Vietnamese payments

Mobile payments: local business for local people

MoMo’s chairman explains why Vietnam’s first national champion could be a fintech player as countries wake up to the implications of letting foreign companies take strategic stakes in their leading e-payment providers.
The growth prospects, which have made Vietnam the darling of frontier market equity investors, are equally applicable to the e-payments sector says MoMo chairman Terry Ting.
The former Goldman Sachs private equity banker has been involved with the Vietnamese mobile electronic wallet provider from the very first funding round in December 2013 when it secured $5.75 million in capital from the investment bank. 
Since then, S&P Global Market Intelligence figures show that MoMo has raised: $28 million in March 2016 from Goldman and Standard Chartered, then a reported $100 million in the fourth quarter of 2018 from two more investors including Warburg Pincus.
What these investors are all buying into is the growth potential highlighted by World Bank figures. For these show that mobile money is only just starting to take off in Vietnam. 
Back in 2013, the figure stood at zero. By 2017, it had reached 3% of the population.
There is still a long way to go before Vietnam catches up with countries like Bangladesh where the figure stands at 21%. Yet, in the following interview, Ting argues that the country has far better potential; the best in Asia.
Vietnam also does not yet have a national economic champion like Samsung in South Korea or the BAT troika (Baidu, Alibaba, Tencent) in China. Could Vietnam’s turn out to be an e-payments provider? Ting argues that it can. 
In April, he himself also joined Hong Kong-based Tybourne Capital Management to co-head a private investment initiative that will make growth investments across the region, including Vietnam.  
Q When you examine the financial inclusion figures for Vietnam, they look very similar to countries like Kenya, Cambodia, and Bangladesh. Is that the right start pointing for evaluating a company like MoMo?
A You’re right. A lot of people make that assumption.
If you look at the World Bank Global Findex data, only 30% of Vietnamese people had a financial account in 2017. That’s even less than the 50% figure for Bangladesh where mobile money accounts like bKash have witnessed strong growth. But I’d say Vietnam is much more like China. 
In countries like Kenya and Bangladesh, mobile apps are being used to conduct day-to-day financial transactions in the absence of traditional banking services. That’s the same in Vietnam too. 
But in Vietnam, there’s an added layer of consumption on top of that, which just doesn’t exist in these other markets. That’s one of the reasons why I was so keen on Vietnam when I made my first investment in 2006 while running an Asia ex-India growth PE business at Goldman – a $14 million investment in a diaper and feminine hygiene products company. 
I’ve always thought that Vietnam shares so much in common with East Asia. When you look at those successful economies, they started out with a very similar backdrop to what you find in Vietnam today – a largely homogenous population that shares a language, culture, customs and belief system that promotes entrepreneurialism. 
In each of those countries, manufacturing played a huge role in establishing the base from which subsequent generations got richer. However, the transformation from blue collar to white collar generally took two to three generations. 
In China it was much quicker. But it still took a time from the start of economic reform before domestic consumption became interesting and investable. 
I first started investing there back in 1990. At that point, we were looking for the guy who made lawn furniture for Walmart because he had the contracts and was well on his way to $50 million of revenue. 
In Vietnam today, manufacturing is happening at the same time as consumption. It’s not 10 years apart. It’s happening contemporaneously. 
And because China developed almost 20-years ahead of Vietnam, credit cards had already made more inroads there before e-payments took off.
Yes that’s a very big difference. There’s no legacy system with credit cards in Vietnam: penetration is negligible. 
That’s one of the reasons why MoMo has been able to partner with foreign merchants including Facebook and Google. They were attracting huge demand for their online services here, but the Vietnamese had few payment options. 
So before we came along, what had developed was a very active secondary market in US store cards that would get activated locally. 
Another differentiating factor is that in China, the two e-payment giants came in through a back door. They’d already built up incredibly large databases from their e-commerce and social media activities. 
We’ve had to bootstrap our way from next to nothing. 
Well at first we thought our killer app was going to be payment services for factory workers who’d moved to the cities and wanted to send money home. Since no one had a bank account, the transmission mechanism was and still is the bus company: quite literally. 
People will go to a long distance bus station, take a picture of the bus and driver then give him or her say $50 dong-equivalent in an envelope to drop off to a family member. They then alert the family member with the pick up details by sending them a text and photo.  
So we thought that it’s not the bank, or the post office we need to beat. It’s the bus driver. 
But what we discovered is that while people are willing to embrace new technology and put their entire social lives online, there’s still a trust gap where money’s concerned. At the same time, we saw that we were generating good take up among white-collar, urbanized millennials. 
So while we still want to beat the bus driver, our strategy has shifted somewhat. We’re working on a drip down effect in trust from millennials to the broader, emerging middle class and then to factory workers. 
Our strategy is to serve as many of these potential users as soon as possible so we can start to offer them other things.  
We’ve already started doing collections and disbursement for financial service companies. That includes allowing users to buy travel insurance online, or make monthly payments for their medical insurance for instance. 
So what are your current numbers and market share?
Everyone quotes very different numbers. But I’d say we have a roughly 70% market share. That’s about 15 million registered users, of whom about two million are using the app 15 times a month, and growing about 10% per month. 
There’s an initial period of experimentation when users explore multiple platforms. What we’re seeing now are users pass through that phase and return to us. We’re seeing that quite a lot.
Why haven’t you faced more competition from the traditional banking sector? The other day someone told me that you could become Vietnam’s ATM machine, for example.
Well that would be very nice. And yes, one of the other differentiating factors compared to China is that there, the banks and telcos became very powerful early on. 
By contrast, Vietnam has far less concentrated banking and telco markets and that’s left lots of room for independents like MoMo. 
