Equity Analysis / Sub Sahara Africa

Five major themes for the future of fintech in Africa

  • African fintechs are innovating with new products, a broader footprint, cutting-edge technologies and partnerships
  • As a result, they are increasingly impinging on long-established incumbents, eroding the value of these franchises
  • Investors may be overlooking in-house fintechs; we cite listed examples in Egypt, Kenya, Ghana, Senegal, S Africa & Zim

The African fintech space has recorded impressive growth over the past decade. There are currently over 400 active fintech companies across the continent, c80% of which are home-grown. Major drivers of this growth in the fintech ecosystem include favourable demographics, high levels of mobile phone access and Africa’s generally poor levels of financial inclusion.

We surveyed 160 African fintech companies to better understand the drivers of future growth in the sector. 

Our research points to five major themes for the future:

1. Launching new products and services.

This will enable companies to claim a greater share of wallet from existing customers, and also help attract new customers to the franchise

2. Expanding into new countries.

This allows companies to scale up existing operations, and attract a whole new customer base

3. Focusing on new market segments.

By using innovative approaches (related to product features or distribution, for example) fintechs can profitably serve customers who fall out of the realm of traditional financial providers.

4. Increased investment in technology infrastructure 

This builds additional capacity for innovation, automation, efficiency and scalability.

5. Partnering with incumbents 

This can improve fintechs’ reach, especially in highly regulated markets, or can help them to better satisfy the needs of the most challenging consumers.

 

Other, less commonly cited strategies include: applying for licenses where regulatory restrictions exist; hiring experienced personnel to build in-house expertise; and buying smaller fintechs with interesting business propositions to acquire new products and skills or to reach new markets.

Strategies by product line

Expansion into other countries is most popular among fintechs active in payments (for example Paga expanding into Mexico), lending (Jumo expanding into Nigeria and Ivory Coast), and remittances (SureRemit, which is expanding across Africa).

Introducing new products/services is the most popular strategy among lending fintechs (for example, Tala plans to launch a micro insure offering in the next 12 months). Borrowers represent a captive audience for such companies. Offering additional products can also help tie-in the customer and reduce credit risk.

Targeting new market segments is most popular among insurance (Pineapple is expanding into the auto insurance segment) and investment fintechs (haloyako adding government instruments to its offerings). These companies are typically trying to bring such products to previously excluded individuals, such as those at the bottom of the pyramid.

Increased investment in technology infrastructure is a common theme across the board as this allow fintechs to innovate and improve on their operations.

Partnering with incumbents is particularly popular with payments fintechs (for example, Paga’s partnership with Visa on payments, M-Pesa partnering with Ria for remittances). One motivation is the opportunity to offer services that would ordinarily require licenses or demand stringent approval procedures.


Strategies by market 

Kenyan and Nigerian fintechs, which were the continent’s largest recipients of funding in 2019, are more focused on expanding into new markets than fintechs in other markets. 

Egyptian fintechs are the least interested in expanding into new markets, which in our view is testament to the significant opportunities that exist in the domestic market.

Introducing new products is a common strategy across all markets, but the rest of Africa seem to lag behind the four major hubs. This might be due to the lower uptake of fintech offerings within those regions and/or restrictions on the activities of nonlicensed financial institutions by central banks. 

Identifying new market segments is most common with Egypt fintechs and the rest of Africa, which we think is due to the greater extent of financial exclusion within those regions. 

Fintechs in Egypt and other parts of Africa (Ghana, Ethiopia, Senegal and Zambia) are keen on partnering with incumbents like banks, mobile network operators or other fintechs as this would help them increase their reach and gain new customers. 

Implications for investors

Investment volume in African fintech has shown a strong positive growth trajectory. Over the past five years, the number of deals has grown from 28 to 125 (35% CAGR), the total value of deals has grown from US$150mn to US$1.1bn (48% CAGR), and the average deal size has increased from US$4mn to US$8mn.

In contrast, for incumbent banks in Africa, the median PE discount to their five-year average valuation is 27%, and the median PB discount is 22%.

At the country level, banks in Uganda, Zambia and Rwanda are trading at the biggest discounts to history, while banks in Zimbabwe, Kenya and Mauritius are trading close to their 5-year historical average multiples.

We think these opposing trends reflect the increasing viability of fintech encroachers, given their potential to offer new products at lower cost with greater convenience, and the increasing vulnerability of incumbents, given the erosion of traditional entry barriers such as physical distribution networks and regulatory restrictions.

For investors in listed equities (ie the incumbents), we think this fintech threat carries the following implications:

  1. A return to historical valuation levels should not be assumed as a base case scenario.
  2. Tipping points may be reached rapidly, given fintechs’ ability to scale-up and expand.

On the other hand, we do feel that incumbents’ own fintech capabilities are being overlooked by investors. We highlight below a handful of listed African entities that provide direct exposure to fintech trends for investors in secondary equity markets.

In Egypt, we have payment platform Fawry, which came into the market via an IPO when private equity firm Helios partially exited its investment in the company.

