E- and M-Commerce and Payment Sector Development in Vietnam A survey of e- and m-commerce providers and users and how payments and logistics services can support market development in partnership with: IFC, a member of the World Bank Group, is the largest global development institution focused exclusively on the private sector. We help developing countries achieve sus- tainable growth by financing investment, mobilizing capital in international financial markets, and providing advisory services to businesses and governments. In FY13, our investments climbed to an all-time high of nearly $25 billion, leveraging the power of the private sector to create jobs and tackle the world’s most pressing development challenges. For more information, visit www.ifc.org. December 2014 All rights reserved. This report is a product of the IFC, a member of the World Bank Group. The World Bank Group does not guarantee the accuracy of the data included in this work. Neither the authors, nor the organizations, countries they represent, are engaged in rendering legal or financial advice. The material in this report is set out in good faith for general guidance, and no liability can be accepted for any possible loss or expense incurred as a result of relying on the information contained herein. This report is not meant to be exhaustive. It should not be relied upon as a basis for formulating business decisions. The report is distributed subject to the condition that it shall not, by way of trade or otherwise, be lent, sold, hired out, or otherwise circulated on a commercial basis without IFC’s prior consent. The report was made possible by the support of the government of Switzerland through the State Secretariat for Economic Affairs (SECO). All errors and omissions remain the responsibility of the authors. Rights and Permissions Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The World Bank Group encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. Contacts: www.ifc.org/eastasia @IFC_org @IFC_EAP E- and M-Commerce and Payment Sector Development in Vietnam Acknowledgements This study was commissioned by IFC’s Retail Payments and Digital Financial Services Unit in the East Asia and Pacific region under the guidance of Rachel Freeman and Hang Thi Thu Nguyen. Ivan Mortimer-Schutts, Brett Dickstein, and Yosha Gupta authored this report. IFC would also like to thank Huynh Mai Huong and Alexander Young for their participation in the research. Contributions, in knowledge and time, from the companies and individuals surveyed are gratefully acknowledged. Preface This study investigates the state of the electronic (e) and mobile (m)-commerce sector in Vietnam and its impact on the development of cashless payments and online financial services. Internet-based business models1 are having a pervasive effect on consumers and on the way small enterprises access markets and transact. Local entrepreneurs are driving innovation and demonstrating that they can be a catalyst for change, can provide for new business growth and employment, and can transform the market context for financial technology (FinTech2) and development. From California to Kenya, from China to Chile, technology companies3 are beginning to gain visibility as they transform markets, attract large numbers of clients and create value for users and shareholders. The recent IPO of Alibaba was a watershed moment that highlights the broader developmental role that e- and m-commerce can play in emerging markets. But the overall e- and m-commerce industry is growing faster than the infrastructure required to serve it, thus generating robust unmet demand for software, FinTech, and payment solutions from both consumers and businesses looking for economies of scale in places and market segments that traditional financial services do not yet successfully serve. New service providers are targeting this unmet demand and pioneering solutions to support both the development of e- and m-commerce in Vietnam and evolving consumption habits. Indirectly this is driving the emergence of innovative, payment methods while simultaneously encouraging acceptance and uptake. In this way, e- and m-commerce can transform user behavior and the purchase journey thus making an important contribution to economic and financial sector development. The IFC supports the role that new business models in commerce and FinTech can play in broadening access to products, services, finance, and payments. Complementary policy and market practices are also often required to facilitate payment sector innovation, to encourage private sector investments and to help ensure that efficiency gains from innovation generate benefits for consumers and the broader economy. Hence, in addition to acquiring a better comprehension of the role e- and m-commerce is playing in payments development, another aim of this study is to identify areas where policy makers, market leaders, and the IFC can collaborate to accelerate or facilitate the adoption of new cashless payment services. 1 Internet business models are categorized as business-to-consumer, business-to-business, and consumer-to-consumer. These types of models traditionally sell goods and services, provide information to help online visitors make purchasing decisions, and facilitate the exchange of information or products between consumers. 2 FinTech refers to the non-traditional financial technology sector covering payments, lending, and a range of business models inte- grating finance more closely with real sector business models such as e-commerce. 3 Companies like Safaricom and M-Kopa in Kenya, Tiaxa from Chile as well as better known companies like Square and Alipay are a few examples from advanced and emerging economies. Acronyms B2B business to business B2B2C business to business to consumer B2C business to consumer C2C consumer to consumer COD cash on delivery E-commerce electronic commerce FinTech financial technology HCMC Ho Chi Minh City IFC International Finance Corporation LaaS logistics as a service M-commerce mobile commerce mPOS mobile point of sale MSME micro, small, and medium enterprises OTT over the top O2O on to offiline SaaS software as a service SBV State Bank of Vietnam SME small and medium enterprises VAS value added services Executive Summary E- and m- commerce, enabled by rising internet and smartphone penetration, are We expect expanding their reach in Vietnam. Mobile internet penetration is broadening access growth of E- and and changing the way consumers interact, compare prices, research goods, and make M- commerce purchases4. The barriers between traditional commerce, including malls, big-box stores 1 to spark more and main street, and virtual channels are blurred. Business models are converging payment service and enterprises are experimenting with social-media marketing, multi-channel innovation. approaches and alternative payment methods in order to expand their footprint and market share. In parallel, the traditional borders and structures of payments are also beginning to blur. Vietnam is still searching for its answer to the future of cashless payments. As the industry continues to evolve and grow, there is a high probability that payment solutions built on the platforms of e-Marketplaces, e-Tailers, or mobile Chat applications (apps) will revolutionize point-of-sale choices and play a prominent role, either as a catalyst or as actual providers in the market for new digital payment solutions. Local consumer internet conglomerates, technology firms, retailers, and entrepreneurs New payment are beginning to focus on bridging the infrastructure gaps and provide services solutions are needed to support further growth of e- and m-commerce. Historically in Vietnam, developing, but fragmentation and trust issues have been a deterrent for consumers to transition will need to reach from Cash on Delivery (COD) to online payments. Nevertheless, efforts to introduce scale to succeed. convenient, easy methods that leverage mobile technology suggest that payment solutions may be ascending towards the scope and scale necessary to gain more traction with consumers. E- and m-commerce users are still concentrated in the two biggest cities in Vietnam, E- and Hanoi and Ho Chi Minh City (HCMC). Regardless of this factor, Search Engines, Social M-commerce can Networks and Chat apps are paving the way to new markets and novice users outside also be a catalyst of these two primary cities. E- and m-commerce is demonstrating potential to reach to help extend the broader population despite the gap in payments and banking. How this gap is filled payment services will help determine which payment methods have a chance for widespread adoption in to reach beyond Vietnam. the main cities. Key findings from this survey include: Reaching new population segments outside the main cities • Firms across all the core e- and m-commerce segments said that 44% of their traffic comes via mobile devices which they feel will become a tool to reach the broader population and drive sales. • An estimated 34% of e- and m-commerce sales are to users outside of the two biggest Vietnamese cities. The e-Marketplaces and e-Tailers segment projected that 31% of their clientele reside outside HCMC and Hanoi. • Reliable telecommunications infrastructure and the popularity of smartphones are positioning the mobile device as the main online gateway to access e- and m-commerce sites from any geographic location. 