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FC Insights | July 2021
Webinar Review - E-Commerce Upgrade: Trends & Opportunities in Vietnam
Speakers:- Mr. Vu Nguyen, Vice President at Temasek- Mr. Long Pham, Country Manager at Access Ventures- Ms. Yuan Fang, Director of SEA Investment at BAce Capital- Mr. Trung Nguyen, Co-Founder & CEO of Loship
Moderator:- Mr. Khoi Tran, Investment Banking at Favour Capital- Ms. Brigitta Vanya Sai Edgina (Gina), Investment Banking at Favour Capital
Moderator:- Mr. Khoi Tran, Investment Banking at Favour Capital- Ms. Brigitta Vanya Sai Edgina (Gina), Investment Banking at Favour Capital
Discussion Points
1. Main building blocks for thriving E-commerce and digital economy in Vietnam
2. Key challenges for E-commerce in Vietnam
3. Win-win for E-commerce platforms and small offline merchants
4. Evolution of payments ecosystem in Vietnam in the short-to-medium term
5. Competition for customer acquisition for Vietnamese fintech players
6. Effects of E-commerce on E-logistics development, particularly last-mile delivery
7. Key challenge facing the E-logistics in Vietnam
8. Pricing Vietnam’s startup and interest from regional investors
9. Trend of social commerce and live streaming in Vietnam compared to China
Below: Webinar Highlights
01. Main building blocks for thriving E-commerce and digital economy in Vietnam
Vu Nguyen: 1. GDP growth: The growth of E-commerce can be exponential when GDP per capita crosses a certain number. An ideal threshold is USD 3,000 per person, which is where Vietnam is at the moment and where China was ten years ago.2. Internet and smartphone penetration: Around 70% of the population has Internet access. Almost all Vietnamese adults own a smartphone.3. Social media penetration: Social commerce in Vietnam is very developed since many people have sold products through social media platforms like Facebook and Zalo.4. Other key drivers: logistics, cashless payment penetration, regulatory environment, and consumer trust are also driving the growth of the E-commerce industry in Vietnam. Yuan Fang:1. Trust building through online payment services: Generally, suppliers want to receive money before delivering the products while consumers want to receive the products first before paying. Alipay resolved this mismatch by providing an escrow service with a credit scoring system introduced afterward to further facilitate online transactions. 2. Increased number of suppliers: Availability of supplies, goods, and services online that are otherwise not available offline is adding attractive value to customers, especially if the online channels can provide better customer services and lower prices. From an international investor perspective, Vietnam already has a great foundation given its thriving economy, effective COVID-19 measures in place, and growing manufacturing industry.
02. Key challenges for E-commerce in Vietnam
Vu Nguyen: 1. Consumer trust/consumer habits: Vietnamese people’s habit of purchasing in traditional wet market is well-entrenched, leading to low penetration rate of modern trade channels. Consumers’ views toward online shopping would still take some time to change.2. Digital payment system: The digital payment’s user experience should become so fast and convenient that it becomes second nature. Nowadays, digital payment on E-commerce platforms in Vietnam is not at that stage where it is painless and seamless. 3. At the company level, data security and access to talent pool are two key challenges companies need to overcome.
Long Pham:High COD remains a great obstacle to E-commerce growth -Many Vietnamese opt for COD in E-commerce and social commerce platforms due to fear of scams or fraud. Many logistics providers allow customers to see the products first before paying. Unfortunately, consumer behavior won’t change anytime soon. To build trust from customers, efforts are needed not only from E-commerce platforms and service providers but also from the government.
03. Win-win for E-commerce platforms and small offline merchants
Trung Nguyen:Many mom-and-pop shops have received lots of marketing money not only from E-commerce companies like Loship but also from digital payment companies. They are very grateful for the support that these companies provide to them. For example, 80% of marketing expenses from Loship were poured into mom-and-pop shops. The growth of E-commerce and digital payments would translate to more capital benefits to SMEs and small merchants.
Khoi Tran: Vietnamese merchants, especially mom-and-pop retailers, play a vital role in Vietnam’s retail market and are important partners to E-commerce platforms.