Kenya's fintech revolution has helped the country achieve an impressive financial inclusion rate (c80%), principally due to the rapid spread of mobile money which received tremendous support from the Kenyan regulatory authorities. M-Pesa is the mobile money offering of Safaricom (East Africa’s largest telecommunications firm that contributes c5% to Kenya’s GDP). Commercial bank NCBA, in partnership with M-Pesa, offers M-Shawari for micro loans and savings. Equity Bank  offers Equitel, its mobile payment and banking service, which is operated through its subsidiary Finserve Africa Limited in partnership with Airtel.

MTN Ghana is the only listed company on the Ghanaian stock exchange with meaningful exposure to the fintech space via its mobile money subsidiary.

Senegal’s largest telecommunications provider, Sonatel, hosts Orange Money, a mobile money wallet.

In South Africa, Purple Group’s subsidiary, Easy equities, enables users to invest in shares, exchange traded funds (ETFs) and other equity-based securities.

Vodafone Tanzania offers M-Pesa, a mobile money platform for funds transfer, bill payment and remittance.

Zimbabwe can point to Cassava Smartech, a financial technology company with a subsidiary, Econet, that operates Ecocash, the largest mobile money platform in the country. Getbucks, the fintech lender that dominates the Southern Africa markets, is another listed entity.

 

For more detail on the fintech trends in Africa see our recently published in-depth report The Ultimate Guide to African Fintech.


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Global Themes / Sub Sahara Africa

Key factors for fintech success in Africa

  • The African fintech space has recorded impressive growth over the past decade.
  • Major drivers of growth in the fintech ecosystem include demographics, mobile phone access and poor financial inclusion
  • What makes a winner in African fintech? Our survey of 160 companies helped us find the answer
Rahul Shah @
Tellimer Research
15 April 2020

In our research into the landscape for Africa fintech we analysed a sample of 160 fintech companies across the continent and identified the most common success factors for these businesses. These were the top 10:

Figure 1: Top 10 success factors


Source: Tellimer Research, Company disclosures

 

Targeting unbanked customers

This is most common among payments, lending, insurance and remittance fintechs, which, by focusing on certain niches of underserved customer segments, can grow due to high visibility, lower competition and word-of-mouth referrals. Examples include Nigerian payment firm Paga, which targets rural populations with little access to banks, South African lender GetBucks, which focuses on bottom-of-the-pyramid borrowers, and Ugandan remittance provider Remit, which enable users to pay bills for family and friends who are unable to do so themselves.

Innovation in service offerings

This is a widespread success factor across all segments, as creating new products or new ways of using existing products enables fintech companies to become more relevant to existing customers and/or to reach new ones. Notable examples include WorldRemit (available in various African markets including Algeria, Kenya, Nigeria, Tanzania and South Africa) launching its business/merchant payment options and Branch (Nigerian lender) introducing longer tenor loans.

Strategic partnerships

This approach is most prevalent among payment, lending and remittance fintechs. Payment fintechs commonly partner with larger or more widely accepted payment systems to boost their usability (e.g. Tala’s partnership with PayPal). Lending fintechs often partner with banks (to use their capital base) or Mobile Money platforms (to improve convenience) when providing quick loans and payday loans, and with merchants when offering Point-Of-Sale loans (for mobile device financing etc). Remittance fintechs partner with banks to provide into-bank cash-outs (e.g. WorldRemit, Transferwise) and payment systems to enable users to make payments using remitted funds (e.g. SureRemit, Xente).

Access to funding to gain scale

This approach is most relevant to lending fintechs (to underwrite loans) and insurtechs (to increase cover or acquire licenses). Examples are Migo (a Nigerian lender), which will use its recent funding round to launch the service in Brazil, and Pineapple (a South African insurer), which will fund the expansion of its motor insurance offering.

Competitive prices

This approach is adopted quite widely. Payment aggregators like OPay offering lower transaction charges, lending fintechs such as Numida (Uganda) lower interest rates, insurtechs such as Pineapple (South Africa), which charge lower premiums, and remittance providers like Hellopaisa, which has smaller bid-ask currency exchange spreads, enabling it to take market share from incumbents. 

First-mover advantage 

This is most common among payment and remittance fintechs; these are typically scale/ network businesses and moving first can boost brand recognition and customer loyalty. Notable examples are MTN MoMo (Ghana), M-Pesa (Kenya), EcoCash (Zimbabwe) and M-BIRR (Ethiopia).

Operating efficiencies

Across the board, fintechs invest heavily in technology infrastructure, both to boost their service quality and scalability, but also to generate efficiency gains through automation. Technology means bills can be paid using QR codes, loans can be disbursed using USSD codes, insurance products can be tailored via smartphone apps, and T-Bills investments can also be executed via mobile phones. Payments (eg OPay), investech (eg Piggyvest) blockchain fintechs (eg BitPesa) most usually cite this as a key competitive advantage over peers.

Widespread network

This approach is mainly adopted by payments and remittances fintechs, as having a strong agent distribution network makes it easier for customers (especially in rural areas) to make deposits. Their basic transactions are still predominately cash-based and a wide network makes it easier for users to perform cash-in transactions, transfer funds or make payments for utility and other relevant bills. This is important for fintechs like Paga (Nigeria), M-Pesa (Kenya), EcoCash (Zimbabwe) and MTN MoMo (Ghana).