4 Vietnam internet penetration is 39%, mobile internet penetration is 34%, mobile subscription penetration is 145%, smartphone penetration is 20%, smartphone users researching products via their phone is 95%, smartphone users who made a purchase via their phone is 60%. Source: We Are Social, 2014 Asia-Pacific Digital Overview M-commerce, led by Chat apps, is poised to gain significant uptake • Over-the-Top (OTT) Mobile Messaging services are positioned to be an innovative channel for Mobile Value Added Services (VAS) and payment acceptance. • Within just 2 years, the top 2 players boast over 25 million users, creating opportunities for m-commerce developments similar to those led by Chinese, Korean, and Japanese Chat apps that benefit from the portability and data-sharing capability of mobile devices. • High uptake of smartphones coupled with new mobile payment innovations could enable m-commerce to eclipse other e-commerce channels. Physical and online retailers are competing through hybrid, omni-channel solutions • As consumer preferences become more apparent, the borders between brick and mortar stores and online sites are converging to allow consumers to test products in showrooms but make purchases online or via mobile devices. • Multi-channel alternatives are emerging to drive engagement including pop-up locations and click-and-collect shops. • On the web, social networks are the launchpad for consumer interaction with products and services which highlights the added value that social media demonstrates for online merchants. • E-Marketplaces and e-Tailers are adopting marketplace models that allow them to reduce inventory but thereby increase their dependence on third party logistics providers for delivery, order fulfillment and cash collection services. Use of non-cash payments still very low • 75% of the surveyed firms felt that the greatest challenge facing the e- and m- commerce payments industry is lack of consumer adoption. They unanimously recognized that even if the technology exists, the hurdle they all need to overcome involves convincing people to use new methods. • Cash on Delivery (COD) is the most common payment method accepted by merchants (73%). • Third party logistics providers reinforce the COD method by providing low fee services that create a disincentive for merchants to promote other payment methods. • Low consumer confidence in on-line payments, limited card penetration, and an appreciation of benefits of COD and cash payments are seen as factors contributing to the low uptake of digital e- and m-payments. Technology companies and serial entrepreneurs are investing in logistics and payments services • Surveyed firms believe that in order to grow and reach more users, logistics and payment challenges will need to be solved. In rural areas, considerable effort is required to improve upon the existing infrastructure. • In 2014, financial technology startups piloting mobile wallets (m-wallet) and mobile Point of Sale (mPOS) solutions commercially launched apps and hardware under trial licenses issued by the State Bank of Vietnam. It is too soon to tell if they are gaining traction or being adopted by stakeholders and consumers alike. Nevertheless these first movers are setting up strategic partnerships with banks and telecom firms which could help them rapidly educate consumers and spark mass market adoption. Table of Contents 1. Introduction 1 2. Consumer Insights Survey 3 3. Market Survey 4 A. Survey Population Description 5 B. Demographics of Participating Firms and their Consumers 13 4. Survey Findings 15 A. Geographic Reach 15 B. Online Traffic and Transactions by Segment 19 C. Payment Acceptance and Usage 24 D. Distribution and Collection Services 36 E. Industry Outlook 40 5. Conclusions 46 Annex 47 A. Economy 48 B. Survey Research Population 49 C. Overview of Customer and User Interviews 50 D. List of Firms Interviewed* 51 E. Firm Snapshots and Key Bios* 52 F. Interview Guidelines 58 G. Online Survey 60 H. Additional Statistics on Surveyed Firms 62 *Annex D and Annex E are available from IFC upon request List of Figures and Tables Figure 1 Vietnam e- and m-commerce segmentation 5 Figure 2 Breakdown of core e- and m-commerce segments 6 Figure 3 Breakdown of segments supporting e- and m-commerce firms 6 Figure 4 e-Marketplaces/Tailer segments 7 Figure 5 O20 Services segments 7 Figure 6 Digital Content & Media segments 8 Figure 7 Search, Social & Chat segments 8 Figure 8 Payment Services segments 10 Figure 9 e-Solutions & Logistics segments 10 Figure 10 Launch date of surveyed firms by segment 12 Figure 11 Current # of employees and launch date 13 Figure 12 Average age of users across core segments 13 Figure 13 Major cities in Vietnam 15 Figure 14 % distribution of clients from HCMC, Hanoi, and the rest of Vietnam for firms in the core e- and m-commerce segments 16 Figure 15 Estimated % of traffic origin – PC vs. Mobile Devices 19 Figure 16 Estimated monthly visits by segment 19 Figure 17 Average registered users by segment 20 Figure 18 Referral source of traffic to core e-commerce firms 21 Figure 19 % distribution of monthly transactions by segment 22 Figure 20 Payment methods accepted by e- and m-commerce firms 25 Figure 21 Payment acceptance: e-Marketplaces/e-Tailers 27 Figure 22 Payment acceptance: Digital Content & Media 28 Figure 23 Payment acceptance: Search, Social and Chat segment 28 Figure 24 Payment acceptance: On-to-Offline segment 29 Figure 25 % payment adoption by consumers : cash vs. non-cash payments 32 Figure 26 Types of incentives offered to encourage users to pay online 32 Figure 27 Consumer Trust Issues with e-Payments 33 Figure 28 Non-cash payments Issues 35 Figure 29 Common distribution methods 37 Figure 30 Rate of e-transactions cancelled by consumers 38 Figure 31 Order fulfillment and cash collection issues 39 Figure 32 Perspectives on the challenges currently facing the e- and m-commerce industry 40 Figure 33 Will non-cash payments be widespread within the next five years? 42 Figure 34 Independently owned firms, those with a sister company, and conglomerates with multiple subsidiaries 62 Figure 35 24% of the 88 surveyed firms are owned by six conglomerates 63 Figure 36 Percentage of ownership of pool of surveyed firms by investor 64 Figure 37 Top Facebook Likes Among Surveyed Firms 65 Figure 38 Monthly Visits by Firms 66 Figure 39 Registered users by firm in the core e- and m-commerce segments 66 Table 1 Breakdown of core segments by conventional business models 6 Table 2 Breakdown of supporting segments by business models 9 Table 3 Breakdown of Interviewees 49 Table 4 Overview of customer and user interviews 50 Table 5 List of Firms Surveyed via Personal Interviews 51 1. Introduction E- and m-commerce continues to grow and diversify its impact across emerging and advanced economies. While the industry may be associated with high-income consumption, internet-based commerce in Vietnam is also being embraced by small and medium sized enterprises (SMEs) as a means to gain access to new markets, clients, and suppliers. E- and m-commerce can help reduce costs, support efficiency gains and strengthen commercial links within the economy. The sector is generating demand for new payments and logistics services that are more appropriate to the local market. E- and m-commerce are capable of altering the market context in which SME and consumer financial services are provided. Inefficient or under-developed payment and financial solutions can undermine the sector’s development and its potential to contribute to economic growth. The e- and m-commerce sector in Vietnam is growing organically. Although still immature and small in volume5, advances in the region6 suggest that the sector 1 2 will continue to expand and that investment is increasing in startups involved in payments, FinTech, third party logistics, and software aiming to support development. Vietnam has one of the fastest growing economies globally and the World Bank estimates that its GDP per capital will double in the next decade. It is one of the most populous countries in South East Asia with a majority of its inhabitants under 30. High internet penetration and rapid uptake of smartphones is continuing to drive e-and m-commerce and facilitate new methods of receiving and making payments. Additionally, affordable broadband connectivity and bundled data plans are anticipated with the projected upgrade to 4G in 2015. This dynamic could support a wave of new distribution channels for products and services and could provide the foundation needed to encourage people to try new technologies like m-wallets or shopping online. Cash on Delivery (COD) remains the dominant means of payment. Non-cash payments services are gradually emerging. There are four partnerships with trial licenses from the State Bank of Vietnam for m-wallets and mPOS that leverage smartphone users. Needless to say, low consumer confidence, service fragmentation, and disappointing user experiences with online payment services continue to slow uptake of non-cash payment acceptance. At the moment, there are few compelling reasons for customers to switch from COD to e- and m-payments. Consumers appreciate the simplicity and value of COD, which is generally free. It is perceived as good customer service and a selection of items is often delivered to enable buyers to inspect goods prior to payment. This has become the norm. The associated costs of the COD service still tend to be low and are borne by the merchants. The third party logistics firms managing delivery and cash collection are perpetuating the COD problem, however these major providers have been exploring non-cash payment acceptance solutions that can leverage smartphones often carried by both their drivers and receiving customers. 5 A 2013 report by the Vietnamese e-Commerce Information and Technology Association (VECITA) projected that the e- commerce industry only accounted for 0.5 per cent of the country’s total retail revenue. http://www.vecita.gov.vn/anpham/208/ Vietnam-E-commerce-Report-2013/en 6 Alibaba’s recent IPO and investments in the region by firms including Softbank, Goldman Sachs, Mitsui, Sumitomo, eBay, Rocket Internet, Rakuten, Viber, Line, and Samsung are an indication of the potential lying within the e- and m-commerce sector in Vietnam and the ASEAN region. 