Internet-based sharing services such as Grab, Uber, and Airbnb have taken Vietnam by storm in 2017. Various legal concerns still linger, but experts believe that the sharing economy is here to stay.

While their legal status is largely unclear, sharing services are booming and threatening traditional businesses

A new world

It is 8am on a weekday in Ho Chi Minh City. Ngoc Khanh, a 26-year-old accountant, is typing her address into Grab to hail a motorbike ride to work. During lunchtime, Khanh will use Airbnb on her laptop to search for the best accommodation deals in Bangkok, where she plans to travel.

Meanwhile, her colleague Nam Anh is browsing for a new smartphone and wondering if he should apply for a consumer loan online, where peer-to-peer (P2P) lending is thriving.

Like millions of other Vietnamese people across the country, Ngoc Khanh and Nam Anh are enjoying the benefits of the sharing economy, which has shaken up Vietnam.

Everything is now shared

Readers may already be familiar with the services mentioned above, but what exactly is the sharing economy? As its name implies, the sharing economy describes an economic system where assets or services are shared between private individuals, either for free or at a fee, typically by means of Industry 4.0 and the internet.

In Vietnam, ride-hailing apps Uber and Grab boomed a mere three years after they entered the country. According to the Ministry of Transport, some 36,800 vehicles in Ho Chi Minh City, Hanoi, and the provinces of Quang Ninh and Khanh Hoa have registered under a pilot programme for Uber and Grab. The apps have been preferred by millennial users over traditional taxis, and a great deal of cab drivers have reportedly left their job to become partner drivers with the two companies.

Similarly, the number of Airbnb properties in Vietnam has been growing. As of June 2017, some 6,500 lodging facilities were listed on the country’s Airbnb network, according to Kenneth Atkinson, executive chairman of audit firm Grant Thornton Vietnam.

The same year saw the official launch of Vietnam’s first P2P lending service Vay Muon. Borrowing and lending money can now be done without people having to go through a financial institution. Other P2P players have since emerged in the market, including Tima and LoanVi.

The rise of sharing economy platforms has been powered by a boom in the usage of the internet and smartphones in Vietnam. Approximately half of the population are now online, while latest reports by global measurement and data analytics firm Nielsen show that more than 68 per cent of Vietnamese people currently own a smartphone. This marks a stark contrast compared to just a decade ago, when mobile phones were considered a luxury and dial-up internet was the only means for getting online.

The benefits of the sharing economy in Vietnam are clearly seen. They give Vietnamese consumers a better experience at a more competitive price, said Fabrice Carrasco, managing director of Kantar Worldpanel Vietnam. Sharing services also allow for more efficient use of spare resources, such as rooms and cars, as well as providing their owners with an extra source of income.

However, the rise of sharing services spells trouble for more traditional businesses, such as taxi companies, hotels, and commercial banks. In 2017, the well-established taxi brand Mai Linh saw its revenue slashed by 30 per cent, losing at least 6,000 employees in the process. Its competitor Vinasun also lost 2,000 employees, as profits fell and staff quit to work with Uber or Grab.

Both taxi firms are now fighting back by restructuring their operations and investing in their own ride-hailing applications, but results remain to be seen.

Meanwhile, there has been a lesser impact on the hospitality and financial industries. Grant Thornton’s Atkinson said that Airbnb is taking business from smaller, unbranded hotels in Vietnam, while major ones remain largely unaffected.

Likewise, it might take a long time for P2P lending to become a real threat to the country’s traditional financial institutions. “As the P2P model is only just emerging, the impacts on commercial banks and financial companies are very minor at the moment,” said Nguyen Quynh Lan, managing director of business information services at StoxPlus.

Ralf Matthaes, managing director of Infocus Mekong, referenced the old adage “sink or swim,” stating that sharing services will force traditional firms to cope with the changes and invest into innovation. “They will need to develop new offers that can maintain their competitive advantage and rival these sharing platforms,” said Matthaes.

