HA NOI (Biz Hub) — Consumer Finance Market (CF) in Vietnam has witnessed the fastest growth in 2015 - domestic and foreign-owned finance companies in Vietnam are in a fierce competition for a slice of the consumer loans market.

Following a robust surge in 2014, VietnamConsumer Finance Market in 2015 continued to experience the fastest growth for the past 5 years. The outstanding loan balance soared from US$10.5bn in December 2014 to US$15.12bn at the end of 2015, with 44.1% growth.

Figure 1: Consumer Loan Balance (U$bn), %Consumer Loans/GDP, %Consumer Loans/Loan Book. — StoxPlus

According to StoxPlus's analysis, the robust growth of VietnamConsumer Finance Marketresulted from the significant change in customer behavior and the respectively high demands for housing loan of middle class. The transition from borrowing behavior of customers from borrowing from relatives, friends or informal finance market to more formalized method at finance companies also had a positive implication on lending market. In addition, as a result of the VND30,000 billion preferential lending package of commercial banks for housing loans, consumer finance companies have tried to increase sales in this segment by offering lower interest rate, leading to a spark growth in the consumer loans market.

Despite the favorable environment, Vietnam Consumer Finance Market has become more and more competitive with increasing number of participants. Indeed, the market landscape in 2015 has experienced the acquisition of many local finance companies by Joint Stock Commercial Banks as well as the fast growth of local CF companies like FE Credit.The market is predicted to be gradually dominated by local companies as VP Bank Finance Company is taking over the 1st place from Home Credit in terms of outstanding loans, accounting for more than 50% of total market share of CF companies.

As the number of players doubled this year, while the number of POS is limited, bargaining power of buyers will be high. Incentives or commission will be raised in order to secure a place at POS. Taking Mobile World and FPT Shop for example, there are at least 4 consumer finance companies including FE Credit, Home Credit, HD Saison and ACS located in one shop. Therefore, profit margin of such CF companies will be unquestionably reduced.

Figure 2: Closed M&A Deals in Vietnam Consumer Finance Market by the end of 2015. — StoxPlus

Furthermore, sales channels of CF companies also suffered from the challenges of higher sales and operation expenses from collection & payment third party companies like MoMo and Payoo. In particular, these third party companies will charge a fee of 5% to 8% per collection or payment transaction, which also led to the reductioninthe profitof CF companies.

Traditional Consumer Finance Market is facing its steepest challenges – Will "Going Digital" be the new tipping point?

FinTech is a term used to describe companies that apply innovative technology into the Financial Services industry. 2015 was a remarkable year of FinTech booming in Vietnam with MoMo, Payoo, BankPlus or 123Pay as the popular mobile payment apps being used by many CF companies or new player like LoanVi. Banks like VP Bank also introduce mobile banking app – Timo, which expects to innovate the banking and lending practices. These companies are changing the payment industry and creating a new era of applying technology to lending business in Vietnam.

The benefit of Fintech is that theycan leverage technology in order to revolutionize sales channels and provide more convenience, accessibility and tailored products for customers. Even though CF companies are still relying on Point-of-Sales, mobile channel is considered to be the next big thing. Mobile phones are very popular in Vietnam as there are 128 million mobile phones accounts, in which nearly half of the total accounts is smart phone accounts.FinTech companies can thusprovide a user-friendly and time-saving mobile platform for financial transactions and tap into the untapped market including the unbanked, undeserved and youth populations.

Even though FinTech companies only provide payment platform and limited lending activities at the moment, they are expected to rise as a threat to CF companies. By utilizing the competitive advantages such as extensive network and large client's database, payment companies such as MoMo, Payoo or BankPlus have many incentives to enterthe consumer finance market. Therefore, CF companies who fail to catch up with technology innovation will likely lag behind in the next few years.

Nowadays, when people talk about successful cases of leveraging innovative technology into businesses, people will immediately think about Uber or Amazon. In order to be the next "Uber moment" in the Consumer Finance industry, FinTech companies will need to overcome many challenges ahead including making their products and brand well-known, earning the trust of the customers, as well as dealing with the lax and slow process of regulation formation for FinTech companies in Vietnam. — StoxPlus