1 The purpose of this research is to provide insights into the current state of e-and m-commerce and identify prospects for firms to meet the sector’s growing demand for non-cash payment solutions. Consumer insight analysis and surveys of firms in the e- and m-commerce market have been conducted to better understand demand side issues such as consumer shopping habits, geographic reach of firms outside of the major urban areas, payment acceptance and usage of cash or non- cash payments. Firms providing payment, software and logistics services that support the industry were surveyed to gain insight into their strategies, challenges and opinions on barriers to the ongoing growth of their businesses. Policy makers are also interested in promoting the expansion of e- and m-payments. The State Bank of Vietnam (SBV) has defined its objectives for the expansion of non-cash payments usage across the economy. More efficient and broader access to payments and financial services can help boost productivity, reduce transactions costs and even mobilize savings. Broadening access to finance is also an important means to alleviate poverty and contribute to inclusive growth. E- and m-commerce firms and the service providers emerging to support them are reaching beyond the boundaries of traditional banking models. They are providing a means to expand access to finance and the essential goods and services demanded by the broader public. Research into the sector’s development can help inform decisions about policy and the role that industry collaboration and market standards can play in facilitating payment sector expansion. About the Research Two related pieces of research were conducted in order to provide insight into the broader e-and m-commerce sector and its impact: • Market Survey: 178 e- and m-commerce companies as well as payments, software and logistics service providers were scoped for this study. • Consumer Insights Survey: 23 interview participants (customers, SMEs, delivery men, employees) of surveyed firms were interviewed in locations outside of HCMC and Hanoi to provide insight into user experiences and the role that e-and m-commerce is playing in the less developed areas of the country. The rest of this document is structured as follows: • Section 2 provides a short overview of the research conducted with end users and clients of e- and m-commerce firms. • Section 3 describes the company survey methodology and the survey population of e-and m-commerce and support service firms • Section 4 presents the results from the survey including findings about payment acceptance and usage by e-and m-commerce firms and their clients as well as the business of payments and related services and logistics providers supporting the industry in Vietnam. • Section 5 provides key conclusions. • The Annex to this report contains information about the surveyed companies, questionnaires and a snap shot of the front running firms and investors that are active in this market segment. 2 2. Consumer Insights Survey E-and m-commerce and the introduction of new ways to buy things, move money and accept payment are having an impact on the daily lives of consumers and businesses beyond the more affluent metropolitan hubs in Vietnam. The broader population is gaining exposure to commercial applications including e-Marketplaces, e-Tailers, Chat apps, Social Media platforms, and electronic solutions to logistics and payments that are influencing consumer behavior. To gain insight into these trends, personal interviews of actual clients and users of these products and services were conducted in smaller tier 2 and 3 cities and surrounding suburbs across Vietnam. With a better understanding of the consumer perspective, it was feasible to assess the impact of e- and m-commerce on their lives and identify the challenges and preferences they have with respect to payment solutions. Insights from these interviews are included throughout the survey findings section of this report. More specifically, the user surveys7 gathered insights into: 1 (i) The user journey for sellers, merchants, agents, customers, and delivery men in locations outside of HCMC and Hanoi. Participants were selected from a subset of leading firms operating in Vietnam’s e- and m-commerce industry, all of which were previously surveyed by IFC. (ii) Current payment, purchasing and credit needs and habits of these value chain participants. (iii) Issues for these diverse interviewees and suggestions for how they can be addressed. Survey locations Interviews were conducted in four locations: Ha Tay: • Part of Hanoi province since 2008 • Population approximately 2 million • More than 120 handicraft villages Da Nang: • Fifth largest city in Vietnam • Major port city in central Vietnam • Population approximately 1 million • Economy evolving from industry and construction to services; in 2006, services became largest sector city by gross output Tien Giang: • Comprises one city, one town, eight districts • Population approximately 1.6 million Can Tho: • Fourth largest city in Vietnam; largest in Mekong delta • Population approximately 1.2 million • Famous for floating markets • Economic growth rate of 14.64% in 2011 7 Primary research was completed over a 4 day period from October 17th to the 21st, 2014. Interviews were held with 23 participants in Tien Giang, Can Tho, Da Nang & Ha Tay. 3 3. Market Survey Survey Scope and Methodology 88 firms associated with Vietnam’s e- and m-commerce industry participated in this study Over 170 firms active in the overall e-and m-commerce market were identified. Of this selection, 88 were surveyed directly through interviews, an on-line survey or via associated companies8 . Interviews were conducted through a 2 combination of face-to-face meetings, telephone calls, and online surveys circulated to specific firms active in the e-and m-commerce sector. Persons interviewed were mostly founder and CEO level executives or persons in charge of payment service delivery. Additional, complementary information was sourced in the secondary market and leading experts were consulted to inform the researchers during the scoping process. This process enabled IFC to establish a reference point in terms of market perceptions, current attitudes of firms, and existing and future trends. The information has been acquired to inform market participants, investors and policy makers. The findings are not a representative sample of the total population as there was a heterogeneous pool that was surveyed. In some instances, research subjects did not respond or answer all queries leaving variations in resulting sample sizes. But given the fluid and quickly evolving nature of this market, the results provide sound insights and information beyond that available from other sources. The basis of the information obtained, including sample size and types of respondents, is presented in a transparent manner while respecting the confidentiality of survey participants. The full online survey questionnaire and interview guidelines are included in the annex. Annexes B, C and D provide a breakdown of the research subjects, an overview of customer interviews and a full list of firms surveyed. Figure 1 outlines the segmentation structure used for further analysis of the survey population. 68 firms were consulted through personal interviews and telephone calls. The remaining 20 firms contributed through an anonymous online survey. 8 http://www.mindmeister.com/430120639/vietnam-e-and-m-commerce-ecosystem 4 A. Survey Population Description Company Segmentation by Products, Services and Business Model Companies providing e- and m-commerce services were segmented by business model and products or services provided by them into two groups: e-and m-commerce firms and firms providing support services to the industry. E- and m-commerce Firms: Although many continue to blur traditional boundaries and operate multiple style businesses, the firms were broadly categorized according to their dominant business models as Business-to-Business (B2B), Consumer-to- Consumer (C2C), or Business-to-Business-to-Consume (B2B2C). In terms of services provided, four main groups were identified: (i) e-Marketplaces and e-Tailers, (ii) On-to-Offline services (O2O), (iii) Search, Social and Chat, and (iv) Digital Content and Media. Figure 1 - Vietnam e- and m-commerce segmentation   Figure 2 provides the breakdown of surveyed firms belonging to these core e- and m-commerce segments. 36% of these firms are e-Marketplaces or e-Tailers. 15% are engaged in On-to-Offline services (O2O). These types of consumer internet firms sell or promote physical products. 13% provide social media in the form of Search Engines, Social Networks, and Chat or Mobile Over-the-top (OTT) Applications. 11% of the surveyed firms are active in Digital Media and Mobile VAS. Support Services: A second grouping of firms was surveyed that provide payment, software and logistics services to the e-and m-commerce industry. Figure 3 provides an overview of this population of firms. Nine percent (9%) of those interviewed are in the e-Solutions and Logistics category, which includes third party providers that offer Software-as-a-Service (SaaS) and Logistics-as-a-Service (LaaS). 16% are involved in electronic or mobile payment services. 5 Figure 2 - Breakdown of core Figure 3 - Breakdown of segments that e- and m-commerce segments support e- and m-commerce firms #  and  %  of  Firms  Surveyed  in  the  Core  Segments   #  and  %  of  Firms  Surveyed  in  the  Suppor9ng  Segments   31   36%   e-­‐Marketplaces/e-­‐Tailers   Payment  Services   16%   14   13   15%   On-­‐to-­‐Offline  Services   e-­‐Solu9ons  and  Logis9cs   9%   8   11   13%   Search,  Social  and  Chat   10   11%   Digital  Content  and  Media   Source: IFC research Core e- and m-commerce Segments The study was designed to acquire firsthand knowledge about the various types of business models in practice, as well as to gain insights about market trends, infrastructure gaps, and innovations that are disrupting the conventional forms of e- and m-commerce. Table 1 below provides a breakdown of the types of core e-and m-commerce firms surveyed by their conventional business model type and segment. Table 1 - Breakdown of core segments by conventional business models Distribution of the surveyed firms in the core e- and m-commerce segment by their business model. This includes firms surveyed via personal interviews, telephone calls, and anonymous electronic surveys Segments Business e-Marketplaces O2O Services Search, Digital Content Total Model e-Tailers Social & Chat & Media B2C 9 6 1 4 20 C2C 7 1 6 2 16 B2B2C 5 3 1 3 12 Anonymous 11 3 3 1 18 Total 32 13 11 10 66 Source: IFC research; includes 18 anonymous surveys that captured the segment but not the business model type Breakdown and insight into the business of the surveyed e- and m-commerce firms: The e-Marketplaces and e-Tailers segment encompasses local firms operating in a B2C, B2B2C, or C2C model. These firms include online retailers and group buying or deal sites that distribute demand-based and promotional merchandise. This segment also includes independent and supplier-oriented e-Marketplaces, such as electronic