E-commerce is one of the hot new spaces in which Vietnamese startups want to compete. But is it really a lucrative market? I sat down with a source in the growing e-commerce market in Vietnam from a banker’s perspective.
The e-commerce market for 2011 was worth roughly $300 million. By September 2012, the market hit about $456 million, and conservative estimates put it at well over $500 million by the end of this year. That’s a 60 percent increase. This year, in comparison to the GDP of Vietnam at $320 billion e-commerce is barely noticeable. But by 2015 this number is estimated to hit $2.5 billion. That’s a sizable market.
Despite these favorable numbers, e-commerce in Vietnam faces some serious barriers. One is that the country is still a cash economy. Customers have not developed the habit of using credit cards and merchants don’t encourage it. Merchants, who employ accountants, cashiers, and safe deposit boxes are estimated to spend 5.6 percent on financial operations, but are hesitant to spend the two percent fee for getting money from a credit card. If merchants don’t encourage credit card behavior, why would customers follow? The thinking is, “if I accept payment in cash, than I get 100 percent.” They forget their operational costs.
Another barrier is related to age. Although the internet population in Vietnam is at 31 million, most of those are young people. They are in school, starting their careers, or in mid-career. Their salary is either low or non-existent. On the other hand, the older population does have money to spend, but isn’t online.
The final major barrier is a fundamental skepticism about digital content. Vietnamese consumers want to touch the clothing they will wear. They want to feel the texture of the cloth. They want to hold electronics in their hands and see how well it works. Vietnamese wives are at the heart of the shopping decisions in a family, and they are going to be very careful about major purchases like electronics as well as things like clothing. Making those choices online doesn’t give customers enough data to make what they feel is an informed decision.
If these three obstacles did not exist (i.e. if credit cards were ubiquitous, if the youth had money, and if customers trusted internet content) we’d be looking at Vietnam 2022, not 2012. To me, the barriers above paint a difficult picture for startups getting into e-commerce. The value they create will have to outweigh the cultural and infrastructural barriers that create friction for the customer experience. A good example of e-commerce done in a way which adds value is Qwertee from the United Kingdom, which has leveraged social media, artists, and consumers into a unified e-commerce experience. Currently, in the e-commerce market, models like this have not taken off.
Making credit cards into a widespread habit and making it easier to pay online would significantly shift the market and open up many dormant opportunities like web services, apps, freemium models, and many other services that people haven’t imagined yet.
In 2015, we’ll look back on this period as just the beginning of a long path to e-commerce in Vietnam.
[UPDATE on Dec. 14th: Our source requested that his name be removed from the article]