Yuan Fang:1. New channel to acquire customers: SMEs can offer services and products to online customers, leading to higher GMV and revenue. More revenue means more capital which the merchants can use to source more products. In the end, the merchants are able to expand their offerings to meet the needs of a larger customer base. 2. Digitalization of transactions: With digitalization, merchants can improve inventory planning and management. More transaction data means the SMEs can understand customer needs better. With enough data, the merchants can eventually offer services tailored for individuals that were not possible before.
04. Evolution of payments ecosystem in Vietnam in the short-to-medium term
Long Pham:The adoption of E-wallets and cashless payment has taken off in centrally controlled cities like Ho Chi Minh, Hanoi, Bien Hoa, Can Tho, and Hai Phong. However, people in suburban and rural areas are still mainly using cash for payment. To encourage more cashless spending, many forms of discounts and sales should be offered from both offline and online merchants. There are still many potential customers for cashless payment since almost every adult in Vietnam has smartphones and cheap data connections.
Yuan Fang: There are lots of room to grow for cashless payments in Vietnam because the penetration is still relatively low compared to China. The younger population is currently being transformed by digital payments. Cashless payments will also play an increasingly important role for the large unbanked population in Vietnam. With cashless payments, the digital footprints of the unbanked population will be recorded. These customer data could then be used to provide these people with products and services that would otherwise be inaccessible to them due to the lack of credit history.
Khoi Tran: Both domestic and regional investors are becoming increasingly interested in Vietnam’s fintech based on the growing user tractions and recent fundraising trends. Investors are attracted by the high growth potential of these fintech startups, especially those in the payments ecosystem.
Vu Nguyen:While the trend toward cashless payments is evident and inevitable, there is still a long way to go for these players as the market is quite nascent. Picking the right payments player is not an obvious decision at the moment. Many of these startups still can’t provide a convincing answer about their road to monetization.
05. Competition for customer acquisition for Vietnamese fintech players
Yuan Fang:Customer acquisition competition in Vietnam would not reach the scale of WeChat or Alipay, at least for now. There is still enough room to grow the pie much bigger since half the population has not used digital payments yet. The startup should focus on adding value to customers by:1. Providing customers access to products or services that were previously unavailable to them.2. Enhancing user experience to the point where cashless payment is more convenient than paying by cash.
06. Effects of E-commerce on E-logistics development, particularly last-mile delivery
Trung Nguyen:E-logistics would not have thrived without the development of E-commerce. Part of fundraising proceeds to E-commerce companies is invested in logistics, either in developing platform’s capability or partnering with third-party logistics companies. As E-commerce grows, customer demands will be higher as well. Customers will want to receive the goods faster, meaning that E-commerce platforms must improve their delivery time.
Vu Nguyen: It’s all about scale in the E-logistics industry. The important thing is to better manage your unit cost. Since more regional players are entering Vietnam’s last-mile delivery market, competition is intensifying and unit price is declining. To survive, E-logistics should leverage massive volume from E-commerce to achieve economy of scale.
07. Key challenge facing the E-logistics in Vietnam
Trung Nguyen:The key challenge is still payments. Since the customers aren’t paying money upfront, there’s a risk that the customers may go away or decline the items when delivered to their doors. He believes once digital penetration goes up to 50%, E-commerce and E-logistics companies will achieve much faster growth than now.
08. Pricing Vietnam's startup and interest from regional investors
Yuan Fang:BAce Capital has started to pay more attention to Vietnamese startups since the end of last year. The startups in Vietnam have been benefitting from the growing economy and supporting macro factors. There are lots of great founders in Vietnam and now is the right time for global investors to enter the Vietnamese market. As for pricing, startups should try to create value for users instead of overfocusing on generating GMV. The key is to create incremental value, which can be done through:1. Providing users with access to more products and services previously unavailable on offline channels.2. Providing sourcing of supplies to merchants from beyond the existing network of vendors network of merchants. For example, startups in China and Indonesia are sourcing products directly from the factories instead of from the distributors.
Vu Nguyen:The decision to invest in startups and their pricing hinge on the company’s key value propositions and their execution capability. Long Pham:Fintech startups are going to grow faster and attract more investors. VC investors could help these startups by providing capital, companionship, and mentorship. Some will have the potential to disrupt the industry and compete against traditional incumbents.