classifieds and auctions that enable individuals and merchants to 6 sell or trade items online. Firms in this segment operate across categories including electronics, home appliances, household goods, baby products, garments, and promotional vouchers or coupons. Most of these firms utilize the just-in-time inventory model coupled with a marketplace model and the majority of them provide integrated online payment acceptance. The On-to-Offline (O2O) segment includes mostly local B2C or B2B2C marketplaces that enable consumers to make online orders for tangible goods and services that are then delivered, picked-up, or redeemed through local partner or member shops with a physical presence. Examples of these firms include online travel and transportation booking engines, digital ticketing for movies and events including barcode scanning services upon entry, e-food and grocery delivery services, or other informational services that have an online and offline footprint. The Digital Content and Media segment consists of local firms that are dispersed among B2C, B2B2C, or C2C type models. These firms concentrate on the distribution of Mobile VAS and OTT content such as audio, video, and other media over the internet. Examples of specific content being distributed include virtual entertainment like games, music, videos, books, photos, news, and ring tones. The Search, Social and Chat segment is made up of Search Engines, Social Networks, and OTT third party applications that provide cross-platform instant messaging services. Within this category are domestic and multinational players both competing for market share. Although all firms in this segment faced regulatory hurdles and censorship, there is very significant consumer demand for Social Networks and Chat apps from domestic users. Figure 4 – e-Marketplaces/e-Tailer Figure 5 - O20 Services segments segments Deal  Site  and   Voucher   10%   News  and     Educa@on  Forums   22%   OTT     Content/   e-­‐Marketplace   m-­‐Entertainment/   Online     (Auc:on/   mVASP   Photo/Video     Retailer   Classified)   Sharing   56%   57%   33%   22%   ∑  21  Firms   ∑  9  Firms   7 Figure 6 - Digital Content Figure 7 - Search, Social & Media segments & Chat segments e-­‐Grocery   10%   Social   Chat  App/OTT   Network   Messaging   e-­‐Financial   43%   Management   Travel  Booking   37%   20%   40%   Search     e-­‐Food     e-­‐Book   Engine   Electronics   Ordering   Readers   14%   Retailer   10%   10%   10%   ∑  8  Firms   ∑  10  Firms   Chat Apps vs. Network Operators As tension between Chat app service providers and network operators subsides, OTT Mobile Messaging apps have begun aggressively competing for market share in Vietnam. Chat apps have rapidly become mainstream in 2014. Even though Vietnam’s existing 3G network has supported users, OTT Mobile Messaging Services were on the verge of being banned in 2013. But millions of users have now downloaded Chat apps and begun to use them routinely. The OTT Mobile Messaging services are showing signs of offering both a social media and communication tool along with m-commerce functionality. Source: IFC research Support services and technology providers These firms provide payments, logistics and software or infrastructure platforms that support e- and m-commerce firms. e-Marketplaces and e-Tailers are becoming more focused on core services, shedding inventory, aggregating products from vendors and outsourcing logistics and payments to third parties for backend support. This generates opportunities for other specialized support firms to offer technical and logistical services ranging from warehouse management and order fulfillment to online payment integration and data analytics for e-commerce portals. Table 2 provides a breakdown of the types of supporting enterprises surveyed according to their conventional business model type and segment. 8 Table 2- Breakdown of supporting segments by business models Distribution of the surveyed firms in the supporting segments by their conventional business model. Segments Business Model e-Solutions & Logistics Payment Services Total B2C - 4 4 C2C - - - B2B2C - 2 2 SaaS 5 - 5 LaaS 3 - 3 e-Payment Gateway (SaaS) - 6 6 Anonymous - 2 2 Total 8 14 22 Source: IFC research; includes 2 anonymous online surveys received which captured the segment but not the business model type Breakdown of support service activities The e-Solutions and Logistics segment is split into Software as a Service (SaaS) and Logistics as a Service (LaaS) businesses that support core e- and m-commerce firms. They offer products and services that help generate IT and logistics cost savings, reduce time to market, and improve transaction processing. The SaaS firms support retail merchants and manufacturers by building an online presence and extending their customer base. Examples of these services include web developments equipped with shopping carts and payment mechanisms, customer management information systems, communication tools including business email, and online marketing. The LaaS firms enable businesses to outsource logistics to third parties. Their primary services include order processing, service desk and customer relationship management, automated product allocation, delivery of goods, invoicing, cash collection and fulfillment, inventory management, warehousing, consolidation, and supply chain management. The Payment Services segment is composed of online e-payment gateways and m-commerce payments startups. The gateways consist of payment processors that are hybrid SaaS firms offering electronic portals to enable card processing by merchants. The m-commerce firms are concentrating on m-wallets and mPOS. Digital wallet providers focused on nearfield communication (NFC) technology have not surfaced yet in Vietnam. 9 Figure 8- Payment Services Figure 9 - e-Solutions segments & Logistics segments Micro-­‐   finance   Mobile     9%     Wallet   e-­‐Adver(sing   Third-­‐party   25%   25%   Logis(cs   38%   e-­‐Payment     Card   Gateway   e-­‐  and  m-­‐ Associa?on   50%   commerce   8%   Solu(ons   37%   Mobile     POS   8%   ∑  12  Firms   ∑  8  Firms   Benefits from e- and m-commerce are permeating markets outside of HCMC and Hanoi and being felt by local entrepreneurs and customers across the nation SMEs are getting better at managing their businesses and targeting and acquiring customers. An SME selling accessories for computers and laptops in Ha Tay. He conducts most of his business online and sells at numerous websites including Lazada, Cho Dien Tu, Lamido and his own site. Selling online helps him reach customers in provinces he would not have reached otherwise. More importantly, he gains exposure to e-Marketplaces and e-Tailers who provide him with the tools and a platform to better manage his business. For example, Lazada, gives him weekly sales reports related to the highest selling products thus helping him to increase his profitability by building an inventory of desirable merchandise at suggested retail pricing that makes sense. Sales forecasting tools also help him to improve stock management. Source: IFC research 10 Another SME Seller from Can Tho who is an Agent with VIMO, a mobile payment and distribution system. It essentially is a m-wallet platform that can handle fund transfers, bill payments, Mobile VAS sales, airtime top-up, cash withdrawal channels He and over 300 of his sub agents (who pre-paid him) previously kept an inventory of scratch cards for recharging mobile air-time. He had to either get the scratch cards delivered to them or they had to go collect them. Now they can just sell Mobile VAS in real time virtually using VIMO and there is already a reduction of 30% in scratch card sales. Digital mobile recharge through mobile payment platforms like VIMO is thus helping such merchants and agents with better cash flow management while also driving the overall adoption of non-cash transactions in Vietnam. Consumers are also gaining significantly from e- and m-commerce and innovative solutions like Mobivi, that make essential products affordable and bridge the distribution gap. This customer, who works in one of the garment factories in Tien Giang, stressed how the quality of life for him and his family had improved as a result of the products they are able to buy through Mobivi’s iCare program. Through an automatic monthly payroll deduction program, employers offer workers, primarily in factories, zero-interest 3 to 6 month installment payments for essential goods like refrigerators, washing machines, mattresses, or smartphones. He was able to buy a washing machine through iCare for which he otherwise would have had to save for a year. Since this was a very important purchase for his family buying it through Mobivi was very helpful. Source: IFC research 11 Timeline of market entry by e- and m-commerce firms in Vietnam The first e- and m-commerce type firm within this survey in Vietnam was an enterprise that built a local search engine in 1997. They were later involved in developing other popular local search engines and social media applications, and now focus on Digital Content and Media distribution. During the period 2001 to 2006, the number of e-Marketplaces focusing on C2C classifieds or auctions in Vietnam has grown. Electronic payment gateways entered the scene in 2006 with a second wave in 2010 to cater to the demand from e-Marketplaces and e-Tailers to integrate online payment acceptance into their portals. M-commerce firms developing mobile payment services, such as m-wallets and mPOS, launched publicly in 2014. Several of them have already committed years of time and investment capital to determine the most appropriate entry strategy and business model. Search, Social and Chat platforms that launched between 2012 and 2014 began attracting millions of users. Search Engines and Social Networks have been instrumental in sourcing traffic for both online and offline merchants. OTT Mobile Messaging services took off in 2013 and are only just beginning to develop traction and aggressively market themselves as the regulatory threats to disrupt their businesses faded. Over 80% of the e-Solutions and Logistics firms launched within the last 4 years in response to growing market and infrastructure needs. Figure 10 - Launch date of surveyed firms by segment Cumula2ve  number  of  firms  per  survey  segement     by  year  of  start  of  opera2ons     20   18   e-­‐Marketplaces  /  e-­‐tailers   16   14   cumula2ve  number    of  firms   12   10   Payment  Services   8   e-­‐Solu2ons  &     Source: IFC research (sample 44 firms) Logis2cs   6   On-­‐to-­‐off-­‐line  services   4   Digital  Content  and  Media   Search,  Socal     2   and  Chat   1   0   1997   1998   1999   2000   2001   2002   2003   2004   2005   2006   2007   2008   2009   2010   2011   2012   2013   2014   12 B. Demographics of Participating Firms and their Consumers E- and m-commerce firms and selected clients were interviewed to better understand the demographics and behavior of users. Company Size and Launch Date Information about both start date Figure 11 - Current # of employees and launch date and the size of the firm with respect to employees was available from 21 surveyed firms. Three-quarters of this subset are Micro, Small, and Medium Enterprises (MSME). Within the MSME’s, 24% are medium-sized firms reaching up to 250 staffers. 