Favourable regulations/ integration in central payment systems

This approach is common among payment, remittance and blockchain fintechs, as being denied regulatory backing would be extremely detrimental to the adoption of their products. Notable examples are M-Pesa in Kenya and Tunisia’s recent announcement of a national cryptocurrency. Ghana’s adoption of mobile money interoperability, which allows for transactions between different mobile money wallets, has contributed to mobile money transactions soaring by over 100% within the first year of its adoption.

Management expertise

This approach is most common among fintechs in lending (to enable them to better identify underserved markets and/or create better customer credit profiles) and insurtech (to better identify underserved markets). Examples include Branch (Nigeria and Kenya), which creates credit score ratings by combining customers personal information (phone number, National ID and mobile money account).

Other factors

Other factors that have supported the growth of African fintechs include rising mobile phone penetration, fintechs backed by large traditional financial incumbents such as Alat by Wema (Nigeria) and Equitel by Equity Bank (Kenya), business model scalability, and integration of the fintech with other mobile-centric activities.

 

Figure 2 Split of success factors by segment

Source: Tellimer Research 

Figure 3 Split of success factors by geography

Source: Tellimer Research. Note: * ROA = Rest of Africa.

 

For more detail on the fintech environment in Africa see our recently published in-depth report The Ultimate Guide to African Fintech.


 
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Global Themes / Global

Africa's fintech hubs: The search for tomorrow's Silicon Valley

  • The four main fintech hubs in Africa are Egypt, Kenya, Nigeria and South Africa.
  • These centres attracted 85% of total investment capital deployed across the continent in 2019.
  • South Africa has some similarities with developed market fintech hubs like Silicon Valley.
Rahul Shah @
Tellimer Research
3 May 2020

The four main fintech hubs in Africa are Egypt, Kenya, Nigeria and South Africa. These markets have distinguished themselves from the rest of Africa through their support for innovation (for example, via regulatory sandboxes) and the widespread establishment of strategic partnerships (such as Nigerian fintech, Paga's partnership with WorldRemit for international remittances). As a result, these centres have to date attracted the lion’s share of the investment capital deployed across the continent (85% of total funding in 2019). Ghana, Uganda, Cameroon, Rwanda are up-and-coming locations.

Figure 1: Distribution of African fintechs by geography


Source: Central bank publications, Irrational Innovations

 

Figure 2: Fintech product mix by geography


Source: Irrational Innovations. *ROA = Rest of Africa

 

South Africa


South Africa is arguably the heart of African fintech, housing a third of all African fintech firms, with the majority of these located in Johannesburg. As the most diversified hub, South Africa has some similarities with developed market fintech hubs like Silicon Valley, such as the integration of fintech into central payment systems and high technology adoption rates by the local population, which can make it easier for local fintechs to attract external funding. Lending fintechs account for the largest proportion of players in this market (c30%). Despite having the largest and most diverse fintech space, South Africa has recorded a decline in both the number of fintech deals and value of funding to fintech in 2019. However, given improving financial access/ inclusion in South Africa, we note that insurtechs (such as Lukmani, Simply, Pineapple, MicroRe) are on the rise, offering customised insurance products at the point of sale.

Kenya


Kenya is the second-largest hub. It hosts around one-sixth of the African fintech population and has a strong focus on the payments segment. Nairobi alone is home to more than 50 fintech companies. Following the success of M-Pesa, Kenya has seen a rise in personal and SME lending-focused fintechs such as Branch, Tala, Lendabale and Pezesha. A niche of agricultural lenders has started to develop over the past few years, such as FarmDrive, Tulaa and Appollo Agriculture, with a primary focus on small-scale farmers.

Nigeria

Nigeria is the third-largest hub, with most of its fintechs based in Lagos. The payments segment has the largest number of players. However, there has recently been a rise in lending (RenMoney, Migo) and investech companies (CowryWise, PiggyVest), as the unmet needs of the real sector shift from payments to credit availability and investment products.

Egypt

Egypt is also led by payments players, as the focus remains largely on improving woeful levels of financial inclusion. Local fintechs tend to collaborate with traditional banks to provide users with access to several financial services, including payments facilitation, electronic cash and loans. Several innovative fintechs also offer standardised versions of local financial practices such as savings circles.

Strategies by market

Kenyan and Nigerian fintechs, which were the continent’s largest recipients of funding in 2019, are more focused on expanding into new markets than fintechs in other markets. Such expansion backed by appropriate funding has the potential to expose the products/services to a broader market and increase the customer base. South African fintechs may be demonstrating less interest in geographic expansion as they are typically more established fintechs that may already have expanded their footprint (eg GetBucks has a widespred Southern Africa presence in Lesotho, Botswana, Namibia etc). Interestingly, Egyptian fintechs are the least interested in expanding into new markets which in our view is testament to the significant opportunities that exist in the domestic market.

Figure 3: Breakdown of future plans by markets


Source: Tellimer Research, company disclosures


Introducing new products is a common strategy across all markets, but the rest of Africa seem to lag behind the four major hubs. This might be due to the lower uptake of fintech offerings within those regions and/or restrictions on the activities of non-licensed financial institutions by central banks.