MoMo was the first mover in this business and that has put us in a great position. We’re the market leader and we have the capital to expand. 
You just closed your series C funding round in March. It was quite a big jump from series B.
We raised a very significant amount compared to the $42 million we’d raised in total before that. 
We did it because we want to make sure that we’re in strong position to defend and grow our market share. We’re starting to see other people come into this market with large amounts of money available to them. 
How will you fend them off?
We’ll continue to acquire users, increase retention, and introduce more and more use cases. This is a big year for us. 
We want to grow our user base and merchant base significantly. Depending on how that all plays out, we may go back to the market later this year for more capital. 
What we don’t yet know is when we’ll reach the point when customer acquisition and retention becomes organic and we can significantly reduce our spending in these areas. We think this happens no later than when we get to four to five million using the app about 15 times a month. 
The entry point for us has been topping up phones and paying bills. And that’s not as simple a shift as you might think. It’s not so long ago that companies literally had teams of thousands going out around Ho Chi Minh City collecting bill payments. 
We want to delve deeper and deeper. We’ve already got point-of-sale outlets in 20,000 plus stores. 
But Vietnam is famous for its limitless mom and pop stores. So we’ve also introduced static QR codes, which they can print out for themselves to accept mobile payments. 
Other examples include taxis. We already have mobile payments in Vinasun taxis and aim to bring in other transport providers in the near future. 
Agriculture is another interesting area for us. It’s a very big part of the economy. 
Vietnam is the world’s second largest coffee exporter and rice exporter. But the industry is very fragmented and inefficient because there are so many small players, most of whom have no access to financing. I really hope payments can play a part in overturning that.  
Are you considering listing the business?
Yes at some point. We’d like to be on the Nasdaq as it’s full of our peers. 
When I was at Goldman, many of our high-growth portfolio companies listed in the US. What I learned is that’s important to be listed on an exchange where the investor base understands your business model. 
Right now, Vietnam’s current securities law doesn’t allow it and I don’t see that changing in the immediate future. So we have to set our eyes on Vietnam as the listing venue instead. 
That is potentially problematic since the market here is still developing and isn’t always open. We have to be conscious of that when thinking about how we raise funds. 
How does it impact potential valuations if the favoured exit strategy for pre-IPO investors doesn’t exist?
For the time being it doesn’t matter. There are a lot of people coming here on the private equity side. 
It’s very clear that there are many multiples of capital available to be deployed relative to the opportunities. 
What do you look for in a PE partner?
When we did our last fundraising round, our main strategy was not to get sucked into a yearlong slog to bring in new investors. So we made a pretty severe cut to the first dozen or so investors who came to see us and expressed an interest. 
I’ve been here since 2006, so I was well aware that investment committees in Doha, Zurich, London or wherever may not share their respective local teams’ enthusiasm for investing in a non-profitable, early stage company in a country like Vietnam. We didn’t want to go down that road. 
I still remember the reaction I got when I made my first Vietnamese PE investment for Goldman. The country was an unknown quantity back then. 
When I went to discuss it with New York there was a lot of talk about risk mitigation rather than the kind of outsized returns we could realize given the country’s growth potential. 
Even now it’s still very early days here. More than half the active private equity companies have only made one investment. 
So when it came down to it, we wanted an investor that knows Vietnam well. Warburg Pincus was an obvious choice given how much work it’s done in the country. 
You mentioned that a number of well-funded regional players are starting to target Vietnam. Doesn’t the market potential mean there’s room for a number of players? How much of a threat are they?
When we set up there was no one else was around and that was a big advantage. Now a lot of merchants are telling new entrants that they’ve already got MoMo so why do they need anyone else. 
Secondly, a lot of these overseas companies’ DNA lies in transport, food delivery, or mobile gaming, and I’m not sure that e-payment makes a natural fit. It certainly sounds better when pitching for private equity money but the synergy isn’t so easy to achieve. 
Business models like Airbnb and Grab cross borders relatively well. But mobile payment is a very local business. 
What about Alibaba and Tencent? They’ve been buying stakes in fintech companies across the region. I believe Tencent has a stake in your domestic competitor VNG and there have been a lot of reports that you’re in discussions with Alibaba.
Yes. Tencent invested in VNG long before it moved into e-payments and was still a casual games developer. It’s well known as a frequent investor across many different countries and many sectors. It’s also invested in Go-Jek and SEA, both of which are here in Vietnam as well. 
Alibaba tends to make large, more strategic investments and we haven’t been in discussions with anyone there. We’re very much of the belief that we’ll become more valuable the longer we stay independent and work with as many people as we can.
A number of countries heavily restrict foreign banks’ ability to open branches, yet they’ve let foreign fintech companies buy big stakes, sometimes even controlling ones, in local players. Do you think they weren’t aware of the implications? 
AYes that’s right. In the past, banks’ ability to grow their business was dependent on opening new branches. Internet and mobile payments is very different. 
We acquire customers in a different way and that represents both a challenge and an opportunity for us as well as the government arms that regulate us. 
Where Vietnam is concerned, one of the great advantages it has is coming from behind. It can see what’s happened in other countries and learn from what works and what doesn’t in other markets. 
As a result, I’m fairly confident there’ll be a national champion in e-payments here. It won’t happen in white goods or mobile phones as it did in other Asian countries because what’s coming across the border from China is just too big and too cheap. 
What do you mean by national champion?
I’m talking about a company that’s run by Vietnamese and doesn’t report to a headquarters somewhere else. Another factor to consider is the government’s goal to boost financial inclusion. I don’t see that being executed by a foreign strategic investor. 
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