52% are from micro or small businesses ranging from 1 to 100 people. 24% of the firms are large with over 250 employees. With respect to start date, 29% launched between 2006 and 2010. Source: IFC research, self-declared projections by 22 firms The majority of surveyed companies were young with an average operational time of less than 5 years. Figure 12 depicts that of the 22 responding firms, over half (51%) started up operations between 2011 and 2014. 42% of those launched in the last two years and a quarter of them already have 250 or more employees. Gender of Users Figure 12 - Average age of users across core segments Across all segments, 11 surveyed firms provided information about the gender of their clients. Although this is a small sample, it does provide some useful insights. Overall, 52% of their registered users were male versus 48% female. Of this subset, <25   the Digital Content and VAS Providers, along with 14%   Payment Service firms, reach males 20-30% more 35-­‐40   than females. This was attributed, in part, to high 25-­‐29   40%   level of men using online and mobile gaming services. 13%   On the other hand, operators of e-Marketplaces, e-Tailers and O2O services projected that they attracted 12% and 16% more female users respectively. 30-­‐34   They added that women tended to shop for retail 33%   items or book travel more so than their male counterparts. Age of Users Nearly three-quarters of the surveyed firms, primarily e-Marketplaces, Digital Content Providers, and O2O Services, said their average user was over 30 years old. 40% of the entire sample population stated that their typical users’ age ranged from 35-40 years. The next highest age range was from 30-34 with a 33% response rate. 13 Interviewees from the consumer insights survey were of a similar demographic as there was an equal split between male and female research subjects across the age group of 20-35. This is a customer from the city of Da Nang who uses Vexere, an online bus and travel booking platform that enables people to compare transportation services and avoid long lines to purchase tickets for example at the bus station. She feels that a number of Vexere’s customers are female as women are looking to find safe and reliable transportation and ticketing services like those provided virtually by Vexere. She is also an avid online shopper as she thinks that going to stores is very inconvenient (a number of other customers also mentioned the same experience). She prefers to shop online on sites like Mua Chung, Hot Deal, Zalora, and Chon.vn. She thinks that the prices that she finds online are much cheaper.. A customer of MoMo in Can Tho who works in a mobile phone shop. He highlighted how useful payment services like MoMo are for transferring money. This mobile app can also facilitate mobile air time top up, utility bill payment, remittances, and person to person payments. MoMo has a large agent distribution network that extends the reach of financial institutions. This is more important in rural areas during emergencies or blackouts where immediate access to cash is needed and the normal place to withdraw is the post office which closes at 5 p.m. MoMo agents are accessible during late hours and can make fund transfers immediately while it takes 3-4 days through the post office. The service is also more affordable as the transfer fee via MoMo is about five times lower than alternatives. 14 4. Survey Findings A. Geographic Reach Most e- and m-commerce firms concentrate on the urban population in major metropolitan areas. But there is evidence that firms are targeting areas outside the city where payments and logistics pose a greater challenge. One purpose of the research was to gain insight into the local demand for logistics and payment solutions by surveyed e- and m-commerce firms and their customers. This knowledge helped to reveal whether any services and innovations exist that are demonstrating potential to bridge gaps related to financial inclusion and access to a broader array of essential goods unavailable in less dense areas. With a rapidly evolving distribution network, there are at least 18 cities covered by major e- and m-commerce players. Of the core segments under review, 28 firms provided feedback about serving clients outside of the commercial hub of HCMC or the capital Hanoi as highlighted in Figure 13. These firms acknowledged that they are predominately urban centric yet are trying to expand the geographical scope of their businesses. These 28 survey respondents indicated that together an average of 34% of their clients were outside the two biggest Vietnamese cities. They indicated that to expand further beyond these cities, they will need to overcome serious obstacles related to distribution, payment acceptance, and after-sales service. Figure 13- Major cities in Vietnam Population densities Two cities over 6 million • Hanoi • Ho Chi Minh City Three cities over 1 million • Hai Phong • Da Nang • Can Tho 13 cities between 100,000 and 1 million • Thanh Hoa • Vinh • Dong Hoi • Hue • Tam Ky • Pleiku • Quy Nhon • Buon Me Thuot • Thuy Ha • Nha Trang • Da Lat • Rach Gia • Ca Mau Source: IFC research, www.vietnamtourism.org.vn 15 Geographical distribution of clients of e- and m-commerce For a deeper analysis, Figure 14 provides an indication of the geographical distribution of clients by segment. It should be noted that the rest of Vietnam refers to all areas outside HCMC and Hanoi. In practice clients are concentrated in second and third tier cities and suburbs located within reach of in-house or outsourced distribution services. A majority of providers across these core segments are to some extent reaching this concentration of consumers in the broader population. While it is not surprising to see higher rates of penetration for digital services, chat and search, the reach of e-Tailers and e-Marketplaces beyond the big cities (31% of clients) is noteworthy. Figure 14 – % distribution of clients from HCMC, Hanoi, and the rest of Vietnam for firms in the core e- and m-commerce segments 100%   90%   19%   31%   80%   38%   48%   70%   Rest  of  Vietnam   60%   HCMC  &  Hanoi   50%   40%   81%   30%   69%   62%   52%   20%   10%   0%   e-­‐Marketplaces  /  e-­‐ Digital  Content  and   On-­‐to-­‐Offline   Search,  Social,  Chat   Tailers   Media   Source: IFC research, self-declared projections by 28 surveyed firms At the individual respondent level, some replies are worth mentioning. 1 Digital Content and Media firm focused on mobile entertainment said 80% of their business comes from outside the two main cities. The next highest level of penetration outside HCMC and Hanoi was indicated by an e-Tailer at 45%. At 40% were an O2O firm specializing in travel bookings and a Digital Media firm supporting photo and video sharing. Fourth was another e-Tailer at 34%. 3 firms had 25% penetration in the rest of Vietnam including two e-Marketplaces doing classifieds and an OTT Mobile Messaging app. Three firms surveyed in the Search, Social and Chat segment demonstrated the greatest reach with 48% penetration outside of HCMC and Hanoi. 1 of these firms is a Chat App with 25% penetration in the rest of Vietnam. The other 2 are anonymous social networks, one of which self-declared that all of their users are from areas outside the major urban centers. 5 Digital Content Providers indicated they have an estimated 38% penetration outside of the two major cities. They distribute mobile entertainment products with mass appeal including digital movies, music, video games, e-books, photos, ring tones, and news. 5 firms in the O2O segment had the least penetration with just 19% of their clients coming from other parts of Vietnam. This is representative of their target audience that caters to people residing in major urban centers. 15 surveyed e-Marketplaces and e-Tailers estimated that 31% of their clientele are from other locations beyond the two primary cities. 16 Support Services Payment and logistics firms follow the reach of the e-and m-commerce companies that they support. But while some of the firms in the core segment fulfill their own payment and logistics needs within the big cities, third parties are more often used to support sales and delivery in other areas. A total of 7 providers of Payment Services and e-Solutions and Logistics were surveyed in this section. Of them 3 of the e-Solutions and Logistics providers estimated that 37% of their customers were outside of the key metro areas. These firms help merchants, irrespective of location, to develop and advertise their online presence. SaaS and LaaS firms are emerging to meet the growing need from both online and brick and mortar retailers who require customer relationship management, warehousing, order fulfillment, and payment collection. 