Identifying new market segments is most common with Egypt fintechs and the rest of Africa, which we think is due to the greater extent of financial exclusion within those regions.

Investment in technology infrastructure enables fintechs develop new products/ services, increase their reach or improve their existing service offerings, which all encourage increased usage. Egyptian fintechs seem most keen to ramp up on technology infrastructure as they hope to penetrate unbanked or excluded segments of the market.

Fintechs in Egypt and other parts of Africa (Ghana, Ethiopia, Senegal and Zambia) are keen on partnering with incumbents like banks, mobile network operators or other fintechs as this would help them increase their reach and gain new customers.

Other future plans include potential mergers (Egypt) and potential listings on the local stock exchange (Egypt and Nigeria).

Figure 4: Fintech funding in 2019 by country

Source: Partech 2019 Africa Tech Venture Capital report
*Outer circle = % of total funding. *Inner circle = number of funding deals

 

For more detail on the fintech environment in Africa see our recently published in-depth report The Ultimate Guide to African Fintech. In the report we provide the results of our survey of 150+ fintechs across 20 African markets, showing their product and customer niches, as well as identifying their unique success factors.


 
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Global Themes / Global

Africa fintechs’ product suite explained… from agritech to remittances

  • Fintech companies in Africa are increasingly competing with traditional financial services providers.
  • Digital payments is the most active segment, accounting for c40% of all African fintech offerings.
  • Significant untapped demand in Africa for payments, lending, savings, insurance and financial management services.
Rahul Shah @
Tellimer Research
23 April 2020

Our recent survey of 150+ fintechs across 20 African markets enabled us to find their product and customer niches, as well as identify their unique success factors.

Fintech companies are increasingly competing with traditional financial services providers, by structuring their offerings in innovative and more efficient ways. These companies often help to widen the financial inclusion net using models such as branchless distribution, mobile banking, big data credit scoring and machine-to-machine lending, often simultaneously reducing acquisition costs, servicing costs and risk costs (as well as boosting convenience and service quality). They can thereby profitably access previously unbanked/ underbanked populations at the bottom of the pyramid. 

The experience to date indicates that there is significant untapped demand in Africa for payments, lending, savings, insurance and financial management services.

African fintechs product offering mix

Source: Tellimer Research


One major change that is providing momentum to the fintech wave is that more and more Africans are connecting to the internet through smartphones, improving data availability for fintechs and enabling more sophisticated consumer-profiling models to be developed. This, in turn, allows resources to be more efficiently targeted and risks to capital to be reduced.


Mobile penetration in Africa

 

Source: GSMA, Tellimer research

Digital payments

Digital payments is the most active and arguably most developed segment in the space, accounting for c40% of all fintech products on the continent. Payments encompasses activities such as retail payments, merchant/ corporate payments and the provision of payment infrastructure through several channels: digital wallets (MTN MoMo, Ghana), USSD (EcoCash, Zimbabwe), mobile apps (SnapScan, South Africa), internet (Flutterwave, Nigeria), vouchers (Zoona, Lesotho).

Lending

Lending is second in terms of popularity of fintech products, accounting for 24% of the market. These companies offer lending/niche banking products in more efficient ways than traditional banks or credit companies, using technology to profile customers (allowing for more personalised products), disburse loans more quickly and enable repayments to be collected more efficiently. Notable examples are Branch (Nigeria), GetBucks (Mozambique), Jumo (South Africa) and Tala (Kenya).

Insurtech

Insurtech offer insurance products such as life, car, health, etc., in innovative and easy-to-understand ways that rival traditional companies’ offerings. Example include Pineapple (South Africa), which offers peer-to-peer insurance and returns all unused premiums at the end of each year, DabaDoc (Algeria), which offers health insurance by providing users access to nearby doctors, hospitals or pharmacies, and mPharma (Ghana), which provides users with access to pharmacies.

Investech

Investech companies offer financial management services such as managing customers’ finances based on pre-established investment guidelines. Their services range from providing platforms for trading securities to advisory services and portfolio management. Piggyvest (Nigeria), is a savings platform that helps users manage and grow their finances, while EasyEquities (South Africa) enables users to invest in equity market instruments such as stocks, ETFs and index funds.

Remittances

Remittances are in effect cross-border cross-currency payments that enable transfers of money by foreign workers to friends/ relatives/ businesses in their home countries. Relative to domestic payments, remittances carry a much higher burden of documentation, while the currency exchange element also adds to costs and reduces transparency. Due to the high cost of traditional remittance providers, particularly for small denominations, low-income workers will often turn to informal channels to send money home. Fintechs are helping to bridge this gap by providing almost instantaneous cross-border transfers at considerably lower cost. Examples include Thunes (Botswana) an online mobile wallet remittance service, WorldRemit (operating in several African countries), which allows users to transfer money across borders to be deposited in the local bank accounts of the receiver, and Sure Remit (Nigeria), which offers tokened non-cash remittances, allowing users to send vouchers that can be used by the receiver to pay bills.

