Global Themes / Global

Work life after Covid-19: The new normal is tech-enabled

  • Global lockdown is changing habits and accelerating technology adoption. Years of change have occurred in just weeks.
  • Tech is no longer the exclusive preserve of financial services. It's light, flexible and can be delivered anywhere.
  • Home working is here to stay. We don’t need as much office space and we don’t need to fly as much for business.

The sun shines, the shop shelves are full – albeit the shoppers themselves are socially distanced and strangely silent – and yet we collectively stand on the brink of the unknown. It is not so much the changes that we can already see as the consequence of the first truly global event in human history that occupy our thoughts; it is the changes yet to come that pose the real questions. Great events are occurring, the chess pieces are moving, the world will not go back to the way it was. Yet we are in the early stages, the phoney war that is the vanguard of something much more significant.

Years of behavioural changes, condensed into weeks

As a technology business, we at Tellimer were perhaps ahead of the tech adoption curve; we used Zoom, Slack, and Notion before the Covid-19 pandemic. All our own platforms and tools are built to be mobile-first, cloud-based, web-delivered, so for us and our clients the shift to working remotely was seamless. However, even among our team we have seen an acceleration in tech adoption. We now speak in terms of presenting to clients in Figma not PowerPoint, we make calls and share screens not just on Zoom but also Slack, which, after some persuasion, I have succeeded in making several of my analyst colleagues start using (its IB, like Bloomberg, I told them – much cheaper I may have added sotto voce). My working days are filled with buzzes, pings and beeps emanating from the range of apps and devices I have arrayed as part of my improvised stand-up home office. And so light is the equipment that keeps me so well connected that I can remove myself to any room in the house while still on a call.

More than 20 years ago, I had the great good fortune to be part of the founding management team of dotcom innovator BrokerTec – which is now a muscular component of the world’s largest financial and commodities exchange, the CME Group. One of the lessons we learned then is that it is all very well to build useful, well-designed and revolutionary technology, it is quite another thing to get clients to change their habits (sometimes of a lifetime) and actually use it. What the global lockdown has done in a matter of weeks is change habits and accelerate technology adoption amongst both the “retail” population and the business world in a time frame that could reasonably have been expected to take years. As Jack Ma predicted to the audience at one of the fringe events around the United Nations meetings in 2018 – at which I was lucky enough to be – this is the era of “democratisation” of technology.

Every business is now a tech-enabled business

Tech is no longer the exclusive preserve of financial services, it no longer depends on gateways in your comms room, acres of desk-top memory, painfully expensive storage capacity, and it doesn’t need a special university degree and several years of experience to operate it. Retail and business tech now resides in our pockets, is an app on our tablet, does not need months of implementation or a tech team to be employed by the user to keep it operational. It's light, flexible and can be delivered to nearly anywhere.

For a long time we have written about tech and its rapid adoption in Africa, the world’s fastest-growing region in terms of human population. In light of the acceleration of tech usage forced by Covid-19, we could now well say that many of the same principles can be applied to the world in general; if you can tech-enable your business, do so; if you can work remotely, do so, if you can reduce your operational friction and costs, do so. There is now a much more familiar and attentive global audience for that sort of change than there was two months ago.

The new normal for business

More specifically, I and the team have already concluded a few things for our own firm, however from my conversations with other CEOs I suspect this is what many are already thinking and doing:

  1. Working from home will remain the norm for many: Clearly not all business can be done from home, but it can for many and/or for more and more time. Particularly for people like me who grew up and lived as an adult in the 20th century, the negative view of working from home is gone: it is easier to work longer and more flexibly, see more clients, be more deliberate about communicating with colleagues, as well as avoiding the overcrowded anguish and time-wasted on the commute, not to mention reducing the surprisingly high costs of transport and overpriced coffees. I was already a convert, but this experience should have convinced even the toughest operators.
  2. We don’t need as much office space: Office space is expensive and always involves a compromise. We just don’t need that much of it anymore. If we need to see clients we will take them somewhere nice for breakfast or a coffee; it may involve a bit of a premium but is multiples cheaper over the year than paying for a drab office meeting room.
  3. We don’t need to fly as much for business: In other parts of my career I regularly flew 15 or so times a year, to see clients, colleagues and other businesses. I have no desire to spend that sort of money, or indeed time, and increasingly our clients find a shorter meeting over Zoom is a much better use of their time. Yes, something is lost in terms of building human relationships, and direct meetings and flying will still be necessary, but not nearly so much. 