4 firms in the Payment Services segment averaged 30% penetration outside of the primary cities. One of these firms in particular specializes in m-wallets and estimated that 90% of their users are based outside of HCMC and Hanoi. In contrast, the other 3 responding payment firms projected that 20% of their users were from the rest of Vietnam. As the Payment Services industry expands to include models such as mobile and digital wallets, merchants will be able to promote cashless payments and mobile VAS to the broader public. Interview quotes on geographical reach “Many kinds of products can be available to rural consumers. That is life changing for them. Urban dwellers want value for money the most while rural people want the widest range of products.” - Anonymous e-Marketplace “We’d be interested in rural if we knew how to target and service them effectively. After a national ad campaign the conversion was very low among rural areas so we are less focused on them.” - Anonymous e-Promotion site “Growth outside of big cities comes with better logistics (faster delivery, more products, warehousing), better Wi-Fi, mobile phone penetration with data services, and increased GDP.” - Anonymous e-Marketplace Source: IFC research 17 An interview with the logistics manager of GHN highlighted some of the key factors which e-Marketplaces and e-Tailers need to address to expand reach. 1. Trust from end customers: As an example, Tiki has great packaging compared to other e-commerce companies so that creates a good impression and customers’ trust their brand which results in higher conversion and fewer returns. 2. Speed of delivery: Online shoppers are quick decision makers and change their mind very fast, so the faster that companies are able to deliver, the less chance they have of changing their mind 3. Handling returns and order cancellations: It is important to have a transparent return policy. For example Lazada’s policy is very clear on how things can be returned and the forms are already added to the delivery box. Customers can send it back through GHN or are given a time period for returns if dissatisfied for some reason. Smartphone penetration will drive the geographic expansion of consumer internet businesses Reliable telecommunications infrastructure and high smartphone penetration are enabling people to use their mobile devices to access e- and m-commerce platforms regardless of their physical location. One e-Tailer stated that just two years ago, over 90% of their customers were from HCMC and Hanoi. Now that number has shrunk to 66%. Another online retailer expressed the need to more actively target the broader population and determine what products and services they need as shopping on mobile becomes more commonplace. Figure 15 highlights the amount of traffic 31 surveyed firms received from Personal Computers (PC) versus Mobile devices (cellular phones, handheld devices, tablets). Firms in the e-Marketplaces and e-Tailers segment estimated that 44% of their traffic comes via mobile devices. A majority of these enterprises thought this number will surpass 50% by 2015 with the possible introduction of 4G connectivity and affordable, bundled packages with data, voice and SMS included. 5 firms in the Search, Social and Chat segment (3 Social Networks and 2 Chat Apps) estimated that 85% of their incoming traffic is already via mobile devices. 3 of these firms said that 100% of their users are accessing their platforms from mobile devices. 18 Figure 15 – Estimated % of traffic origin – PC vs. Mobile Devices Source: IFC research (Sample 31 firms) B. Online Traffic and Transactions by Segment Frequency of Visits to e- and m-commerce sites The Digital Content and Media segment has the highest level of monthly visits, double that of the next closest segment, Search, Social and Chat Firms were asked about the frequency and volume of online visits. Those businesses with more user traffic have greater potential to promote and encourage non- cash payment acceptance. Figure 16 provides an overview of the amount of traffic by monthly visits averaged across 50 firms within the core e- and m-commerce segments. Traffic information was sourced from the surveyed firms that had publicly available data from reputable online analytics firms. Figure 16 - Estimated monthly visits by segment On-­‐to-­‐Offline  Services  (11  firms)   15.5   1.7   e-­‐Marketplaces/e-­‐Tailers  (29  firms)   56.6   2.8   Search,  Social  and  Chat  (4  firms)   54.6   13.6   Digital  Content  and  Media  (6  firms)   153.2   30.6   0   20   40   60   80   100   120   140   Millions   Total  Monthly  Visits  by  Segment   Average  Monthly  Visits  by  Firm   Source: IFC Research; http://www.similarweb.com/, as of October 2014 (Sample: 50 Firms) 19 Six firms in the Digital Content and Media segment averaged over 30 million monthly visits. 1 music portal amassed the largest number of visits with double the average of the entire segment at over 60 million monthly visits. The next highest frequency of visits was registered by a news and media forum and a photo/video sharing app, both of which had approximately 40 million monthly visits each. The Search, Social and Chat segment accumulated over 13 million monthly visitors averaged across 4 participating firms. 2 separate Social Networks both had over 20 million monthly visitors each. Next in line was a local Search Engine with 6 million monthly visitors. There is a big gap between these top two tiers and the remaining segments in terms of the quantity of visits to their platforms. The average monthly number of visits across the 29 e-Marketplaces and e-Tailers was nearly 3 million. Online classifieds were popular with the most traffic going to these types of e-Marketplaces with almost 13 million monthly visits. An online fashion retail firm was second with 10 million monthly visits followed by another online retailer operating horizontally across products with about 6 million visits monthly. The O2O businesses averaged 1.7 million monthly visits across 11 firms. A promotional food site had the most monthly visits in this segment at nearly 4 million. This was followed by almost 1 million monthly visits to an online travel agency. Third was an online event ticketing agency with over 300,000 monthly visits. Registered Users on e- and m-commerce platforms The number of registered users varies across the core and supporting e- and m-commerce segments. 33 firms provided self-declared projections of this data as represented in Figure 17. The Search, Social and Chat segment has the most registered users with almost 16 million on average across four respondents. A photo and video sharing app eclipsed this with over 26 million users signed up. Two OTT mobile messaging services estimated they have 12 to 14 million registered users. Figure 17 - Average registered users by segment Payment  Services  (3  firms)   2.3   0.8   e-­‐Marketplaces/e-­‐Tailers  (16  firms)   26.3   1.6   On-­‐to-­‐Offline  Services  (5  firms)   10.1   2.0   Digital  Content  and  Media  (5  firms)   27.6   5.5   Search,  Social  and  Chat  (4  firms)   62.7   15.7   0   10   20   30   40   50   60   Millions   Total  Registered  Users  by  Segment   Average  Registered  Users  by  Firm   Source: IFC Research, Self-declared projections by 33 surveyed firms 20 Five digital Content Providers estimated they had 5 million registered users on average across them. A music and video portal led this segment with 22 million users subscribed to music and video streaming services. Of the 16 firms in the e-Marketplaces/e-Tailers segment, they averaged 1.65 million users. This demonstrates the popularity of these virtual platforms as people are attracted to promotional sites, online retailers, and marketplaces offering classified or auctions. Three firms in the Payment Services segment provided information about their number of registered users. 2 are m-wallet businesses with between 40,000 and 300,000 users who have registered and downloaded their applications. 1 is an anonymous survey respondent who self-declared that they are a Payments Provider with 2 million registered users. Search engines and Social Networks are the leading referral sources driving traffic to e-commerce players Traffic is referred to firms from a variety of sources. Across 18 surveyed e-Marketplaces and e-Tailers, 44% of their visitors discover them from Search Engines and 28% originate by directly entering the domain into a browser. O2O service firms rely chiefly on Search Engines that direct 43% of their traffic to them. Social Networks are becoming less relevant as a source of referrals to the more established, larger firms in the e-commerce industry. The Chat apps are discussing strategic alliances with local e-Tailers and online Marketplaces, potentially providing them with access to the tens of millions of users of mobile messaging. Figure 18 - Referral source of traffic to core e-commerce firms Search  Engines       Direct  Browser  Entry   Social  Networks   Referrals  from  Other  Sites   Display  Ads   50%   44%   43%   43%   45%   %  DistribuDon  of  Referral  Source   40%   35%   30%   28%   30%   24%   24%   25%   21%   20%   15%   15%   12%   12%   10%   3%   5%   2%   0%   e-­‐Marketplaces/e-­‐Tailers   Digital  Content  and  Media   On-­‐to-­‐Offline  Services   Core  e-­‐Commerce  Segments   Source: IFC Research; http://www.similarweb.com/, as of October 2014 (Sample: 18 Firms) 21 Interview quotes on referral sources “Mobile chat applications are a growing source of C2C sales in addition to search engines and social networks. Integrated payment options in mobile messaging is only a matter of time.” – Anonymous Chat Platform ”It’s common to allocate advertising spend on each channel as we are prepared to pay a certain amount for new customers. The problem is there are not enough product searches and it is difficult to track click-chain at the moment. The actual transaction usually comes from a PC after browsing on mobile and going from a search engine to a social network and then direct to the site to buy.” – Anonymous e-Marketplace Source: IFC Research Monthly Transaction Volumes Two of the core e- and m-commerce segments have more than 100,000 monthly transactions mainly within the primary urban zones. Firms were also asked about their level of commercial transactions and sales (Figure 19). 25 surveyed firms provided information about the quantity of transactions made by consumers that involve an electronic order, a payment, and fulfillment or delivery. Digital Content and Media and e-Marketplaces and e-Tailers have the greatest transaction volumes. Out of 3 Digital Content Providers, 1 indicated that they conduct more than 100,000 monthly transactions. Another stated they process between 50,000 to 100,000 transactions monthly. Figure 19 - % distribution of monthly transactions by segment. Total sample size = 25. 