Blockchain

Financial exchange platforms are increasingly migrating to distributed ledgers (blockchain). These ledgers provide immutable records of transactions and can help to create trust between counterparties even where there is no central intermediary. This technology has the potential to dramatically improve the efficiency of certain financial transactions, such as eliminating the need for currency exchange on cross-border transactions. Examples include Kobocoin (Nigeria), a mobile wallet that allows users to trade in cryptocurrencies, and Sun Exchange (South Africa), which enables users to earn rental income by leasing out their solar panels; they can either be paid in local currency or bitcoin.

Specialised fintechs

Specialised fintechs offer digital financial solutions for unique or niche markets. They often operate as a distinct ecosystem with integrated payments, lending or e-market place offerings. Notable genres include:

Agritech, such as FarmDrive (Kenya), Farmcrowdy (Nigeria) and Twigga foods (Rwanda), which provide farmers with access to loans, crowdfunding or to digital trading platforms based on blockchain technology, enabling them to transact directly with buyers.

Proptech, such as VisaFront (Nigeria), which provides access to property trading, BuyRent (Kenya), which automates rent collection, and JumiaHouse (Kenya), which facilitates short-term rentals.

Fintech landscape across major African countries

Note: Many of these companies could appear in multiple cells.
Source: Tellimer Research, CB Insights, Irrational Innovations

For more detail on the fintech environment in Africa see our recently published in-depth report The Ultimate Guide to African Fintech.


 
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Equity Analysis / Vietnam

Vietnam digital payments: On the cusp of rapid change

  • Key industry drivers are technology, government/ regulator support and foreign funding/ expertise
  • 33 licences have been issued, but the top 5 players control c80% of the market
  • We see a shakeout as the industry consolidates around the strongest and most innovative operators
Rahul Shah @
Tellimer Research
11 May 2020

We think the Vietnam digital payments landscape is set for a period of rapid change, for the following reasons:

 1. Most transactions are still conducted via cash, but digital payments technology is evolving rapidly, and the government is also promoting a shift towards electronic payment media.

2. 33 payments licenses have been granted by the central bank, but the top 5 players account for over 80% of the market. As a network-based business, we see significant scope for consolidation.

3. Some of the main payments operators recently secured significant additional funding, which could accelerate their development in terms of customer acquisition and product development.

Market profile

Of Vietnam’s 75mn adults, 31% have an account at a financial institution. Per the State Bank of Vietnam, there were 18.6k ATMs at the end of 2018 and 243k card-accepting devices (POS). These metrics lag those in neighbouring markets. At c150%, the number of mobile phone subscriptions, on the other hand, is broadly on a par with ASEAN neighbours. 67% of the population has mobile broadband connectivity, which creates a viable constituency for smartphone app-based products and services.

Table 1: Vietnam market profile


VietnamIndonesiaThailandMalaysia
Account at financial institution (% of adults)30.8%48.9%81.6%85.3%
ATMs (per 100k adults)25.354.7115.146.6
Mobile subscription (% of total population)147%119%180%135%
Cashless transactions (% of total transactions)5%n/a60%90%

Source: World Bank

 

Digital payments have strong growth prospects in Vietnam

The State Bank of Vietnam has licensed 33 non-bank organisations to act as payment intermediaries in the country. As of 2017, only 5% of transactions in Vietnam were cashless (source: World Bank), which is one of the lowest figures in the region.

As further evidence for the growth potential of digital payments, a Standard Chartered study last year indicated that 90% of Vietnamese consumers preferred cash on delivery for their online purchases, a much higher proportion than other regional markets.

One of the key catalysts for growth in digital payments volumes is the increasing popularity of eCommerce transactions, through portals such as Alibaba-owned Lazada, Shopee and Sendo. Currently, cards (notably debit cards) are the main non-cash payment channel. But in rural areas in particular, card usage is still uncommon.

We note that urban centres such as Ho Chi Minh City have been promoting the use of cashless payments for utilities, hospitals and education, as well as for pension and welfare disbursements.

A further driver of cashless payments will come from the roll-out of more point of sales units. Last year, South Korean firm Alliex announced plans to invest US$700mn over a five-year period to install 600k POS units across the country in collaboration with Sacombank and Vietinbank.

Lastly, increased usage of QR-codes will also enable traders that do not have an electronic point of sale to still access digital wallet payments.

The digital payments landscape

In December 2014 the State Bank of Vietnam issued Circular 39/2014 which set out the rules under which payments service providers could operate. To date, 33 ten-year licences have been issued by the SBV, at a rate of around 1 licence every two months. We understand other companies are waiting to join the throng, including ride-hailing firm Go-Viet, which is part of the Indonesian Go-Jek empire.

 Figure 2: Vietnam digital payments landscape


Source: State Bank of Vietnam, Tellimer Research. Note: NextPay is formed by a merger of Vimo and mPOS

Why digital payments are important for technology firms

We think significant regional players, such as Grab (whose GrabPay division has teamed up with Moca) and Go-Jek (via its Go Viet and Go Pay divisions) believe that becoming the leading payments platform in a market/ region will give them a greater ability to cross-sell additional services to consumers. This model has been successfully pioneered by Tencent and Ant Financial in China. We note that Ant Financial recently forayed into Vietnam, via an investment in eMonkey (a digital wallet by M-Pay) adding to its portfolio of investments in South Asia (Easypaisa, PayTM, bKash).

