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Vietnam fintech sector set for 'bloodbath' competition

Merger of two startups heralds consolidation for fragmented market

The merger of VIMO and mPOS comes as competition in Vietnam's fintech sector heats up.

PHNOM PENH -- Vietnam's fast-growing but fragmented digital payments market is set for a wave of consolidation following the recent merger of e-wallet service VIMO and point-of-sale startup mPOS, with one analyst predicting a "bloodbath" as competition heats up.

VIMO and mPOS announced last week that they have combined their operations and rebranded as NextPay. The new entity, which says it has 1.5 million e-wallet users and more than 35,000 acceptance points across 45 cities, estimates it will handle $1.5 billion worth of payments this year. That would be a significant share of the local market: The total value for digital transactions in Vietnam is estimated to hit $8.5 billion in 2019, according Statista, up 20% on the year.

While the merger was long envisioned for the Hanoi-based startups -- both were founded in 2014 by the incubator NextTech, led by Nguyen Hoa Binh -- the move casts a spotlight on Vietnam's crowded fintech market.

There were 29 licensed non-bank payment intermediary services in the country as of February, according to the State Bank of Vietnam, with around 20 of these services offering e-wallets. More than 40 banks also provide mobile payment services.

Marc Einstein, chief analyst at Japan-based IT research and advisory company ITR, said companies in Southeast Asia are seeking to "hop on the wave" created by the success of Chinese digital payment giants AliPay, operated by Alibaba Group Holding, and WeChat Pay, run by rival Tencent Holdings.

"It's very much a gold rush," Einstein said, adding that only a few players will ultimately be successful in a country like Vietnam. "It'll be a bloodbath. One winner, maybe two, max."

Amid the proliferation, VIMO and mPOS founder Nguyen Hoa Binh -- who will serve as chairman of NextPay -- believes the combined company will more than hold its own.

According to Nguyen, the company is in the process of closing a $30 million series B funding round and aims to grow at home and expand abroad, with plans to enter Indonesia and Myanmar by next year. It has also partnered peer-to-peer lending startup Vaymuon to begin testing merchant and consumer lending services this year.

Nguyen said NextPay will turn a profit in the "millions" in 2019, though he declined to give further details.

"We think that now is a good time to merge it up and raise a bigger round to dominate the Vietnam market in the next three years, and also to expand into untapped market in South Asia," Nguyen told the Nikkei Asian Review.

Like Einstein, Nguyen too believes that a major industry shakeup is on the way.

"I would say that in the next two or three years, up to 70% of the fintech payment companies in Vietnam will be shut out from the market."

Huy Pham, a lecturer at RMIT University Vietnam and an observer of the country's fintech scene, said the merger will give NextPay an edge, as mPOS -- which specializes in mobile card readers -- has an extensive merchant network.

"NextPay will definitely have a competitive advantage in comparison to all the big players like Momo or Moca by Grab or Viettel Pay or Zalo Pay," Pham said.

Analysts say digital payment companies will need to focus on fundraising, compiling customer databases, growing merchant networks and expanding throughout the digital ecosystem to survive.

"ZaloPay, for example, came from a social network, which had millions of people that are using it everyday in Vietnam," Pham said, adding, "It will be a game of the rich."

Earlier this year, the country's most popular e-payment service, MoMo, reportedly landed $100 million from U.S. private equity firm Warburg Pincus, an investment that followed previous multimillion dollar injections from Standard Chartered and Goldman Sachs.

ZaloPay is backed by VNG Corp., the country's first unicorn. Singapore giant Grab last year signed a strategic partnership to offer digital payment services with Vietnam's Moca. AirPay is backed by Singapore internet company Sea.

This rise in competition comes amid concerted efforts by the government to increase the use of digital payments in Vietnam, which lags behind its neighbors. A World Bank survey showed the number of non-cash transactions in Vietnam is 4.9 per capita compared to 59.7 in Thailand, 89 in Malaysia and 26.1 in China.

The State Bank of Vietnam -- which selected June 16 as national "cashless day" -- recently announced plans to scrap the VND20 million ($856) daily transaction limit for e-wallet users, according to local news reports.

Currently, e-wallets in Vietnam must be linked to a bank account, making banks, which are also pushing digital payment products, an important part of the market.

Can Van Luc, chief economist of the Bank for Investment and Development of Vietnam, said the intersection of fintech companies and banks is prompting competition but also cooperation and collaboration.

"Banks and fintech also have already been in Vietnam cooperating very well ... because they try to capitalize on each other's strengths," he said. He also pointed to 2016 figures that show cash in circulation in Vietnam at 19% of GDP, compared to 12.6% in Thailand, 9.2% in China and 7.7% in Malaysia.

"Vietnam has still a lot of room to grow with the cashless payment society," he added.

According to recent figures, only 59% of Vietnamese adults own a bank account. Seeking to increase coverage, the government this year gave the greenlight for telecommunication companies to trial e-payment services.

Binh Nguyen, discipline lead of finance at RMIT, said the move could help boost e-payments in rural areas, but also make competition "even more fierce."

"We have many e-payment systems and different e-wallets and only a few will survive," he said.

"The one that will survive, are the ones that are able to build up a proper ecosystem and in order for them to do so, they need funding. So this will either be through merger or foreign investors or domestic banks.

"Telecommunication companies may be a game changer here, since they have very broad infrastructure."

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