Fundiin- right person, right time?
#StartupInsight is a series of analytical articles that focus on the business models, development strategies, and corporate governance challenges of various companies or startups.
Introduction to BNPL and Fundiin
What exactly is BNPL (Buy Now Pay Later)?
BNPL is just another type of installment payment. When individuals are interested in purchasing an item but lack the necessary funds at the moment of purchase, BNPL provides the option to acquire it immediately by splitting the payment into multiple installments. Customers are only required to make a partial payment at the time of ordering, with the remaining amount being paid in installments according to the agreed-upon terms.
There are several BNPL companies in the market, such as Affirm (Paypal), Paidy (Paypal), Afterpay (Square Corp-USA), Akulaku (Indo), Kradivo (Indo), and Klarna (Sweden).
Fundiin is a pioneering BNPL provider in Vietnam.
Fundiin was founded in 2019 and is led by CEO Nguyen Anh Cuong, a highly knowledgeable finance and investment professional with a wealth of industry experience. Nguyen Anh Cuong, a graduate of Foreign Trade University with a major in Finance, has an impressive track record as the former fund manager of Vietnam Holdings, where he has accomplished numerous successes. After leaving his previous job, he went on to establish Lendiz, a company that provides financing options for purchasing motorbikes. Unfortunately, Lendiz's downfall was a result of its lenient lending policy and significant amount of bad debt. In 2019, Fundiin was founded by Nguyen Anh Cuong (CEO) and Vo Hoang Nam (CTO). After 2 years, Fundiin managed to secure funding from prominent investors like Genesia Ventures, JAFCO Asia, Trihill Capital, and Xffirmers, raising a capital of almost 1.8 million USD. Two venture funds, 1982 Ventures and Zone Startups Ventures, played a significant role in supporting Fundiin's market expansion plan by providing a substantial amount of capital.
Business Model
Types of BNPL Platforms
The current BNPL platform can be categorized into two models:
(1) BNPL operates without charging any interest or fees.
(2) BNPL charges interest, fees, or both, similar to credit cards, e-wallets, and installment loans.
Indicate the model developed by Fundiin is referred to as Model 1. Buyers are not required to pay any interest or fees to Fundiin until they fail to meet the payment date. No interest or fees Buy Now Pay Later (BNPL) is not a type of loan that incurs debt. Instead, it is a payment method that allows for cost balancing. This form is analogous to making a payment using a credit card and deferring the payment for a period of 30-45 days, without incurring any interest charges (assuming the yearly credit card fee is not factored in). Credit cards are far more inconvenient than Fudiin. Aside from the obligatory charges such as annual fees, penalty fines, and maintenance fees, users are additionally burdened with exorbitant interest rates and the potential hazard of card loss.
The installment ordering method of Fundiin is outlined as follows:
1. Install the application.
2. Enter and verify your phone number.
3. Capture a photo of your ID card.
4. Wait for 20 seconds for approval.
5. Search for the desired item and place an order.
6. Make an upfront payment of one-third of the entire order value.
7. Pay the remaining amount in installments according to the agreed-upon terms.
Fundiin will provide customers with support for up to two-thirds of the total purchase value and offer the option to make two payments within a 60-day period. Fundiin utilizes computer systems to automatically determine and authorize a unique level of support for each customer, taking into account their own customer profile. If the order value exceeds Fundiin's maximum support limit (more than 6,000,000 VND), the payment amount in period 1 will be higher than in periods 2 and 3.
In the event of the buyer's delay, a 0.6% interest will be charged on the total amount of the order. The first penalty will be imposed starting from the second day of late payment, and subsequent penalties of 0.6% will be added for every consecutive 7-day period. The maximum interest rate offered by Fundiin is 25% of the total amount of the order.
The registration process for Fundiin is straightforward and efficient. Customers are required to enter a phone number and provide a photo of one side of their ID card. There is no requirement for a bank card or proof of income level. Fundiin's system will then approve the registration. Generate a customer profile in only 30 seconds. Fundiin's rapid profile censorship is facilitated by its utilization of AI technology in conjunction with OCR (Optical Character Recognition). This enables Fundiin to swiftly identify characters on CCCD cards and promptly update them. Upon completing the registration process, users will be able to choose partner brands from Fundiin's interface in order to make purchases. From this point, users proceed to make payment for the initial term and establish the payment due date for the subsequent two periods within a span of 60 days.
While a bank card is not required for registration, it does not imply that customers can make purchases and pay in installments without a bank card. A bank card is essential to comply with Fundiin's terms. Allocate the debt to Fundiin's Short-Term Key (STK). An advantage is that the debts owed to Fundiin are highly transparent, providing users with precise knowledge of their payment obligations. Additionally, users will receive a notification of the deadline five days prior.
