Potential of Traveloka PayLater to Compete in Vietnam and Thailand Market

Appearance paylater or buy now pay later (BNPL), or known in Indonesia as paylater, which is present in the digital platform seeks to redefine the perception of "debt".

In a interview, Executive VP Products and Innovation Asia Pacific Mastercard Sandeep Malhotra explained, Covid-19 is able to accelerate digital transformation in various sectors, including e-commerce services without exception.

Digital transactions switch quickly and seamlessly, opening up huge opportunities for merchant and issue which offers consumers the flexibility to pay later when making payments in stores and online platforms.

“Using installments to make purchases is becoming more popular for people around the world who want a wider range of payment options, the ability to better manage cash flow, and the convenience of using their own money to arrange payments, as well as for household items , TV sets, and various other larger items," explained Malhotra.

In developed countries, the popularity of BNPL is mushrooming in many countries. In the United States, for example, it is said that BNPL contributed $24 billion last year to total e-commerce transactions. This figure has grown drastically compared to traditional credit card volume. It is projected that BNPL transactions worldwide will reach $350 billion by 2025.

Initiation BNPL was pioneered startups in Western countries, such as Klarna (Sweden), Affirm (United States), and Afterpay (Australia). In Southeast Asian countries themselves, with the level of penetration of access to financial products still low, BNPL players are increasingly providing color.

In its journey, Southeast Asia has a number of champion in the BNPL segment and is present in more than one country. Some names are Akulaku, Kredivo, Atome, Home Credit, Hoolah, OctiFi, Oriente, Pace, and Pine Labs.

Indonesia, Malaysia and the Philippines are the target countries for the players above. Thailand and Vietnam are the remaining countries with minimal BNPL player populations. Singapore is not on the radar considering its dominant position in all aspects of the economy compared to its neighboring countries.

Currently, Thailand is only inhabited by Pace and Pine Labs, while Vietnam is inhabited by Akulaku, Atome, and Home Credit. Other players, such as Hoolah, Oriente, and Pine Labs, are preparing for their arrival.

Traveloka, which has BNPL products in Indonesia, plans to bring this service to Thailand and Vietnam in the near future. Quoting from Reuters, the presence of BNPL is expected to boost domestic travel transactions in both countries, considering that both have succeeded in exceeding pre-Covid-19 levels.

The economic conditions there reflect Traveloka's improving performance, especially in the travel business which is claimed to have made a profit at the end of last year. “The plan is to invest in fintech on a large scale to enable more consumers to travel in the region,” said Traveloka President Caesar Indra.

To realize this discourse, the company is currently discussing with potential local institutional partners in the two countries.

Traveloka PayLater, which is a Caturnusa Finance Sejahtera Finance product, also partners with Danamas, a subsidiary of the Sinarmas Group. Indra claims, since its release two years ago, its service has facilitated more than six million loans.

DailySocial once made a review of how to view Traveloka (read: Caturnusa) as a fintech company. By magnitude ticket sizes shopping for accommodation products, this is a good source of business for companies.

Conditions in Vietnam and Thailand

In a report It is said that Singapore, Indonesia, Vietnam and Thailand are the four most promising countries for industry p2p loans. Singapore is arguably the strongest regional center in the region.

Vietnam is rich in innovation and the number of startups from the country has increased exponentially over the past few years. One of the markets to pay attention to. Meanwhile Indonesia is home to many promising unicorns and startups and Thailand is a strong producer of talent and technological innovation.

Another driving factor behind the attractiveness of Thailand and Vietnam, apart from the small number of players, is also the potential for digital adoption which continues to grow. The 2020 e-Conomy report states that Thailand has a 30% growth in new consumers who contribute to digital economy services. It is predicted that GMV from this country will grow 25% to $53 billion in 2025 from $18 billion in 2020.

Meanwhile, Vietnam recorded 41% growth in new consumers using digital services throughout the pandemic. GMV is estimated to grow 19% to $52 billion in 2025 from last year's position of $14 billion.

BNPL is actually not a new concept. Conventionally, the experience of paying flexible installments is a package that is commonly found on credit cards issued by banks. However, this experience requires consumers to have a bank account and pass credit scoring before having a credit card.

This method makes the gap between unbanked and underbanked in this area. According to a Bain & Company report in 2019, more than 70% of adults (around 450 million people) fall into these two categories.

BNPL takes a different scoring method to target users without having to have a credit card history. As a result, two categories that were previously not on the banking radar are now being targeted by BNPL players, one of which is Traveloka.

Menurut report National Financial Supervision Commission, consumer loans in Vietnam have grown rapidly since 2015 with a growth rate of 65% in 2017 compared to 50,2% in the previous year, the percentage of consumer loans in total credit rose to 18% in 2017 from 12,3% in 2016.

On the other hand, although most Vietnamese people are tech-savvy (84% of the population were smartphone users at the end of 2017), the process of getting a loan is mostly done manually and as a result, takes at least 4-5 days.

According to McKinsey, as of the end of 2019, the majority of BNPL players in Vietnam - eight out of 16 companies - were owned by or partnered with banks with a 60% market share, led by FE Credit, which held almost 50 percent. The rest is filled with non-bank players who are starting to get busy with a percentage of 25%.

“The consumer credit business is also increasingly becoming a major provider of unsecured finance to customer segments that would not traditionally be served by banks and who would have to use money lenders,” said McKinsey & Co Partner. Sumit Popli.

McKinsey also found that Vietnam has a much higher return on equity (ROE) for consumer credit, at 38% with margins increasing at a higher rate compared to the ASEAN average, at 15%-25%. In addition, the share of consumer loans in Vietnam's total loans is only around 12%, compared with 34% in ASEAN and 40%-50% in developed countries.

The country is moving from the land collateral phase to more professional consumer lending, with players building professional management teams and institutional capabilities and adopting digital infrastructure and cutting-edge technologies.

The most popular way for foreign companies looking to enter Vietnam's financial market is to acquire shares in local banks or buy financial companies instead of setting up their own companies. This is because consumer financing requires players to have a deep understanding of the local market and operational capabilities, which only a local partner can bring.

Masataka Yoshida, Senior Managing Director, Head of the Cross-Border Division, and CEO of Vietnam Recof Corporation said, “Establishing a completely new financial company in Vietnam will pose many legal and procedural difficulties, while working with domestic partners allows foreign investors to enter Vietnam more quickly and easily."

Thailand shows not much different conditions. New consumer loans contribute 0,2% of total retail loans in the Thai banking industry, although there is potential for further growth.

On the one hand, the challenge for fintech startup players here is to find ways to capitalize established financial institutions for credit scoring. Thai authorities legally prohibit startups from using credit data sharing facilities.

This hinders freelancers, entrepreneurs, employees, who have never had access to finance from banks due to inconsistent income. It is for this reason that most banks choose to offer loans to borrowers who have a good credit history or new clients who are steady income with verified bank statements.

The inhabitants of this market are controlled by commercial banks because they have a large customer database. Loan approvals are basically still based on conventional data. In other words, income data or bank statements that reflect the ability to pay customer debt.

Because of this authority, banks partner with business allies and other service providers on leading online platforms, such as marketplaces and large online food delivery platforms with extensive networks of stores and restaurants.

Banks are finally gaining access to alternative data from new target groups of potential customers for more efficient revenue analysis, for example sales turnover, purchase orders and product refunds, along with product and service reviews.

- *header photo: depositphotos.com