Humanity can’t sit still, and opportunities will arise from this

We at Tellimer have rarely worked harder, as we perch on kitchen tables, and ping, buzz, see each other, support our clients, collaborate and build. Despite – in fact because – of the current crisis, I suspect this will be the experience of a surprising number of people around the world, striving as humanity does so consistently. Pascal’s ironic observation that all of humanity’s problems stem from man’s inability to sit still in a room, is all too true, but the corollary is that all the amazing achievements of humanity also stem from that restlessness. Pascal was writing in the 17th century, in a Europe shaken by repeated waves of plague and decades of chaos and civil wars; the same century as the Enlightenment revolutionised philosophy, science and society.

It is easy to focus on the obvious negatives of a situation that has already brought financial ruin and personal tragedy to many, and will likely result in a multi-year global recession or depression; the world still has some serious challenges. However, we humans have a strange blend of the desire to make things easier for ourselves and a restless energy and intrigue about what might be possible, even if the road is hard. The global economy is going to be reshaped, which will be uncomfortable. Let’s hope from this crisis will ultimately come yet another great step forward.


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Weekend Reading / Global

Covid-19 business transformations: The subscription revolution

  • The impact of Covid-19 on the shape of business will be immense
  • The pandemic will both accelerate the shift to subscription models in developed markets and catalyse the shift in EM
  • Investors should favour firms that deepen their customer relationships and implement recurring revenue business models
Paul Domjan @ Tellimer Research
23 May 2020
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There is widespread agreement among observers and commentators that Covid-19 will fundamentally change business and commerce. Some of those changes will simply mean extending the working practices, like tech-enabled remote working for the masses, that began during Covid-19. Other changes will build on trends that the Covid-19 response has accelerated, like shifting away from cash to digital money, with positive knock-on effects for the growth of e-commerce in the developing world. In other cases, changes will be focused on business by geopolitics, for example as geopolitical competition increases the risk of tariffs and other trade disruption. The impetus for economic recovery also risks rolling back positive progress in ESG and climate, as governments and investors cast a blind eye on long-term damage incurred in the course of short-term growth.

Let’s get recurring

All of these are examples of projecting current developments into the future, but changes will also result from the lessons that companies learn during the lockdown and the impact of those lessons on their business models. While these lessons are many and varied, ranging from questioning just-in-time supply chains to reassessing how to market to and engage customers, the biggest of these lessons is likely to be around the value of committed customer relationships and recurring revenue. Covid-19 will both accelerate the shift to subscription, recurring revenue, business models in developed markets and catalyse such a shift in developing markets.

Commitment issues

Markets have long recognised that not all revenue is created equal, and the 20+ EBITDA multiples on many subscription businesses prior to Covid-19 already reflected the value of beginning your financial year with committed customer relationships, client contracts and revenue already in place. Covid-19 has highlighted just how valuable recurring revenue is and will cause more consumers to prefer to engage through a subscription model. Successful businesses will use this crisis as an opportunity to make the transition to recurring-revenue business models.

Discussion of business models is easily dominated by the business’s own perspective – after all, the business model is all about how the business organises itself and goes to market, but a business model only works if it meets the needs of the market, so let’s begin with the customer’s perspective. Covid-19 has taken a tremendous toll on household incomes, especially in developed countries that failed to effectively implement policies to maintain employment, like the US, and emerging markets without the resources to do so. It is unsurprising that hire-purchase, arguably the first transformation of a traditional business into a recurring revenue business, first came into common use in Britain during the Great Depression, leading parliament to pass the Hire-Purchase Act of 1938 to protect buyers from overly aggressive tactics by sellers.

Today, businesses, like households, are stressed and uncertain – concerned about both future prospects and short-term cashflow. In such circumstances, customers, whether they are end consumers or businesses themselves, are more likely to prefer to commit to an ongoing service at a manageable cost rather than expose themselves to the potentially higher, less predictable cost of working with a traditional vendor. Importantly, they are also more likely to prefer a bundle of services that are good enough rather than pay more to get the best possible service in each category, and, as we shall see shortly, bundles are a natural extension of recurring revenue business models.