Given the absence of any interest or fees, the source of Fundiin's revenue remains unclear. Fundiin's partners consist of wholesalers and retailers who will remunerate Fundiin with a commission ranging from 2-8% based on the value of each order.
Afterpay from Australia and Klarna from Sweden have introduced the interest-free and fee-free postpaid concept. However, these two units are currently absent in Vietnam.
Regarding models that involve fees, interest, or a combination of both, there are certain units that may advertise as having 0% interest, but there will be a variation in the purchase price (such as the absence of a promotion) or a transaction fee. In addition to Fundiin, other BNPL providers in Vietnam, such as Reepay, Akulaku, and Kredivo, have distinct BNPL rules. Reepay applies a transaction fee of 30-80,000 VND each loan, with a maximum limit of 1,500,000 VND, excluding late fees. On the other hand, Kredivo offers a loan length of up to 3 months with a 0% interest rate and a 6% service fee. However, it does not cover the 5.25% late payment fee. Additionally, there is an installment limit of 5,000,000 VND. Several units impose fees on a regular basis. These fees can be charged monthly, ranging from 20,000 to 70,000 per month, or annually. The annual fees include credit card annual fees, which can range from 200,000 to several million per year, equivalent to an interest rate of 50% per year on a loan.
The question pertains to Fundiin's decision to choose an interest-free and fee-free plan, as opposed to an alternative model. It is evident that Fundiin has opted for a more challenging task, namely, implementing a fee-free, interest-free strategy, while effectively mitigating risks and ensuring an increase in revenue. What makes it more challenging to select a model that has no fees and generates no profit?
Initially, by opting for the no-fee, no-interest approach, the primary source of revenue for this unit will be the commissions received from partners. Additionally, 20% of the money will be generated from late payments, which accounts for around 1% of the customer base, as stated in the Afterpay report. By opting for a lucrative, fee-based strategy, units will generate higher profits for each transaction. Furthermore, if Fundiin implements the BNPL model while facing the challenges of bad debt risks and restricted commission rates, it will encounter significant difficulties in compensating for potential losses in the event of an unforeseen increase in bad debts.
Fundiin aims to provide consumers with the highest quality experience while remaining free, with the goal of fostering a strong emotional connection and establishing a sense of immediate affection in customers. Over the past few years, there has been a significant proliferation of money lending applications, which have emerged as a perilous source of debt for numerous individuals (such as vaytocdo, Moreloan, VD online,...). Fundiin may have recognized that a significant portion of Vietnamese customers perceive money loan applications as fraudulent and untrustworthy, leading to apprehension about getting trapped in debt. Characterized by exorbitant fees, steep interest rates, and a limited repayment period. Opting for the no-interest, no-fee commitment model might be likened to a sedative for prospective young clients who wish to borrow or make installment payments, but have concerns about falling into a cycle of debt. Consumers are more likely to be attracted to solutions that offer improved value and experience, particularly if they are free. Fundiin aims to increase consumer sympathy using this model in order to get a greater rate of repeat users. Repeat users are loyal customers who have had a positive experience with the service and are more likely to continue using it in the future. This, in turn, will lead to increased revenues.
In addition, the market is currently saturated with several versatile service providers and intense rivalry from both domestic and international suppliers (such as confirm, afterpay, mastercard...). Therefore, attempting to impose charges and interest on clients would lead to increased competitiveness. The level of competition is significant due to the abundance of start-ups endeavoring to establish their presence in the industry.
- Fundiin's customer base primarily consists of housewives, students, and young individuals seeking courses, fashion, and cosmetics. Due to their limited economic potential, these folks have a desire to shop. However, making quick purchases would create significant strain on their cash flow balance, which is not advisable given their regular monthly income. Opting for the option of purchasing the products they desire without the need to make a single payment upfront could be a novel alternative for them. However, in addition to focusing on a small client sector, users are only permitted to borrow a maximum amount of 3-6 million VND. Therefore, Fundiin and its partners can only support things within this price range. The available products mostly consist of consumer goods such as clothing, footwear, accessories, cosmetics, as well as supportive software in the form of applications. Nevertheless, Fundiin has an edge when it comes to consumer items that lack substantial purchase support from financial institutions. Fundiin can circumvent competition from major stores by offering consumers the option to make installment payments for expensive items like televisions and refrigerators.