09. Trend of social commerce and live streaming in Vietnam compared to China
Long Pham:The live streaming space in Vietnam is much more diverse than in China due to the different social media landscape. While Facebook was the early player introducing live streaming to their users, other players such as Tiktok are entering Vietnam and tapping into the live streaming trend. E-commerce marketplaces like Shopee also adopted live streaming within their platform to sell products. The growth of live streaming also boosts third-party logistics since the goods need to be shipped and delivered to the customers. On the other hand, the growth of E-logistics can further support the growth of live streaming since people can purchase items more easily and receive their products faster.
Trung Nguyen:More retailers in Vietnam are joining the live streaming and creating a surprisingly entertaining shopping experience. Vietnamese players should learn from live streaming players in China, where the shopping experience is much better and more addictive. In Vietnam, more needs to be done on entertainment.
Vu Nguyen: 1. GDP growth: The growth of E-commerce can be exponential when GDP per capita crosses a certain number. An ideal threshold is USD 3,000 per person, which is where Vietnam is at the moment and where China was ten years ago.2. Internet and smartphone penetration: Around 70% of the population has Internet access. Almost all Vietnamese adults own a smartphone.3. Social media penetration: Social commerce in Vietnam is very developed since many people have sold products through social media platforms like Facebook and Zalo.4. Other key drivers: logistics, cashless payment penetration, regulatory environment, and consumer trust are also driving the growth of the E-commerce industry in Vietnam. Yuan Fang:1. Trust building through online payment services: Generally, suppliers want to receive money before delivering the products while consumers want to receive the products first before paying. Alipay resolved this mismatch by providing an escrow service with a credit scoring system introduced afterward to further facilitate online transactions. 2. Increased number of suppliers: Availability of supplies, goods, and services online that are otherwise not available offline is adding attractive value to customers, especially if the online channels can provide better customer services and lower prices. From an international investor perspective, Vietnam already has a great foundation given its thriving economy, effective COVID-19 measures in place, and growing manufacturing industry.
02. Key challenges for E-commerce in Vietnam
Vu Nguyen: 1. Consumer trust/consumer habits: Vietnamese people’s habit of purchasing in traditional wet market is well-entrenched, leading to low penetration rate of modern trade channels. Consumers’ views toward online shopping would still take some time to change.2. Digital payment system: The digital payment’s user experience should become so fast and convenient that it becomes second nature. Nowadays, digital payment on E-commerce platforms in Vietnam is not at that stage where it is painless and seamless. 3. At the company level, data security and access to talent pool are two key challenges companies need to overcome.
Long Pham:High COD remains a great obstacle to E-commerce growth -Many Vietnamese opt for COD in E-commerce and social commerce platforms due to fear of scams or fraud. Many logistics providers allow customers to see the products first before paying. Unfortunately, consumer behavior won’t change anytime soon. To build trust from customers, efforts are needed not only from E-commerce platforms and service providers but also from the government.
03. Win-win for E-commerce platforms and small offline merchants
Trung Nguyen:Many mom-and-pop shops have received lots of marketing money not only from E-commerce companies like Loship but also from digital payment companies. They are very grateful for the support that these companies provide to them. For example, 80% of marketing expenses from Loship were poured into mom-and-pop shops. The growth of E-commerce and digital payments would translate to more capital benefits to SMEs and small merchants.
Khoi Tran: Vietnamese merchants, especially mom-and-pop retailers, play a vital role in Vietnam’s retail market and are important partners to E-commerce platforms.
Yuan Fang:1. New channel to acquire customers: SMEs can offer services and products to online customers, leading to higher GMV and revenue. More revenue means more capital which the merchants can use to source more products. In the end, the merchants are able to expand their offerings to meet the needs of a larger customer base. 2. Digitalization of transactions: With digitalization, merchants can improve inventory planning and management. More transaction data means the SMEs can understand customer needs better. With enough data, the merchants can eventually offer services tailored for individuals that were not possible before.
04. Evolution of payments ecosystem in Vietnam in the short-to-medium term
Long Pham:The adoption of E-wallets and cashless payment has taken off in centrally controlled cities like Ho Chi Minh, Hanoi, Bien Hoa, Can Tho, and Hai Phong. However, people in suburban and rural areas are still mainly using cash for payment. To encourage more cashless spending, many forms of discounts and sales should be offered from both offline and online merchants. There are still many potential customers for cashless payment since almost every adult in Vietnam has smartphones and cheap data connections.
