record to bill customers daily or weekly. Under-fulfilled delivery, late billing, wrong price quotation happen regularly due to human errors. They dream of having a better solution to their problem. On the other side, resellers and small restaurants need a simple inventory management tool to order the right amount: how much they ordered on average last week, historical fulfillment reliability of their suppliers, and a reminder for due payment. 

Similarly, restocking in FMCG is completely human-based. For example, grocery store owners have to keep track of many chats, phone calls from many salespeople and suppliers to restock their products in time. 

One Mount Group with VinShop aims to solve this problem by offering an easy-to-use one-stop-shop app for all FCMG products, lower price by central negotiation with major FMCG manufacturer, and trusted 24h delivery fueled by heavily invested logistics infrastructure.

Even with the right proposition, acquiring and serving a mass market of merchants are daunting tasks to any players. Many players lack the critical resource talents and governance of a traditional sales team to expand the network effectively. Meanwhile, the tech is under-leveraged in the onboarding process. 

A best-case practice in Kenya. Kopo Kopo is a merchant aggregator whose main business is integrating many mobile money solutions into one unified platform for merchants. They have one of the fastest and most efficient onboarding processes in only days. In China, Alipay and WeChat Pay account for over 90% of mobile payment share, use a self-enrollment platform to accelerate the onboarding of merchants, especially small ones.

From the end-user side:

Unlike service subscription, which retains customer, e-wallet is highly transactional, thus result in higher churn. Promotions are burnt only to fuel individual transaction that is not guaranteed repurchase. In Vietnam, even giants like Grab, Shopee, Lazada, Momo, BAEMIN still struggle to retain customers past the transaction nature of their business. Many choose to engage users with games and deal-hunting, but it is just another reinforcement for promotion and transaction. 

World-best transaction players, such as Amazon in E-commerce, provide value pass transactional of being cheapest and fastest. They are also a friend who recommends relevant products (AI-powered recommendation), produce good digital content (Amazon Prime Videos) and many more. Tiki tried to adopt the fast delivery model, but the benefits are still very transactional (a certain amount of free shipping, no more value-added). Grab introduced subscription packages, only to find out "super users" typically max out their benefits out of those offers, resulting in a loss rather than higher customer value. 

Like merchants, customers have no problem with cash. Therefore any kind of charge on mobile payment is a huge turn-off. E-Wallet's key proposition to users has been free and instant P2P money transfer. However, with the increase in mobile banking and fee-waiver, the competitive edge is being blurred. Money is best kept in their transaction bank account, which is super versatile to be transferred to any bank, instantly, 24/7, free of charge (Techcombank, Timo, and more banks start to adopt this). An E-wallet is only to be received sufficient funds to enjoy a certain promotion. 

Promotion across e-wallets is somewhat broken. It is designed to attract new customers, gives widespread promotion to everyone, and in fact discourages frequent users. 

Even for frequent customers, it is frustrating to see that some merchants are digital but still cannot accept their payment because of a lack of interoperability. The only solution for customers is to sign up for several wallets and load each with a sufficient balance to transact, which is an unappealing prospect. 

In essence, E-Wallets are only as good as their promotions. But they do not really fulfill customers’ true needs.