- Fundiin has collaborated with over 100 retail partners and has a presence in more than 400 stores, including prominent merchants. Fundiin is currently partnered with DHC Vietnam, Sablanca, Paula's Choice, LUG.vn, Elsa Speak, Curnon Watch, Thanh Hung Futsal, The Wolf, Happy Skin Vietnam, O Lang Vien, and Zune ZX. Fundiin collaborates with local companies, merchants, and distributors in Vietnam, such as Mattress King, Hai Trieu watches, Mat Viet, Sablanca, OLV, to provide consumers with authentic items. Fundiin has exclusive distribution branches for key brands, allowing it to connect multiple brands including DHC, Pigeon, and Elasten. Therefore, Fundiin offers a restricted range of shopping products, meaning that not all desired things may be obtained by clients. In addition to consumer goods, Fundiin also collaborates with firms that offer software and applications, such as Elsa and Gift Pop. Specifically, Fundiin's collaboration with Sapo and Haravan, which links over 100,000 retail establishments, is a significant milestone. Amidst the epidemic, when the operation of delivery services was halted, online courses served as the salvation for Fundiin.
Fundiin now utilizes investor capital as its primary source of funding for lending purposes. However, diverting funds from investment calls to lending is an unstable solution. These funds should be allocated towards the company's operational activities. Therefore, Fundiin may seek support from other sources such as venture debt, domestic banks, and domestic securities organizations.
Risks and opportunities
Remember that Lendiz, the motorbike buying support company that collapsed under the founder of Fundiin, also made errors in managing and approving customers who were excessively trusting and easily deceived, and did not require proper vehicle documentation. This led to a continuous increase in the ratio of bad debts, reaching a point where it became unresolvable. In addition, Lendiz facilitates the purchase of high-value motorbikes with installment plans ranging from 12 to 24 months. However, the response time from the market is quite slow, taking anywhere from 6 to 12 months. In addition, Lendiz faces challenges in gathering user information as it is currently unable to conduct data collection using API. Acquiring knowledge about a consumer in order to assess their profile is a time-consuming task, especially when there is a scarcity of information available. How can Fundiin effectively manage risks while maintaining a speedy registration process that does not require the provision of bank card and financial proof? Fundiin has implemented risk mitigation strategies by using lessons gained from Lendiz. This includes the utilization of eKYC online identification technology and the development of its own proprietary credit score model. Ensuring consumers fulfill their financial obligations is crucial to the operational framework. The corporation maintains control over this by monitoring user payments. In the event that the user has delinquent payments, the company will decline the customer's account (refrain from approving the registration application) or prohibit any further usage.
The issue with the BNPL (Buy Now Pay Later) model, as well as Fundiin, is in the challenge of achieving user scalability. Fundiin aims to optimize the registration and approval process in order to provide consumers with the best possible experience. If the company has a substantial user base, including a significant number of loyal consumers, the impact of bad debts on the company's revenue ratio will be minimal. The amount of unpaid debt is still less than the rate of commission received from partners.
The rate of unbanked and underbanked individuals is high: Presently, according on data from the Payment Department of the State Bank, 80% of adults in Vietnam has bank accounts, although only 6.5% of the overall population have access to cards. Financial trustworthiness or the ability to borrow money. This situation presents both advantages and disadvantages for Funfiin. Fundiin will serve as a solution to enhance purchasing options for users, since there is limited enthusiasm for utilizing credit cards and a multitude of shopping requirements with limited payment alternatives. However, Fundiin will encounter numerous challenges in managing risks due to its lack of integration with the CIC system.
Fundiin collaborates with other units, even though it is not directly affiliated with CIC. Due to the ongoing refinement of the credit scoring system in Vietnam, Fundiin will inevitably assume risks while evaluating client profiles and will employ supplementary measures. Currently, it is not practical to utilize secondary sources like social media, ecommerce platforms, Grab, and Gojek to monitor credit ratings. However, in certain countries where the Buy Now Pay Later (BNPL) model is already established, platforms like Shopee and Grab may offer this functionality.
In the unfortunate event that the bad debt ratio experiences a significant increase, as was the case during the recent COVID-19 outbreak when certain customers faced financial challenges, Fundiin will implement various measures to address this issue. These measures may include lowering client consumption limitations and implementing stricter application screening processes.
Risk of developing compulsive spending habits for customers
Compulsive spending
Implementing innovations to attract a larger consumer base can also lead to encouraging impulsive purchasing behaviors and causing customers to exceed their intended purchases. Fundiin primarily caters to a demographic of young individuals who engage in online shopping often (77% of online consumers are within the age range of 18-35 years). Consequently, clients are prone to entering a recurring pattern of indebtedness, which can adversely impact their credit rating.
Currently (2022), Fundiin is experiencing a notable growth in its market as it forges new partnerships with Mishio Kachi and Banawa. Fundiin intends to extend its market presence to Malaysia, Thailand, and Indonesia in 2022.
Fundiin offers a sufficient range of functions and a satisfactory user experience. Although this unit is encountering significant obstacles, there is still a highly promising market opportunity ahead. It is advisable for Fundiin to identify its consumer base and deploy the application during the period of online shopping and payment growth.
Crystal Le,
Jun 30, 2022.
