VietNamNet Bridge – Vietnam’s consumer finance loans of Vietnam increased by 1.5 times to $15.12 billion in 2015, according to StoxPlus.

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StoxPlus JSC has announced the Vietnam Consumer Finance Report 2015, which showed that the consumer finance market of Vietnam continued to witness the highest growth in the past 5 years.

According to the report, the outstanding loan balance soared from $10.5 billion in December 2014 to $15.12 billion at the end of 2015, with 44.1% growth. This operation accounts for 10.4% of GDP and 6.8% of total debt balance of the economy.

According to StoxPlus's analysis, the robust growth of Vietnam Consumer Finance Market resulted from the significant change in customer behavior and the high demands for housing loans of the middle class.

The transition from borrowing behavior of customers from borrowing from relatives, friends or informal finance market to more formalized method at finance companies also had a positive implication on lending market.

However, the market has become more and more competitive with increasing number of participants. Indeed, the market landscape in 2015 has experienced the acquisition of many local finance companies by Joint Stock Commercial Banks as well as the fast growth of local CF companies like FE Credit.

The market is predicted to be gradually dominated by local companies as VP Bank Finance Company is taking over the 1st place from Home Credit in terms of outstanding loans, accounting for more than 50% of total market share of CF companies.

As the number of players doubled this year, while the number of POS is limited, bargaining power of buyers will be high. Incentives or commission will be raised in order to secure a place at POS.

Taking Mobile World and FPT Shop for example, there are at least 4 consumer finance companies including FE Credit, Home Credit, HD Saison and ACS located in one shop. Therefore, profit margin of such CF companies will be unquestionably reduced.

Furthermore, sales channels of CF companies also suffered from the challenges of higher sales and operation expenses from collection & payment third party companies like MoMo and Payoo.

In particular, these third party companies charge a fee of 5% to 8% per collection or payment transaction, which also led to the reduction in the profit of CF companies.

Besides, CF companies face challenges from the companies that apply advanced technology in the financial services sector (FinTech).

Although FinTech currently offers only payment software and some limited lending activities, StoxPlus believes that this will become a threat to the consumer finance companies.

According to the report, 2015 was a remarkable year of FinTech booming in Vietnam with MoMo, Payoo, BankPlus or 123Pay as the popular mobile payment apps being used by many CF companies or new player like LoanVi.

Banks like VP Bank also introduced mobile banking app  Timo, which expects to innovate the banking and lending practices. These companies are changing the payment industry and creating a new era of applying technology to lending business in Vietnam.

The benefit of Fintech is that they can leverage technology in order to revolutionize sales channels and provide more convenience, accessibility and tailored products for customers, the report said.

 Even though CF companies are still relying on Point-of-Sales, the mobile channel is considered to be the next big thing. Mobile phones are very popular in Vietnam as there are 128 million mobile phones accounts, in which nearly half of the total accounts is smart phone accounts.

FinTech companies can thus provide a user-friendly and time-saving mobile platform for financial transactions and tap into the untapped market including the unbanked, underserved and youth populations.

“By utilizing the competitive advantages such as extensive network and large client database, payment companies such as MoMo, Payoo or BankPlus have many incentives to enter the consumer finance market. Therefore, CF companies who fail to catch up with technology innovation will likely lag behind in the next few years,” the report said.

Compiled by Na Son