The large market and great potential of the non-cash payment sector in Vietnam explain why investors keep pouring money into payment technology firms, though the firms continue making losses.

E-wallet is increasingly popular in the country’s large urban areas.

Many e-wallet companies in Vietnam have suffered losses, but they have still received capital from investors who expect to gain a large share in the potential market in the coming time.

Despite being listed among the top 10 e-wallets in the market, Momo and ZaloPay were estimated to make losses by the end of last year, with VND1 trillion (US$42.92 million) for Momo and VND177 billion (US$7.59 million) for ZaloPay.

E-wallet is increasingly popular in the country’s large urban areas, but only a few wallets have real users and the competition in the market is tough.

Pham Thanh Duc, CEO of MoMo, admitted that the market competition is cutthroat and it is not a ‘tidbit’ for fintechs. With the commission of below 1%, e-wallet providers need to attract millions of users and billions of transactions to get the expected profits.

E-wallet is not a lucrative field as people thought, Duc said, adding that of nearly 30 e-wallets licensed, only 5-6 wallets have active operations and 3-4 wallets have considerably high numbers of users.

E-wallets not only have to compete with each other, but also with other non-cash payment channels such as e-bank and digital bank. In fact, e-wallets now accept losses in exchange for more users.

According to industry insiders, before reaping fruit from non-cash payment services, including e-wallet, service providers need to spend time to familiarize people with non-cash payment.

“We have offered many promotion programs with an aim to help users experience the new payment method,” said Nguyen Ba Diep, MoMo’s vice chairman, adding that this is necessary as his firm is providing a service which requires users to change their habit from using cash to not using cash in making payments.

Big investment

Bui Quang Tin from Ho Chi Minh City Banking University said that non-cash payment technology still cannot reap fruit in Vietnam, but technology firms and e-wallets remain attractive to investors.

While MoMo reportedly received US$100 million from US private equity firm Warburg Pincus, ZaloPay is backed by the country's first unicorn VNG Corp. Singapore giant Grab also signed a strategic partnership to offer digital payment services with Vietnam's Moca, and AirPay is aided by Singapore internet company Sea.

It was reported that many foreign investors have urged their Vietnamese partners to spend money to popularize and improve people’s recognition about the services because once the firms successfully change people’s habits and familiarize them with the new services, the firms will be able to make a huge profit.

According to experts, the large market and great potential of the non-cash payment sector in Vietnam explain why investors keep pouring money into payment technology firms, though the firms continue making losses.

Under the Prime Minister’s Decision No 2545, non-cash payment will be used by 100% of supermarkets and shopping centers, 70% of electricity, water and telecommunication bill payment and 50% of individuals and households in large cities by 2025. Meanwhile, 70% of people aged from 15 will have bank accounts by the end of 2020.

A report showed that there are more than 40 million Vietnamese people using the internet, and nearly 50 million telecom subscribers using smartphones. Non-cash payment has increased by 30-50% each year. Thus, non-cash payment, including e-wallet, is an extremely large market for Vietnamese and foreign firms in many sectors.

However, analysts said that digital payment firms, including e-wallet, will need to focus on fundraising, compiling customer databases, growing merchant networks and expanding throughout the digital ecosystem to survive as the competition in the sector is becoming fiercer.