Yuan Fang: There are lots of room to grow for cashless payments in Vietnam because the penetration is still relatively low compared to China. The younger population is currently being transformed by digital payments. Cashless payments will also play an increasingly important role for the large unbanked population in Vietnam. With cashless payments, the digital footprints of the unbanked population will be recorded. These customer data could then be used to provide these people with products and services that would otherwise be inaccessible to them due to the lack of credit history.
Khoi Tran: Both domestic and regional investors are becoming increasingly interested in Vietnam’s fintech based on the growing user tractions and recent fundraising trends. Investors are attracted by the high growth potential of these fintech startups, especially those in the payments ecosystem.
Vu Nguyen:While the trend toward cashless payments is evident and inevitable, there is still a long way to go for these players as the market is quite nascent. Picking the right payments player is not an obvious decision at the moment. Many of these startups still can’t provide a convincing answer about their road to monetization.
05. Competition for customer acquisition for Vietnamese fintech players
Yuan Fang:Customer acquisition competition in Vietnam would not reach the scale of WeChat or Alipay, at least for now. There is still enough room to grow the pie much bigger since half the population has not used digital payments yet. The startup should focus on adding value to customers by:1. Providing customers access to products or services that were previously unavailable to them.2. Enhancing user experience to the point where cashless payment is more convenient than paying by cash.
06. Effects of E-commerce on E-logistics development, particularly last-mile delivery
Trung Nguyen:E-logistics would not have thrived without the development of E-commerce. Part of fundraising proceeds to E-commerce companies is invested in logistics, either in developing platform’s capability or partnering with third-party logistics companies. As E-commerce grows, customer demands will be higher as well. Customers will want to receive the goods faster, meaning that E-commerce platforms must improve their delivery time.
Vu Nguyen: It’s all about scale in the E-logistics industry. The important thing is to better manage your unit cost. Since more regional players are entering Vietnam’s last-mile delivery market, competition is intensifying and unit price is declining. To survive, E-logistics should leverage massive volume from E-commerce to achieve economy of scale.
07. Key challenge facing the E-logistics in Vietnam
Trung Nguyen:The key challenge is still payments. Since the customers aren’t paying money upfront, there’s a risk that the customers may go away or decline the items when delivered to their doors. He believes once digital penetration goes up to 50%, E-commerce and E-logistics companies will achieve much faster growth than now.
08. Pricing Vietnam's startup and interest from regional investors
Yuan Fang:BAce Capital has started to pay more attention to Vietnamese startups since the end of last year. The startups in Vietnam have been benefitting from the growing economy and supporting macro factors. There are lots of great founders in Vietnam and now is the right time for global investors to enter the Vietnamese market. As for pricing, startups should try to create value for users instead of overfocusing on generating GMV. The key is to create incremental value, which can be done through:1. Providing users with access to more products and services previously unavailable on offline channels.2. Providing sourcing of supplies to merchants from beyond the existing network of vendors network of merchants. For example, startups in China and Indonesia are sourcing products directly from the factories instead of from the distributors.
Vu Nguyen:The decision to invest in startups and their pricing hinge on the company’s key value propositions and their execution capability. Long Pham:Fintech startups are going to grow faster and attract more investors. VC investors could help these startups by providing capital, companionship, and mentorship. Some will have the potential to disrupt the industry and compete against traditional incumbents.
09. Trend of social commerce and live streaming in Vietnam compared to China
Long Pham:The live streaming space in Vietnam is much more diverse than in China due to the different social media landscape. While Facebook was the early player introducing live streaming to their users, other players such as Tiktok are entering Vietnam and tapping into the live streaming trend. E-commerce marketplaces like Shopee also adopted live streaming within their platform to sell products. The growth of live streaming also boosts third-party logistics since the goods need to be shipped and delivered to the customers. On the other hand, the growth of E-logistics can further support the growth of live streaming since people can purchase items more easily and receive their products faster.
Trung Nguyen:More retailers in Vietnam are joining the live streaming and creating a surprisingly entertaining shopping experience. Vietnamese players should learn from live streaming players in China, where the shopping experience is much better and more addictive. In Vietnam, more needs to be done on entertainment.
Disclaimer:This report only expresses the views of Favour Capital, which does not offer any investment advice. If you would like to further discuss any of the information mentioned above, please feel free to contact us via admin.sea@favour-capital.com