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|VieON users in mire after exit of MoMo|
Local over-the-top (OTT) platform VieON has been hit by the contract termination of M_Service JSC, an operator of MoMo. From the start of this month users of VieON have no longer been able to perform payments via MoMo, putting VieON operator DatViet VAC Media Entertainment Group in adversity.
According to DatViet VAC, around 45 per cent of users selected MoMo for their payments. “That means they cannot extend their packages on the platform due to the interruption,” said the company’s representative.
In mid-July, M_Service sent a notification of contract termination to VieON, citing that it had “temporarily no demand for trading in the company’s products and services.” The following week, representing DatViet VAC, law firm Duane Morris LLC sent a document to reject the e-wallet platform’s intention of halting the contract. Not long afterwards, the two sides held an online meeting to hammer out more acceptable terms, but no real outcome was forthcoming.
As the two sides failed to reach a common voice, DatViet VAC on September 11 officially filed a lawsuit against M_Service requesting compensation.
After 13 years of operation, MoMo has been gaining the upper hand in the market with nearly 70 per cent of the local e-wallet share. Following behind are ViettelPay, Moca, Airpay, and ZaloPay with market shares of 8, 7, 6, and 5 per cent respectively, according to market research company Asia Plus.
The e-wallet platform most recently announced it had reached 20 million users – an impressive number fuelled by great investment from New York-based private equity firm Warburg Pincus in early 2019.
In the three years before that its earnings doubled annually.
Last year MoMo reported revenues of more than VND4.2 trillion ($184 million), around twice as much as in 2018. MoMo has overwhelmed other players due to the wide coverage of about 80 per cent in basic needs such as payment at convenience stores, supermarkets, and coffee shops as well as payments for internet, utilities, and more. With the huge coverage in the local market, MoMo has not thus far worried about losing a share to competitors, which may be part of the explanation behind the ditching of VieON.
Chau Huy Quang, managing partner of R&T LCT Lawyers
Based on the information available on public media, I understand that VieON recently filed a lawsuit against M_Service at the local court for terminating the E-Wallet Service Provision Contract which the parties entered into on December 2019 (the “Contract”).
By its letter No. 560/CV/M_Service dated 15 July 2020, M_Service relied on Article 11.1 of the Contract, specifically related to the legitimate right to unilaterally terminating the Contract by providing a minimum 30 days’ notice prior to such termination. While we will need to review the correspondences to provide our opinion, below is our initial observation at this early stage.
It appears that pursuant to Article 11.1, either VieON or M_Service is equally able to unilaterally terminate the Contract by notice served to the other party at least 30 days in advance. Under this mechanism, this right of termination can be triggered by a contractual party without occurrence of contractual infringement from the other party. As a matter of law, the Civil Code (2015) allows for such agreement. Specifically, Article 428 of the Civil Code honors the parties’ agreement on the right to unilaterally terminate the contract. It stipulates:
“1. A party has the right to terminate unilaterally the performance of a contract without any compensation for damage when a party violates its obligations seriously or if so agreed by the parties or so provided by law.”
In light of that, we expect M_Services may keep relying on this argument to build their case against VieON’s claim at the court. But the parties would need to seek a final judgment from the court to know the outcome of the case, to see if such unilateral early termination is considered to valid and enforceable. As a matter of law, contractual terms are also subject to the governing law. In reality, a part of the contract or the entire contract could be declared null and void by the local court if these terms are found to be against the law. However, to avoid such legal risk where a contractual party can easily escape from their contractual commitment at their own will, it is advised that entrepreneurs should be cautious when they want to apply such early termination term in their business transaction without having related terms and conditions, such as clauses for compensation due to the contract’s early termination.
Similar to VieON, MoMo also provides payment services for other OTT platforms like FPT Play and Galaxy Play.
According to the platforms, their customers mainly range in the 16-35 age group, in which people easily adapt to new technology and get familiar with payment via non-cash payments. Both Galaxy Play and FPT Play stated that transactions through e-wallets are very common because the customers that mostly experience their services by smartphones integrate with the payment applications.
As a result, they easily fall into a situation similar to VieON. Hoang Minh Hai, business development manager at FPT Play told VIR, “At the beginning, we have always offered many cashless payment methods. Those include credit cards, ATM cards, and e-wallets.”
Echoing this, Galaxy Play has also attempted to diversify non-cash payment methods.
“Diversifying cashless payment methods play an inevitable role in our growth. Thanks to that, users can experience the best services we offer,” Hai asserted.
In addition to varying types of transaction, FPT Play also allows customers to perform payments via topping up their mobile accounts. With this method, the application easily approaches more types of customers. Indeed, in comparison with e-wallets, payment via a mobile account is more convenient because most people use mobile phones, while payment via e-wallets has yet to reach many people living outside urban areas.
To latch onto the local market, major e-wallet companies have accepted tremendous losses driven by huge investment.
MoMo leads the market regarding deficits. Last year, the platform saw a negative after-tax profit of VND854 billion ($37.13 million). As of the end of 2019, its accumulated losses were VND1.86 trillion ($80.87 million).
VNG’s ZaloPay ranked second in experiencing great losses. At the end of 2019 its accumulated deficit was VND572 billion ($24.87 million). This year, losses are forecast to swell to VND625 billion ($27.17 million).