Conglomerates are active in the digital payments space…

GrabPay has access to Grab’s service offerings such as ride-hailing and financial services (such as loans and insurance). 

NextPay is part of the NextTech Group, whose activities include mortgages, eCommerce, insurance, logistics and ride-hailing.

ViettelPay can be used on the My Go ride-hailing app, which was launched by common parent Viettel Group. 

VinGroups’ VinID subsidiary acquired MonPay last May, while media company VNG has launched ZaloPay.

 but partnerships are also blossoming

A route to improve attractiveness to customers is partnerships, which can increase the number of use cases for digital wallets and accelerate customer acquisition. As an example, Vietcombank and Viet Capital Bank have tied up with Payoo. BE Group, the ride-hailing firm, has entered into a digital financial services partnership with VPBank.

Network-based businesses tend to be concentrated

If we look at other network-based industries (eg search engines, ride-hailing apps, telecoms services, operating systems), concentration levels tend to be high. We think it highly likely that most of the 33-licensed payment companies will fail, with only a small number of firms able to develop sustainable business models. As we highlight below, c80% of the market in Vietnam is already controlled by around five operators.

Customer acquisition strategies don’t come cheap…

In order to stand out from the crowd, and gain scale, some digital wallet providers have been offering discounts of up to 30% to consumers. Merchants are also offered incentives to promote particular wallets.

...and fund-raising rounds have lifted the bar

VNPAY last year raised US$300mn from investors including Softbank and GIC, while Momo raised US$100mn. NextPay, created from the merger of Vimo and mPOS, also raised US$30mn last year. Operators with deep pockets carry a significant advantage over their peers because the industry requires significant investment to be made to acquire consumers and merchants, and to fund technology and product development.

Consolidation can be a way for sub-scale firms to stay in the game

Vimo and mPOS merged last June, creating NextPay, and used this to support a fund-raising round. The firm, which had 60k access points at the time of the merger, targets this to increase to 300k in 2023. Following its merger, NextPay claimed to control close to 15% of the POS market, with a goal of reaching 40-50% three years later. We think consolidation could be a viable strategy for other payments firms in Vietnam to gain scale and move closer to financial sustainability.

The M&A scene has also been active

Grab invested in the Moca payments platform in 2018. Last year Grab announced its intention to invest US$500mn in Vietnam over the next five years to expand its transport, food and payment networks. This was in addition to an estimated US$200mn investment in Vietnam during 2019. As highlighted above, Vingroup’s VinID acquired MonPay last year, while NextPay was also the product of a merger in 2019. We think further M&A activity is likely.

Foreign ownership restrictions likely to come into play, but only after the industry matures

Late last year the SBV floated the idea of restricting foreign investor ownership in licensed payments companies to 49%. Previously there was no limit. We understand that these plans have now been shelved, but in our view this is most likely just a temporary reprieve, with a transition to more restrictive ownership rules being more likely once these businesses become less cashflow negative.

Due to the capital-hungry nature of these businesses in the start-up phase, we think most of the digital payments companies operating in Vietnam have significant foreign ownership, notably 1Pay (Thailand’s True Money), Payoo (Japan’s NTT), VMPT EPAY (South Korea’s Global Payment Service and UTC Investment Company) and MoMo (US firms Warburg Pincus and Goldman Sachs, plus the UK’s Standard Chartered Bank).

If foreign ownership were to be restricted (bringing the industry more into line with the banking sector, and most listed Vietnamese companies), we think this would catalyse a significant shift in industry structure, with some firms raising capital locally, and others perhaps merging and seeing capital withdrawals in order to fall into line with foreign ownership restrictions. We note that in China and Indonesia, foreign ownership of the sector is restricted to 20%, and in Malaysia to 30%.

The digital payments industry is already quite concentrated

According to the SBV’s Department of Payments more than 80% of the deposits in digital wallets were controlled by five players: Payoo, Mom, SenPay, Moca and Airpay. In terms of the number of registered wallets, over 70% were in the hands of Airpay, MoMo, Senpay, Moca and VTCPay. In relation to transaction value, the main players (accounting for 95% of the total) were Payoo, Momo, Senpay, Airpay, Zalopay. Three operators rank highly across all three of these metrics, namely Airpay, Momo and Senpay.

Why digital payments are important for technology firms

We think significant regional players, such as Grab (whose GrabPay division has teamed up with Moca) and Go-Jek (via its Go Viet and Go Pay divisions) believe that becoming the leading payments platform in a market/ region will give them a greater ability to cross-sell additional services to consumers. This model has been successfully pioneered by Tencent and Ant Financial in China. We note that Ant Financial recently forayed into Vietnam, via an investment in eMonkey (a digital wallet by M-Pay) adding to its portfolio of investments in South Asia (Easypaisa, PayTM, bKash).

Conglomerates are active in the digital payments space…

GrabPay has access to Grab’s service offerings such as ride-hailing and financial services (such as loans and insurance). 