100%   100%   100%   80%   %  Distribu3on  of  Monthly   60%   Transac3ons  Made   40%   33%   33%   33%   36%   36%   33%   33%   33%   33%   29%   29%   17%   17%   17%   17%   20%   14%   14%   14%   14%   7%   7%   0%   0  -­‐  1,000   1,000  -­‐  10,000   10,000  -­‐  50,000   50,000  -­‐  100,000   >100,000   >100,000   e-­‐Marketplaces/e-­‐Tailers   14%   36%   7%   14%   29%   29%   Digital  Content  and  Media   33%   0%   0%   33%   33%   33%   On-­‐to-­‐Offline  Services   33%   33%   17%   0%   17%   17%   Search,  Social  and  Chat   0%   100%   0%   0%   0%   0%   Monthly  Transac3ons  according  to  Volume  and  Segment     Source: IFC Research, Self-declared projections by 25 surveyed firms 22 Of the 14 respondents in the e-Marketplaces and e-Tailers segment, 4 manage over 100,000 transactions per month. Of the 6 O2O firms, 1 of them processes over 100,000 online orders per month. Another O2O firm handles up to 50,000 monthly transactions. OTT Mobile Messaging services are still competing to expand their Vietnamese user base. Chat apps have only just begun to venture into m-commerce by selling emoticons/stickers and video games. 1 firm replied that their monthly transaction volume is between 1000 and 10,000 sales of Mobile VAS and that this volume is growing. OTT Mobile Messaging services are positioned to be an innovative channel for merchants to advertise and accept payments. It is estimated that the top 3 players share over 30 million users. Chat app providers consulted in this study signaled that they are exploring how to sell and accept payment for Mobile VAS. One of the firms with over 10 million users indicated that they intend to promote items from e-Tailers on their platform to support the sale of retail merchandise. Chat apps are not just about messaging anymore There is intense competition amongst OTT service providers in Vietnam, driven by the potential to tap into tens of millions of people who are rapidly upgrading from feature phones to smartphones. Mobile phones represent their primary gateway to the web, which in turn opens up the door to e- and m-commerce. The broader population represents a new target consumer who can be provided with access to products and services. It may start with messaging or digital entertainment, but it can spread into online shopping, food delivery, booking bus tickets, mobile payments, or even financial management thus getting into the FinTech space. It seems likely that e-commerce firms will experiment in the m-commerce space by leveraging chat platforms and social networks. Vietnamese and multinational Chat apps like Zalo, Viber and Line have potential to emerge as competitive sales and distribution channels in the e- and m-commerce industry. The locally born Zalo, a product of Vietnam’s biggest consumer tech company VNG, could become much more than just messaging. Zalo’s sister companies encompass utility applications including a mobile browser, a local language keyboard, a music app, a video streaming app, a news aggregator, and an e-payment gateway, to name a few. Vietnam seems positioned to follow trends emerging across the Asian region and trail in the footsteps of WeChat and Line. Strategic alliances may enable the OTT service provider to become a platform not only for messaging, but for digital ads, in-app purchases, video games, flash retail sales, services like food delivery, movie tickets, and taxi bookings, and even payments. This also leaves room for untouched areas including location and cloud which represent huge potential.  I.      12  million                  14.5  million              unknown*   Source: IFC Research, Self-declared projections for registered users; *LINE Vietnam figure is unknown 23 Interviews with SME sellers demonstrated how they were using chat apps to be able to manage their business effectively. An SME seller from DaNang. She runs her own store for selling children’s clothes and has also just started selling online on MuaChung. She sources from more than 10 suppliers from Hanoi and HCMC. Her suppliers share product details with her on Chat apps including Viber and Zalo. Without this it would have been more challenging for her to get new product details from the suppliers. Clothes are fast selling products and she orders frequently, even daily. All her payments to her suppliers are processed through bank transfer by going to a branch. Source: IFC Research C. Payment Acceptance and Usage Third Party Adoption of Payments by e- and m-commerce Firms Thirty-three firms provided input related to the means of payment that they currently accept. Figure 20 depicts the aggregated results across the core e- and m-commerce segments. Cash on Delivery (COD) is the most common payment method accepted accounting for 73% of surveyed firms (24 of 33 firms). It is popular with businesses that want to avoid associated card transaction fees and whose customers do not need credit cards. Local logistics firms reinforce use of COD by providing inexpensive, efficient services, thus making it an easier option for merchants to promote. It should be noted that currently no firms provide their delivery representatives with a mobile POS to enable the acceptance of anything but cash. As an alternative to COD, payment via the cash in office method is accepted by 9 firms (27%). Twenty-five of 33 firms have an integrated online payment function which enables them to accept various online payments and in some cases store personal financial information. Cards (credit, debit and ATM) processed by third party e-payment gateways are commonly accepted (62% average across the three card types). Online bank transfers are accepted by 52% of respondents (17 firms). Merchants habitually open accounts across multiple banks to avoid paying fees since transfers between accounts at the same bank are usually free. E-wallets are accepted by 10 of the respondents (30%). Firms that accept this method are mainly more established, reputable firms that have built customer trust and are capable of storing their online shopping data, such as passwords, delivery addresses, credit card details, and bank account information in a secure, online environment. 24 Payment via SMS banking and pre-paid scratch cards that leverage the telecommunications networks are accepted by 6% and 9% of the firms respectively. Pre-paid cards are common as consumers can pay cash to an agent located in convenient corners across the nation typically in exchange for digital products such as music, games, videos, ring tones, and mobile top-up. SMS banking is not as popular. Survey participants indicated that this is due to high fees levied on SMS transactions. Figure 20 - Payment methods accepted by e- and m-commerce firms SMS  Payment   6%   2   Pre-­‐paid  Cards   9%   3   Cash  In  Office   27%   9   Methods  of  Payment  Acceptance   e-­‐Wallet   30%   10   Online  Bank  Transfer   52%   17   ATM/Debit  Cards   55%   18   Domesves  Offered  for  Non-­‐Cash   Waive  any  Associated  Fees   17%   5   Payments   No  Incen>ves  Offered   27%   8   Credit  for  Future  Purchases   33%   10   Discounts   57%   17   0   2   4   6   8   10   12   14   16   18   %/#  Firms  in  Core  Segments  that  Incen>vize  Non-­‐Cash  Payments   Source: IFC Research, Self-declared projections by 30 surveyed firms 32 Interview quotes on payment acceptance outlook “We offer a rewards scheme and run campaigns to give points if purchases are made with credit cards during a specific time period. The card associations can make up the discount offered and this results in significant uptake and is proving to be a good way to incentivize credit card usage.” – Anonymous e-Marketplace “There is no incentive to use pre-paid since you can’t inspect the goods and it is harder to get a refund. If your competitor offers COD, so do you as no one will buy your products otherwise.” – Anonymous e-Tailer Figure 27 - Consumer Trust Issues with e-Payments Firms felt that almost half of their consumers distrust e-payment methods Out of 30 firms who provided feedback on the trust issue associated with e-payments, 53% perceived that consumers do not worry about trust when making online payments. They added a caveat that this is contingent on the Do  Not  Trust   reputation and brand of both the merchant  e-­‐Payments   Trust  e-­‐ and the third party provider. 47% felt their 47%   Payments   users mistrust online payments because they 53%   lack confidence in the controls that safeguard their information that is shared online, such as financial and personal details. ∑  30  Firms   Source: IFC Research (Sample: 30 Firms) Interview quotes on trust issues “People are afraid of giving financial information over the internet as there is a massive trust issue. Firms can’t store personal financial information on their servers to enable one- click shopping so online transactions are perceived as being unsafe and complicated since customers are uncertain who has access to their info.” – Anonymous Payment Service “The State Bank should take a leading role in revolutionizing, standardizing, and regulating the online payments process. Payment gateways need to be defragmented, less complex, transparent, technically reliable and secure, and connected to the bank and credit accounts. Requires a network effect to educate consumers about the benefits and build confidence and trust in a system that is certified to store financial information and enable merchants to process everything locally and control the user experience.” – Anonymous e-Marketplace 33 A MoMo customer indicated that at first, he did not trust the MoMo application A customer of MoMo who is a University student from Ha Tay. He stated that “the first time I heard about MoMo’s world cup competition last year, I could not believe I would be able to get the amount and I was very surprised when I was able to get $15 USD cash as part of this promotion.” Incentives like these helped to convert him to use this m-wallet. He also tried top-up mobile air time services through MoMo after that experience and now he is a regular user who also uses MoMo for gaming top-ups. Issues Expressed by e- and m-commerce Firms related to Non-Cash Payments The surveyed firms shed light on the issues related to payment acceptance for merchants, processors, and customers in Vietnam. The question was posed to 48 firms across all the segments about what challenges currently face the payments sector. Their perspectives are summarized in Figure 28. Thirty-six of the 48 respondents (75%) said their primary concern with non- cash payments is that there are low levels of customer adoption. The e- and m-commerce firms, as well as the third party logistics and payment providers, understand that consumer demand will drive mass adoption. Surveyed firms recognize that even if the technology exists, the hurdle they all need to overcome involves convincing people to use new methods. Some hinted that communication campaigns can help educate the market. Others said banks could more proactively inform clients that they needed to register their cards for online and digital payments. Half of the firms (50%) felt the transaction process is too complicated and not a seamless, user-friendly interface even if the e-payment gateway is integrated into their platform. They are also concerned that the process for dealing with customer disputes and verifying online purchases in real-time is not straightforward. Seventeen firms (35%) were concerned with security features that minimize risks shared among e-commerce actors, banks, payment gateways, and card companies. Firms expressed interest in being able to securely store customer payment information and delivery preferences however they were not confident in how providers ensure data encryption and fraud protection. 