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  • Southeast Asia

Deal focus: GA backs VNLife’s two-pronged fintech play

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  • Tim Burroughs
  • 11 August 2021
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VNLife is not alone in trying to build value-added services onto a payment platform in Vietnam, but it is unusual in being able to rely on a profitable B2B digital banking business while figuring out monetization

Vietnam ticks a lot of boxes for General Atlantic across various macroeconomic and financial inclusion criteria: GDP growth was 6% pre-pandemic and is expected to rebound to at least that level post-pandemic; two-thirds of the population resides in rural areas, which means 35% of the country is unbanked, and 10% is underbanked; and a nascent digital payments ecosystem is worth $67 billion, or approximately one-third of the entire – online and offline – payments landscape.

"Vietnam is set up nicely for digital-based disruption. It’s a challenge for brick-and-mortar players to access their customers and service them efficiently without incurring significant customer acquisition and servicing costs,” says Sandeep Naik, a managing director and head of India and Southeast Asia at General Atlantic. “With things like e-commerce, edtech, and gaming ramping up, more consumers are comfortable going online for purchases and increasingly using digital payments to transact.”

In VNLife, the private equity firm believes it has found a financial technology start-up that can leverage rising demand for digital payments – and, unlike many others in the market, do it without sacrificing near-term profitably. General Atlantic and Dragoneer Investment Group recently led a $250 million Series B round, with participation from PayPal Ventures and Singapore’s EDBI. GIC and SoftBank Vision Fund 1, which led a $300 million Series A in 2019, re-upped.

Operating under the VNPay brand, VNLife claims to run Vietnam’s largest interoperable cashless payment network, with 22 million users and more than 150,000 merchants. It is supported by a QR code system, with more than 100,000 points of acceptance, offered by e-wallet providers. However, VNPay differs from the competition in that there is no wallet or closed-loop ecosystem binding users to it.

“The problem with e-wallets is they create another store of value. You need to move money from your bank account to the wallet and use the wallet to make payments. In our view, outside of a few markets where certain apps had a large captive customer base, closed-loop wallets haven’t typically been successful," says Naik.

"VNPay has an open-loop QR which means customers across most banks can conveniently pay the merchant directly from their bank account using their bank’s mobile app. For the merchants, VNPay QR availability on top banking apps encourages them to accept this payment method so as to offer seamless digital payment choice to a vast majority of their customers at lower costs than wallets."

Whether closed loop or open loop, all payments start-ups must look beyond their core operations for monetization. Reducing friction in payments reduces margins, so the goal is to leverage accumulated knowledge on the customer base to offer value-added services. Lending is an obvious target, helping merchants with procurement and consumers with purchasing. If someone uses a QR code to pay for a large-ticket item, a message pops up on the accompanying app offering buy now, pay later services.

Monetization can come in many forms, from lending to insurance to entertainment, but it isn’t necessarily easy getting there. Start-ups must survive on the tiny commissions from payments – while committing resources to rolling out the QR code network and offering subsidies to encourage uptake – as they work towards the critical mass required to make value-added services viable.

“When it comes to payment companies, you need to first scale up the throughput you are processing so that you sit in the middle of the flow. As soon as that happens, there are multiple ways you can monetize either through payments or enabling commerce or lending," says Naik. "Many payment companies burn a lot of money to get to that scale. VNLife is unusual in that as it can do this while being profitable due to their mobile banking app business.”

The company relies on a second business line, which currently contributes the bulk of revenue and returns a profit: building mobile apps for banks that recognize they are being disrupted by online platforms but lack the technology to do anything about it. VNLife works with more than 40 local lenders, offering application program interfaces (APIs) for SMS banking, bill payments, and ticket booking.

“These bank relationships have been created over years of trust and high service quality delivered by VNPay. The APIs must be fully integrated with the banks which operate different core banking systems, and the banks don’t want to experiment with someone new, because if the migration fails and users experience problems with mobile banking, that would be a disaster," says Naik.

"They want someone who is entrenched, proven and can work with them at scale while also reducing technology costs for the banks. VNLife has been doing this for almost a decade.”

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  • Topics
  • Southeast Asia
  • Financials
  • Technology
  • Early-stage
  • Vietnam
  • General Atlantic
  • Dragoneer Investment Group
  • EDBI
  • GIC Private
  • Softbank
  • Financial Services
  • Fintech

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