NextPay is part of the NextTech Group, whose activities include mortgages, eCommerce, insurance, logistics and ride-hailing.

ViettelPay can be used on the My Go ride-hailing app, which was launched by common parent Viettel Group. 

VinGroups’ VinID subsidiary acquired MonPay last May, while media company VNG has launched ZaloPay.

 but partnerships are also blossoming

A route to improve attractiveness to customers is partnerships, which can increase the number of use cases for digital wallets and accelerate customer acquisition. As an example, Vietcombank and Viet Capital Bank have tied up with Payoo. BE Group, the ride-hailing firm, has entered into a digital financial services partnership with VPBank.

Network-based businesses tend to be concentrated

If we look at other network-based industries (eg search engines, ride-hailing apps, telecoms services, operating systems), concentration levels tend to be high. We think it highly likely that most of the 33-licensed payment companies will fail, with only a small number of firms able to develop sustainable business models. As we highlight below, c80% of the market in Vietnam is already controlled by around five operators.

Customer acquisition strategies don’t come cheap…

In order to stand out from the crowd, and gain scale, some digital wallet providers have been offering discounts of up to 30% to consumers. Merchants are also offered incentives to promote particular wallets.

...and fund-raising rounds have lifted the bar

VNPAY last year raised US$300mn from investors including Softbank and GIC, while Momo raised US$100mn. NextPay, created from the merger of Vimo and mPOS, also raised US$30mn last year. Operators with deep pockets carry a significant advantage over their peers because the industry requires significant investment to be made to acquire consumers and merchants, and to fund technology and product development.

Consolidation can be a way for sub-scale firms to stay in the game

Vimo and mPOS merged last June, creating NextPay, and used this to support a fund-raising round. The firm, which had 60k access points at the time of the merger, targets this to increase to 300k in 2023. Following its merger, NextPay claimed to control close to 15% of the POS market, with a goal of reaching 40-50% three years later. We think consolidation could be a viable strategy for other payments firms in Vietnam to gain scale and move closer to financial sustainability.

The M&A scene has also been active

Grab invested in the Moca payments platform in 2018. Last year Grab announced its intention to invest US$500mn in Vietnam over the next five years to expand its transport, food and payment networks. This was in addition to an estimated US$200mn investment in Vietnam during 2019. As highlighted above, Vingroup’s VinID acquired MonPay last year, while NextPay was also the product of a merger in 2019. We think further M&A activity is likely.

Foreign ownership restrictions likely to come into play, but only after the industry matures

Late last year the SBV floated the idea of restricting foreign investor ownership in licensed payments companies to 49%. Previously there was no limit. We understand that these plans have now been shelved, but in our view this is most likely just a temporary reprieve, with a transition to more restrictive ownership rules being more likely once these businesses become less cashflow negative.

Due to the capital-hungry nature of these businesses in the start-up phase, we think most of the digital payments companies operating in Vietnam have significant foreign ownership, notably 1Pay (Thailand’s True Money), Payoo (Japan’s NTT), VMPT EPAY (South Korea’s Global Payment Service and UTC Investment Company) and MoMo (US firms Warburg Pincus and Goldman Sachs, plus the UK’s Standard Chartered Bank).

If foreign ownership were to be restricted (bringing the industry more into line with the banking sector, and most listed Vietnamese companies), we think this would catalyse a significant shift in industry structure, with some firms raising capital locally, and others perhaps merging and seeing capital withdrawals in order to fall into line with foreign ownership restrictions. We note that in China and Indonesia, foreign ownership of the sector is restricted to 20%, and in Malaysia to 30%.

The digital payments industry is already quite concentrated

According to the SBV’s Department of Payments more than 80% of the deposits in digital wallets were controlled by five players: Payoo, Mom, SenPay, Moca and Airpay. In terms of the number of registered wallets, over 70% were in the hands of Airpay, MoMo, Senpay, Moca and VTCPay. In relation to transaction value, the main players (accounting for 95% of the total) were Payoo, Momo, Senpay, Airpay, Zalopay. Three operators rank highly across all three of these metrics, namely Airpay, Momo and Senpay.

Figure 3: Leading mobile wallets in Vietnam 

Source: State Bank of Vietnam, Department of Payments, VnExpress

 

Key player profiles

Airpay

AirPay is the mobile wallet of Vietnam Esport JSC, and was licensed by the State Bank of Vietnam in December 2015 for providing intermediary payment services. It is one of the top 5 players in Vietnam in terms of deposits, number of wallets and transaction value. AirPay is backed by a Singapore Internet company, Sea, and also operates in other South-East Asian countries including Thailand and Indonesia.

Gpay

GPay is the latest firm to be awarded a payments licence by the SBV. The firm is a member of investment company G-Group, whose companies have a combined 20mn users across financial platforms, gaming, social networks and technology sectors. 

Founded in 2018, GPay has already reached US$50mn Gross Merchandise Value, with a presence in 42 cities and provinces in Vietnam. The firm targets more than 5mn users by 2023. Sister company, Gapo, a social network, aims to reach 20mn users by January 2021. Note that the ruling Communist party has asked domestic tech companies to provide alternatives to Facebook, which in January 2020 was accused of violating Vietnamese law in areas relating to content, advertising and taxation.