Revenue security

Covid-19 has shown just how quickly a dislocation can cause revenue to vanish, even from established customers. More worryingly, when a firm is no longer engaged with its customer, that historical relationship may count for little when that customer returns to the market, looking for a new solution to their problems. Firms with large cash balances have had resources to buffer the impact of Covid-19 and give them time to reorient, but firms with subscription business models have another powerful buffer: commitment revenue and committed customers. Indeed recent data indicates that only c30% of subscription businesses have experienced revenue contraction during Covid-19.

Deeper customer engagement

Recurring revenue relationships can encourage businesses to engage more closely with their customers and think more deeply about their customer needs. Rather than selling a product or a one-off service, a subscription creates an ongoing relationship. This encourages firms to take the time to understand how their customers’ needs are changing and what they can do to deepen relationships and increase the value that they offer customers. This means the subscription businesses are better positioned to respond to downward pricing pressure by increasing value, by offering bundles of complementary services for example, rather than discounting prices or losing customers. This will help them to respond to Covid-19 with greater agility than traditional businesses.

Deeper customer relationships also give recurring revenue businesses more options to work with customers through difficult circumstances. Recent research has found that businesses offering the flexibility to suspend and resume subscriptions are more likely to retain customers. By keeping the customer relationship intact through the period of lockdown and recession, these businesses will be able to restart existing relationships as Covid-19 abates rather than needing to rebuild from scratch.

Making it work in emerging markets: The Theory

The shift to recurring revenue business models has been underway for some time in developed markets, but it has proven more challenging in emerging markets. Covid-19 might change that. Recurring revenue relationships typically rely on both the buyer and the seller accepting one another’s creditworthiness. If the buyer pays in advance, they need to be confident that the seller will be around to provide the service when they need it. Similarly, where the buyer pays in contracted installments, the contract is an asset of the seller, the value of which depends on the buyer meeting their contractual obligations.

Furthermore, many such models require regular recurring payments, which are more complicated, especially in B2C, in many emerging markets than in developed markets, which benefit from widely distributed credit card networks and direct debit arrangements. By accelerating the adoption of digital payments and electronic money, Covid-19 is helping emerging markets to build a payments ecosystem that will enable subscription business models in the same way that cards and direct debits do in developed markets. Not only will Covid-19 accelerate the development of the infrastructure to support recurring revenue, it will also lead firms in emerging markets to welcome new business models. Necessity, in the form of financially strained, risk-averse customers, will help to overcome the inertia of existing business models.

Making it work in emerging markets: The Practice

Having helped businesses in both developed and developing countries to make this business model transformation, I appreciate the complexity it entails, including reengineering business processes, changing the approach to sales and marketing, reprofiling revenue and engaging differently with customers. At the end of that process, the impact can be greater in emerging markets than in developed ones because a recurring revenue business model allows the firm to lower barriers to entry by reducing initial cost and increasing flexibility.

In developed markets, new subscription services are often displacing existing traditional businesses, whether in enterprise software, video rental or business services. In emerging markets, however, subscription models can allow a customer, whether a business or a household, to procure a service for the first time, both by lowering the entry cost and by allowing customers, especially business customers, to experiment with a new type of solution on a small scale. This can mean, for example, implementing new services or software in a small number of sites or in a single city before rolling it out across the business. As such, the subscription transition often enables emerging market businesses to access new customer segments as well as serve existing customers differently.

Roof-top solar is one example. High upfront cost combined with the risk of breakages and obsolescence have limited the roll-out of these systems, especially to households. A subscription model would be ideal, as it would spread the cost of power as a service, incorporating maintenance and equipment upgrades into a single monthly payment. Historically such a model would have been constrained by the complexity of collecting monthly payments and difficulty assessing the credit quality of the customers. Digital payments are addressing the first problem, as well as providing data that can help to measure credit quality. New tech products are now using a range of alternative data to help to better assess credit, helping to solve the second problem. Finally the Covid-19 recession is likely to shrink the pool of customers who can afford these systems up front, forcing solar companies to find new ways to access customers. Technology is reducing the risk of moving to a subscription business model, while Covid-19 is leading firms to increase their risk appetite. This creates a new area of acceptable risk, where new subscription business models will emerge.

