2019 GLOBAL PAYMENTS TRENDS REPORT - VIETNAM COUNTRY INSIGHTS

Updated: Nov 7, 2019



Credit by: Jpmorgan

Vietnam’s e-commerce market is yet to become a major threat to bricks-and-mortar sales. But with a young population rapidly embracing mobile commerce, and a double-digit sales growth prediction to 2021, it is a market that should not be ignored by merchants on the hunt for up-and-coming e-commerce markets. To help our clients locate, attract and keep their customers, we have tracked and assessed e-commerce developments in 34 mature and emerging markets around the globe.


Introduction


Vietnam’s economy is expected to see some deceleration in gross domestic product growth, with expansion of 6.3 percent year-on-year projected for 2019, compared with the stellar 7.1 percent year-on-year outturn seen in 2018.1 On the back of this strong economic performance, Vietnam has a high predicted growth rate for e-commerce, with the sector forecast to increase 19 percent per year to 2021.2 The macroeconomic backdrop through early 2019 has been stable, and Consumer Price Index inflation should remain close to two percent year-on-year, a soft outcome in a historical context.3 This reflects lower global energy prices, which if sustained should dampen any rise in Vietnam’s inflation rate. Liquidity conditions also appear supportive to macroeconomic stability, following a turn in global risk sentiment, which should support capital inflow.4   

This document is based on projected figures and is subject to change at any time.




Confident growth prediction in a youthful nation


Vietnam’s business to consumer e-commerce market is worth $6.2 billion,15 and it has been expanding rapidly, growing by 36.6 percent in 2017 alone.16 However, it is still dwarfed by bricks-and-mortar retail in Vietnam, with e-commerce accounting for just five percent of total retail.17 This represents a significant opportunity for online merchants to take market share and capitalize on an e-commerce market that is still in its relative infancy.

As a result, Vietnam has one of the highest predicted growth rates of the countries surveyed in our report series,* at a 19 percent compound annual growth rate to 2021.18 Numerous factors play into this confident growth prediction. Vietnam’s 95.6 million-strong population is heavily skewed towards younger age groups,19 with an average age of 30.9 years.20 Nearly a quarter of the population (23.3 percent) is aged 14 and under, which represents millions of potential new online shoppers over the coming decade.21

Internet penetration, at 49.7 percent,22 means almost half the population is at present without access. However, 37.1 percent of the population has shopped online,23 suggesting strong uptake of e-commerce by those who do have internet access. In early 2019, the World Bank urged the Vietnamese government to invest further in its rollout of internet access and the digital economy.24


Electronics sales dominate online, and cross-border spending is already prevalent


Consumer electronics are the most-purchased e-commerce category, accounting for 33.6 percent of sales. Travel is the second most popular category, taking a 21.6 percent share of sales.25 Chinese-owned sales platform Lazada is a highly-frequented e-commerce site, as is Shopee and consumer to consumer sales platform, Sendo.26

A third (33 percent) of Vietnamese e-shoppers has shopped cross-border,27 and international e-commerce makes up 36 percent of total e-commerce spend in the country.28 China, South Korea and Japan are the top three most popular markets.29 At least 90 percent of investment into the Vietnamese e-commerce industry is from international sources, particularly south east Asian e-commerce merchants such as Lazada and its parent company Alibaba.30 Western e-commerce players are also beginning to notice the sales opportunity Vietnam represents. In 2018 Amazon announced a partnership with the Vietnam E-commerce Association in a move interpreted as signaling its intent to expand its presence in the country.31


Digital and physical infrastructure challenges could hinder growth


Barriers to e-commerce growth include relatively underdeveloped infrastructure to support both the digital processes involved with e-commerce and also physical transport and delivery infrastructure to complete orders. Vietnam has rural and mountainous regions currently underserved by e-commerce providers,32 leading to high logistic costs for online merchants who do sell in these regions. Logistics costs are estimated to take 30 percent of revenues in Vietnam for e-commerce companies. In comparison, logistics cost an average five to 15 percent of revenues for e-commerce merchants operating in India, and 11 percent for U.S.-based logistics for Amazon.33

However, logistics capabilities are improving. The country jumped 25 places in the World Bank’s logistics performance index in 2018, from 64th out of 160 countries in 2016 to 39th in 2018.34

Driving up basket spend and encouraging users to buy full-price items may represent another challenge. Annual total online spend per person is currently $175.15,35 a figure that is among the lowest of the countries included in our report series.* Vietnamese shoppers are price-conscious, with 74 percent always checking the product price on other sites before committing to buy.36 Offering a review function on merchant sites could help drive confidence and willingness to buy, as 60 percent of shoppers will check reviews before completing an order.37