Moca

Moca is Grab’s digital wallet platform in Vietnam. Grab is SE Asia’s largest ride-hailing firm. During the course of H1 2019, payment volumes grew 150% while the number of active mobile users advanced by 70%. The firm is helping to grow the number of services that can be paid for without use of cash or a bank card, including international remittances.

MoMo Pay

Founded in 2007, M_Service’s MoMo app is an industry leader with over 10mn users. One of the key factors for its success has been its aggressive acquisition of c10k partners across consumer finance, insurance, utilities, entertainment providers, eCommerce, shopping and transportation. The platform is integrated with most local banks, as well as international payment networks such as Visa, Mastercard and JCB. Key shareholders include Goldman Sachs, Standard Chartered and Warburg Pincus.

The company has credited its success to its focus on developing the largest merchant network in the country, both offline and online.

Payoo

Payoo is owned by VietUnion, which in turn is owned by Saigon Construction Corporation and Japan’s NTT. Payoo users can access 12,000 point of sales counters across Vietnam. Payoo customers can make payments online or at physical locations, for over 200 different types of services, including rental payments, utilities and services. The company has partnerships with many local and international banks.

SenPay

Senpay is a mobile wallet operated by FPT Wallet Co. – which is owned by the Sendo e-commerce marketplace that offers more than 10 million products on its platform. SenPay received its licence from State Bank of Vietnam in 2016 and operates under the model of both an electronic wallet and an intermediary payment gateway.

ViettelPay

ViettelPay was launched in June 2018 by Viettel, the largest mobile telephone operator in Vietnam that is also active in 11 markets, with 70k employees and 2018 revenues of VND234.5trn.

Via a smartphone app, ViettelPay enables payments to companies (utilities, transport providers, airtime providers etc) and individuals (either to mobile wallets or bank accounts).

ViettelPay has close to 9mn subscribers. By year-end the company plans to integrate with more than 120k access points across the country, rising to 600k in 2025 when the company should have 26mn subscribers.

VTC Pay

VTC Pay is a subsidiary of Vietnam Multimedia Corporation (VTC), one of the country's largest corporations. VTC Pay was officially launched in 2009, obtained an intermediary services license from State Bank of Vietnam in 2016, and currently has over 3mn wallets. VTC Pay provides payment services through a network of 37 domestic banks and three international card organisations.

VNPT Pay

VNPT Pay is run by Vietnamese telco VNPT. It received its license at the start of 2016 and there are now nearly 50,000 points accepting VNPT Pay. Recently, VNPT Pay became one of four selected payments platforms to provide electronic payment services on the National Public Service Portal system. Via NPSP, customers can pay the fees and charges of public services (such as electricity, tax filing fees and so on) with the VNPT Pay e-wallet.

Zalo Pay

ZaloPay runs on Zalo, Vietnam’s largest chatting platform, with over 100mn users worldwide. The platform integrates with bank accounts to allow for cash withdrawals, purchases and money transfers. The company is backed by VNG Corporation. The company offers QR-based payments that avoid the need for dedicated POS termainals, which can be helpful in rural locations.

 

Acknowledgements

We would like to thank Anh Nguyen, Rong Viet Securities, for her help with this report.


 
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Flash Report - Equity / United Kingdom

Global microfinance survey: S & SE Asia loans deteriorated most in April

  • Survey gives a sense of how Covid-19 lockdowns affected April loan quality; PAR>30, restructured loans both up sharply
  • S & SE Asia was hit hardest. Benign LatAm data may reflect later imposition of lockdowns in parts of this region
  • Future releases may give a more balanced picture of how lockdowns have been impacting asset quality
Rahul Shah @
Tellimer Research
2 July 2020

CGAP has released the results of its first bi-weekly global survey of microfinance institutions, conducted on 1-15 June and relating to conditions in April 2020. A total of 180 MFIs took part in the survey, with aggregate total assets of US$85mn.

Although the sample size is small in an industry context, the survey provides early insights on how the quality of MFI loans books deteriorated during the first month of Q2 20. We think the data will be of interest to investors in companies such as London-listed ASA International and Egypt’s Sarwa.

The survey shows the biggest loan quality deterioration was in South and Southeast Asia, but this may be a function of this region enacting lockdowns before others. Future releases may give a more balanced picture of how lockdowns have been impacting asset quality.

Loan quality

The CGAP survey indicated that the global PAR>30 ratio increased from 4.1% in June 2019 to 7.2% in April 2020. South and Southeast Asia saw the biggest increase, from 3.0% to 10.9%. MENA also saw a large increase (2.4% to 9.7%), although the sample size in this region is small.

Restructured loans

The volume of loans that have been restructured, or on which moratoriums have been applied, has increased substantially due to covid-19. The highest proportion was again in South and Southeast Asia (29.2%).

Write-offs

Globally, the write-off ratio was 0.7% in the first four months of 2020, ranging from 0.9% in sub-Saharan Africa to 0.5% in the MENA region. The restructured loan data suggest the write-off rate in S and SE Asia could rise over the coming months.


 
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