A merchant in Ninh Thuan province puts her products for sale online. (Photo: VNA) Pham Nguyen Anh Huy, senior lecturer in finance at RMIT University, said BNPLcompanies have ample room for growth thanks to the low credit card usage andhigh consumer demand in the country.
"Consumption demand is rising steadily against a backdrop of merely 5 to 6%of the population using credit cards. That's where BNPL comes in handy,"said the lecturer.
Huy said with BNPL, consumers can pay for items, normally of less than 10million VND (423 USD), in a series of interest-free instalments. However,that's only part of the story.
Given that BNPL-financed loans are fairly easy for consumers to get approved,some consumers tend to overspend on items they wouldn't normally be able toafford if they had to pay upfront, leading to excessive debt that is difficultto manage.
The risk of default would be even higher for consumers of financial illiteracyand when lenders fail to access the creditworthiness of their borrowers. Riskmanagement, he said, would be instrumental in keeping the risk in check.
According to the Vietnam Banks Association, the rate of consumers in defaulthas been climbing steadily in recent years owing to the practice of"deliberate default".
Consumers dodge paying back their loans because they know they can do so withimpunity. Legal loopholes make it almost impossible to bring to court those whodefault on low-value loans.
Another problem is that BNPL platforms have no connection with the CreditInformation Centre (CIC). Without CIC data, they have to assess thecreditworthiness of borrowers based on past transactions.
This is an approach that could result in default risk underestimation.
BNPL also carries data security risks because BNPL-financed purchases are madethrough a third-party's platform. Although data-sharing has been legallyregulated, specific rules for the BNPL industry have yet to be put in place.
Senior lecturer Huy said BNPL non-performing loans could soar if the industryis left to its own devices without governmental control. Rising non-performingloans, in turn, would erode lenders' profits and push them into bankruptcy, aswas the case of Openpay in Australia recently.
He also said amid the current economy marked by high inflation and highinterest rates, investors tend to switch their portfolios away from riskyinvestments and technology companies tend to lay off staff.
"As a result, BNPL companies are likely to suffer a wave of liquidityshortages, which could negatively affect the growth of the industry," saidHuy.
It is also worth noting that Atome, a BNPL company run by Singapore-basedAdvance Intelligence Group, has confirmed its withdrawal from the Vietnam afterentering the country just last year.
In a statement to Tech in Asia, thecompany said Vietnam’s contribution to its overall business was limited and itbegan a planned and orderly pause of its operations in the country in May.
Research & Market data show that the BNPL financing industry in Vietnamwould reach a compound annual growth rate of 31.1% between 2023 and 2028.BNPL-financed purchases are expected to climb from 1.4 billion USD in 2022 to 8.8billion USD in 2028./.
VNA