What it means for investors

New entrants often arise as dominant players after recessions because recessions both are caused by and cause major changes in the structure of the economy. Not only did Salesforce, Facebook, Airbnb and Google famously grow into dominant positions during recent recessions, but GE, GM, Disney and many others are children of more distant recessions. New entrants don’t need to transform their businesses to thrive in the new environment – the new environment is the only environment they’ve known. For established firms to match their agility, they need to recognise the need to transform early, rather than merely seek to wait for good times to return, and they need to be willing to abandon aspects of their historical business model to achieve a new one.

Investors should be looking at the private company universe, especially in rapidly changing areas like fintech, to try to find the new entrants that understand the new environment and will thrive. Some of these companies are young and well-placed for the future, as GM and Google were. Others will be founded during the recession itself, as Disney and Airbnb were.

When assessing established, listed firms, investors will need, as many already are, to shift their focus to emphasise the robustness and resilience of a firm’s strategy in multiple future scenarios. Business models are a key driver of robustness and resilience, and investors should watch closely for firms that implement subscription and recurring revenue business models to deepen their relationships with customers and improve the robustness of their revenues.

This is the first in a series of reports that seek to pull together many strands of Tellimer research to understand better how business, globally and especially in developing markets, could change after Covid-19.


 
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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
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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 States of America

Jumia: What Africa's Amazon tells us about the e-commerce opportunity

  • There is momentum behind EM e-commerce, and it will continue after the Covid-19 era
  • Jumia has prepared itself for the supply chain disruptions and currency impact
  • Beaten down EM e-commerce such as Jumia could ascend further if a deep-pocketed suitor comes calling
Nirgunan Tiruchelvam @ Tellimer Research
7 May 2020
Hero image

Covid-19 has hit the world economy very hard. Apart from the 260,000+ lives lost, the pavement is littered with traditional retailers going bust: JC Penny, a famous American department store chain founded in 1902, filed for bankruptcy on Monday; Neiman Marcus, founded in 1907, followed suit today; and J.Crew seems set to join them.

But the virus is a godsend for EM e-commerce players. Most notably, Jumia, Africa's answer to Amazon, has risen from its slumber. After losing over 90% of its value in the eight previous months, it rose by 54% in April. 

Chart: JMIA US monthly performance (%)


Source: Bloomberg

Four key points:

1) The main driver of Jumia's upsurge is the general momentum behind EM e-commerce. Traditional stores have been out of action and Jumia has been a huge beneficiary of this in its main markets of Nigeria, Egypt and Kenya. Moreover, the company has aggressively courted higher engagement with its platform by increasing the number of its grocery providers. 

2) Jumia has been well prepared for the supply chain disruptions and currency impact of Covid-19. It has cut costs in terms of headcount and other overheads. 

3) Beaten down EM e-commerce such as Jumia could attract attention. EM e-commerce is an alluring prospect for tech giants such as Facebook and Amazon. The latter have net cash reserves of US$54bn and US$81bn, respectively. 

Africa’s internet penetration is on an upward trajectory, driven by smartphone usage (the continent is a ‘mobile-first’ market where people typically first access the internet via their mobile devices). The Jumia brand has managed to grow in popularity over the years and is currently regarded as the largest e-retail firm in Africa.

4) EM e-commerce is on the rise, but watch out for the cash burn. In the post-Covid-19 world, the market will be far less forgiving of cash-burning e-commerce ventures. Jumia itself is on course to deplete its cash by FY 21. 


 
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Equity Analysis / Global

The winners from the imminent soft commodity rally

Nirgunan Tiruchelvam @ Tellimer Research
13 January 2020

The Iran-US confrontation has brought immense volatility at the start of the new decade. Oil prices have fluctuated by over 12% in just a week. 

In a crisis, the distinction between the signal and the noise is vital. Irrespective of the tensions in the Gulf, we think soft commodities are due for a bull run after nearly six years of strife.

In the first days of the new decade, there are several signs that indicate that the market needs to brace itself for a sustained rally in soft commodities. Commodities in general, and soft commodities in particular, may be facing a perfect storm.


 
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