34 Twenty-five percent (25%) believed that the cost to integrate the payment platforms into their business was too high and not worth the investment given the lack of user uptake. 21% of the firms were worried that the market is too fragmented and the variety of e-payment gateways was a cause for confusion that hinders customer and merchant adoption. 13% of the participating enterprises said the time to receive a reimbursement related to online payments was too long and they would prefer it to be easier and faster. Figure 28 –Non-cash payments Issues No  Issues   2%,   1   Third-­‐Party  Concerns  related  to  Non-­‐Cash   Reimbursement  for  Online  Payment  too  Slow   13%   6   Too  Many  Payment  Providers   21%   10   Payments   Cost  of  Integra100,000 f) Don’t Know/ NA 4) Approximately what percentage of your users access your site from a mobile device? (Enter Number, 0-100) 5) Approximately what percentage of your users are from Ho Chi Minh City and Hanoi? (Enter Number, 0-100) 6) Which payment methods do you currently accept? a) Cash on Delivery b) Cash in Office c) International Credit Cards d) Domestic Credit Cards e) ATM/ Debit Cards f) Online Bank Transfer g) SMS Payment h) E-Wallet i) Don’t Know/ NA j) Other 7) About what percentage of your users make non-cash (online and mobile) payments? (Enter number, 0-100) 8) Do you offer the following incentives to encourage your customers to make non- cash payments? a) Discounts b) Credit for future purchases c) Free delivery d) Waive any associated fees e) None of these f) Other 60 9) What are your main concerns with non-cash payments? a) Too many payment providers b) Cost of integration too high c) Fees for online payment too high d) Reimbursement for online payment too slow e) Complicated transaction process f) Security of data g) Not enough customer adoption h) No issues i) Other 10) What problems do you anticipate with the collection of cash payments? a) Growing service costs b) Difficult to collect outside of urban centers c) Risk of missing or stolen cash d) Payment reimbursement too slow e) Not concerned f) Other 11) Do you believe that non-cash payment services will be widely adopted by your customers in the next 5 years? a) Strongly Agree b) Agree c) Disagree d) Strongly Disagree 12) What is the biggest challenge to e-/m-commerce? a) Logistics infrastructure b) Payment infrastructure c) Cash on Delivery d) Regulatory policies e) After-sales service f) Other 61 H. Additional Statistics on Surveyed Firms Market Consolidation: M&A Activity Of the firms interviewed, 63% were independently owned with no known investors. 30% of the interviewees were associated with an affiliate or sister enterprise. 7% were conglomerates that owned more than one e- or m-commerce company. Refer to Table 15 to review the list of firms and whether they have affiliates, subsidiaries, investors, or are independently owned. Figure 34 – Independently owned firms, those with a sister company, and conglomerates with multiple subsidiaries Firms  with  Subsidiaries  or   32%   Sister  Companies   Conglomerates   61%   7%   Individual  firms   Source: IFC Research (Sample: 88 Firms) M&A activity in the Vietnamese e- and m-commerce market Consolidation is occurring in the Vietnamese marketplace Six conglomerates own, wholly or in part, 24% of the 88 firms covered in this survey. These enterprises are pursuing strategic acquisitions to expand their market share into the broader e- and m-commerce space. These firms are contributing to the development of a more mature market. As they look for opportunities, this is setting the stage for early M&A from players that want to create economies of scale, reduce operational costs and minimize risk. The service infrastructure needed to support the next wave of growth is not ready and therefore firms and angel investors are seeding capable startups. Some are founding and building those businesses themselves to support their own needs. For example, many of the e-Marketplaces that grew in size wanted to provide an online payment solution. Given a lack of appropriate alternatives on the market at that time, they engineered those businesses and launched on their own. This has created fragmentation among online payment providers. 62 Figure 35 - 24% of the 88 surveyed firms are owned by six conglomerates 9%   %  of  Ownership  of  the  Pool  of  Surveyed   8%   8%   7%   Firms  by  Conglomerate   6%   7%   5%   4%   5%   3%   2%   2%   2%   1%   1%   0%   Peaceso3   VCCorp   VNG   DKT   Tinhvan   Vega  Corp   Vietnamese  Conglomerates   (Source: IFC Research) Investors with a stake in the e- and m-commerce market There are a variety of local and international investors with equity in mainly Vietnamese consumer internet companies and payment providers 70% of the surveyed firms received foreign investment capital from one or more of the investors in Figure 36. These 17 investors have a direct stake in at least one of the firms in the survey population. IDG Ventures Vietnam (IDGVV), the largest local technology driven Venture Capitalist (VC), has a direct or indirect investment in 27 of the 88 surveyed firms (31%). CyberAgent Ventures, another VC with a sizeable portfolio in Vietnam, invested in 11 firms in the survey pool (13%). The bulk of the remaining investors identified in this Figure financed only one surveyed firm. Nevertheless, those single investments were made into firms that are the parent company of a portfolio of subsidiaries, thus giving the investor indirect access to a bigger footprint of consumer internet or payment firms in the market. 63 Figure 36 – Percentage of ownership of the pool of surveyed firms by investor %  of  Surveyed  Firms  Associated  with  a  Specific  Investor   (IFC  Research  based  on  secondary  publicaUons)     0   5   10   15   20   25   30   Investoors  in  the  Vietnamese  e-­‐and  m-­‐commerce  Market   IDGVV   27   31%   CyberAgent   11   13%   Seedcom   6   7%   Intel  Capital   6   7%   One  Capital   1   1%   FPT   2   2%   Rocket  Internet   1   1%   Sumitomo   1   1%   Mitsui   2   2%   Rakuten   1   1%   Experian   1   1%   Kusto  Tiger  Fund   1   1%   Unitus  Impact   1   1%   SMBC   1   1%   DFID   1   1%   MOL   1   1%   Goldman  Sachs   1   1%   Interview quotes with Investors or Acquirers “Within the foreseeable future there may be strategic acquisitions with high valuations in Vietnam’s e- and m-commerce market.” – Anonymous Conglomerate “Market consolidation and acquisitions happen in an effort to purchase local insight, suppliers, data, and customers looking to shop online.” – Anonymous Investor “The idea to acquire another site was because they were widely recognized and invested millions in brand awareness.” – Anonymous e-Promotion site 64 Importance of Social Networks for Small Merchants more so than their Larger Counterparts 20 of the firms from this study have over 100,000 likes on Facebook Social Networking is a common method utilized by early stage firms and small local retailers to develop their virtual footprint. Nearly all the firms have a presence on social networks. However this channel is becoming less of a driver of referrals to the more established medium to large sized marketplaces. Twelve of the surveyed enterprises have a half-million ‘likes’ and 5 firms have over one million ‘likes’. Digital content providers active in music downloads and photo sharing have attracted the most attention on Facebook with over 3 million ‘likes’ each. Figure 37 - Top Facebook Likes Among Surveyed Firms Dienmay   0.11   0.14   ebay   0.19   0.22   Top  20  e-­‐  and  m-­‐Commerce  Firms     Nhom  Mua   0.26   0.40   Mua  Chung   0.42   0.44   The  Gioi  Di  Dong   0.56   0.56   Tiki   0.59   0.72   Zalo  (part  of  VNG)   0.74   0.86   Lazada   0.95   1.18   Kenh14   1.28   3.22   HaiVL   3.65   0   0.5   1   1.5   2   2.5   3   3.5   4   #  of  Facebook  Likes  (Millions)   Source: IFC Research; Facebook website of individual firms; *see annex for description of firms 65 Figure 38 – Monthly Visits by Firms 5giay   5   Lazada   5.7   Coc  Coc   6   clip.vn   8.4   Webtretho   10   Vat  Gia   12.9   ZingMe   21.8   HaiVL   38.7   Kenh14   40.8   Zing  MP3   62.3   0   10   20   30   40   50   60   70   EsJmated  Monthly  Visits  by  Firms  (in  Millions)   Source: IFC Research; http://www.similarweb.com/, as of October 2014 Figure 39 – Registered users by firm in the core e- and m-commerce segments Tiki   0.4   Vega  Corp   0.6   5giay   1.0   Vatgia   1.5   Cungmua   2.0   Minh  Chau   5.0   ZingMe     9.5   Viber   12.0   VC  Corp   12.0   Zalo   14.5   Zing  MP3/VNG   22.0   0   5   10   15   20   Millions   Registered  Users  by  Firm  in  the     Core  e-­‐  and  m-­‐commerce  Segments     Source: IFC Research; http://www.similarweb.com/, as of October 2014 66 This page has been left blank intentionally.