Mobile-first consumers fast to embrace smartphone shopping


Vietnam is a mobile-first nation of internet users, with internet access via smartphone often representing consumers’ first experience of the internet.38 Smartphone penetration, at 48.6 percent, means more than half the population is yet to buy a device.39 With gross domestic product growth strong, and a rising generation of younger, tech-savvy citizens, it seems likely this rate will increase quickly in the coming years.40

Vietnamese mobile commerce is projected to outpace overall e-commerce growth, expanding at a compound annual growth rate of 24.2 percent to 2021,41 by which point it is expected to represent a $7.8 billion market.42 Mobile devices are already the dominant way to access e-commerce in Vietnam, with 53 percent of sales completed on such devices.43 App use is also high, with 49.5 percent of transactions taking place via this channel.44


Refined, fast mobile checkout process cited as key to converting browsing to sales


For merchants, providing apps that make the mobile commerce payment process as smooth as possible is key to winning Vietnamese customers. Ease of checkout is cited as the most important factor in what makes a good online shopping experience, followed by the ability to compare product prices and assurances of safe payment systems.45

Shopping via social media is a key trend in Vietnam, with 66 percent of online shoppers having used Facebook to purchase items.46 Fashion is the most popular product category to buy via social media, followed by cosmetics.47 Social commerce is perceived to be particularly easy to navigate and order from.48




Cards rank highest for online payments, but cash persists


Cards are the dominant payment method in Vietnamese e-commerce, used for 34 percent of transactions.49 Card usage is predicted to increase at a compound annual growth rate of 15 percent to 2021, by which point it will retain its position as the most-utilized payment method.50 Debit-based payments are far more likely than credit card payments: debit card ownership stands at 1.29 per capita compared with 0.08 per capita for credit cards.51

Digital wallets are set to be the fastest-growing e-commerce payment method between now and 2021, expanding 28 percent per year to become the second most-used method after cards by that point.52 The rapid uptake of smartphones offering app-based payment methods is also set to drive digital wallet adoption. The State Bank of Vietnam reports that the number of mobile phone-based transactions over the first nine months of 2017 was 90 million, up 93 percent on the same period in 2016, with that number expected to continue to rise rapidly in 2019 and beyond.53

At present, popular digital wallet brands include PayPal®,54 and domestic brands Momo and ZaloPay. Momo boasts just under 10 million users and was the country’s most-downloaded digital wallet app in 2018.55 ZaloPay is the payment application of popular Vietnamese social media app Zalo.


Digital wallets driving innovative updates of local payment traditions


Payment apps are being used to facilitate a digital evolution of Vietnam’s red-envelope culture, whereby monetary gifts are given in small red envelopes to family, friends and colleagues. Momo introduced a digital red envelope function on its digital wallet app in 2018. It became a viral success and three million digital red envelopes were exchanged in its inaugural event.56 In 2019, Momo created a Black Friday style ‘Lucky New Year’ event for e-commerce merchants, whereby companies accepting Momo can offer discounts to consumers who wish to exchange gifts between family and friends.57

Cash on delivery is still a significant part of the Vietnamese online shopping market. Cash therefore accounts for 19 percent of e-commerce transactions, but this is projected to decline to just five percent by 2021.58 The Vietnamese government is attempting to move citizens away from cash use. As of 2013, car and house purchases must be paid via non-cash methods in an attempt to wean shoppers off cash payments.59





Tighter regulation could boost consumer confidence


As with any other e-commerce market, payment fraud is a concern in Vietnam. The government has warned that incidences of payment fraud, counterfeit goods and intellectual property rights infringements have increased in line with rising online sales.60 Future introductions of tighter e-commerce regulations and an increase in uptake of digital payment methods could help curb fraud in the future.


Key takeaways


While a variety of payment methods are used, cards represent the most popular way for Vietnamese consumers to pay for the products they buy online. The Vietnamese also demonstrate a willingness to shop abroad with foreign purchases accounting for over a third of total e-commerce spend in Vietnam. As an attractive emerging economy, the majority of investment into the Vietnamese e-commerce industry is from international sources, particularly south east Asian e-commerce merchants such as Lazada and its parent company Alibaba. Western e-commerce players are also beginning to take notice. In 2018, Amazon announced a partnership with the Vietnam E-commerce Association in a move interpreted as signaling its intent to expand its presence in the country. However, international merchants should be aware of the country’s infrastructural issues – logistics remains the main burden for the sector, especially for customers in rural areas or second-tier cities.

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