Peering at the downsides

While few can deny the benefits that sharing services have brought to Vietnam, it is apparent that these new players have been responsible for some of last year’s biggest controversies. Take a quick look at social media and major newspapers throughout the year, and it is not hard to find heated discussions about sharing services, most notably Grab and Uber.

The reason is that most people in Vietnam, including regulators, are still trying to make sense of the sharing economy. Taxation is a prominent issue, as these service providers do not belong to any traditional business sector.

For example, should Uber be considered an internet firm, a service company, a startup, or a transportation business? Traditional taxi companies are outraged that they are subject to pay 20 per cent of their profits in taxes, while Uber only pays a 5 per cent contractor tax in Vietnam.

Uber itself recently threatened to sue the Ho Chi Minh City authorities, as tax agencies attempted to collect an additional VND53 billion ($2.3 million) of value-added tax, corporate income tax, and personal income tax from the firm.

At a recent seminar, Tran Ngoc Tam, head of the Ho Chi Minh City Department of Taxation, admitted that local authorities have yet to gain a full understanding of sharing services.

“There’s one thing for sure, though: internet-based services are spreading very fast and we need to react as soon as possible. This is a complicated issue that calls for full co-operation across governmental bodies,” said Tam.

The legal grey area is even larger for P2P lending services. As of now, only institutions registered with the State Bank of Vietnam are allowed to raise capital and provide loans; thus, the legal status of P2P lending platforms is still to be determined.

Industry experts believe that thanks to the obvious benefits they bring to consumers, sharing services should be encouraged by the law. Lawyer Truong Thanh Duc, chairman of law firm Basico, told VIR that the government should use technology to regulate these platforms.

“Sharing services’ business model is unique, so taxes should be adapted to reflect the nature of these firms as well as prevent double taxation or tax evasion,” said Duc. The lawyer emphasised that by principle, any business earning profits in Vietnam should pay taxes.

The legal issue is not unique to Vietnam. Since mid-2017, the European Union has been clamping down on sharing platforms, due to allegations that these providers exploited legal loopholes to pay less in taxes.

Meanwhile, Singaporean authorities have approached Uber and Grab to discuss automatic tax filings for their drivers. Two months ago, for the first time ever, the city-state charged two Airbnb providers for unauthorised rentals.

Atkinson from Grant Thornton said that it could be difficult to regulate cross-border businesses. The platforms themselves can be taxed but providers, such as drivers and property owners, are harder to track down if there is not complete transparency and sharing of information.

Financial security is another potential issue, especially as sharing services develop their own payment system, independent of commercial banks. This risk is most pronounced in P2P lending, which raises money from depositors for unsecured loans. As only 57 per cent of the adult Vietnamese population have an official credit score, default risk is high.

“Risks in P2P lending can be similar to those of pawn shops and loan sharks. The only difference is that this time, technology is involved,” said finance and banking expert Nguyen Tri Hieu.

There are other concerns such as safety and quality standards. Traditional businesses such as taxi companies, hotels, or banks have established codes of conduct and international benchmarks of service quality. On the other hand, due to their newness and disputed legal status, sharing services rely exclusively on users’ feedback and word of mouth. This means service quality and safety standards vary.

Moreover, according to Matthaes from Infocus Mekong, as the middlemen, these firms do not control the entire supply chain and run the risk of losing customers’ trust if one partner fails to deliver their service.

Onward and upward

Despite ongoing debate about their legitimacy, most people agree that sharing platforms are here to stay. In a country with a young, tech-savvy, and growing middle-class population like Vietnam, their prospects are even brighter.

Experts agree that what these Industry 4.0 businesses need to do, not just in 2018 but beyond, is earning the endorsements of authorities and compete on a level playing field with traditional firms. As competition heats up, they also need to constantly innovate and localise their services.

And no matter who survives this cut-throat game, Vietnamese consumers like Nam Anh and Ngoc Khanh will be the ultimate winners. To millions of them around Vietnam, the world is now literally at their fingertips, and everything is available for share.

VIR