Vina Payment Network Joint Stock Company Paynet (    www.paynet.vn    ) is a Vietnamese joint stock company set up in November 2006. The company vision is to become the leading payment network services provider in Vietnam with innovative/ non-traditional payment solutions.    With approximately 36 million mobile phone subscribers and roughly 6 million bank accounts, Paynet sees the 30 million gap as a clear immediate target market segment and the whole population of 80 million people in Vietnam as a long term future for alternative payment solution services, mainly via mobile phone, the main product Paynet is offering.     Paynets business comprises of 5 key lines:     - Prepaid payment processing, mainly mobile phone airtime top-up and e-voucher/ e-code for other services/products such as game online, cinema etc. Paynet has connected with all the 6 operating telcos in Vietnam.   - Postpaid bill payment processing for utilities services providers such as ADSL, electricity, water, insurance etc. Payment can be made via internet, mobile phone, ATM, POS. Paynet has set up alliance with An Binh Bank, who has Electricity of Vietnam as shareholder and as such has potential access to the mass untapped electricity payment market (electricity payments are currently by cash collection at large).   - Online Payment gateway & E-commerce    - Outsourcing and hosting: including EFT switches hosting, card personalization for banks   - Other software solutions.    Proposed Investment:    The proposed investment involves Paynets share purchase in an amount up to US $ 1 million in Paynet and not more than 15% of Paynets equity. Paynets existing shareholders have paid in US$ 2.1 million and plan to double the capital by end 2008 by issuing new shares to strategic partners, including IFC and VN Post, for up to 25% of its equity. The price is to be discussed and decided after the due diligence, the investment amount of US $ 1 million for up to 15% equity stake implies a purchase price of Paynets new issued shares at 2.0 to 2.5 times of par value.     The shareholding structure of Paynet if with VN Post and IFC investments, post money, would look like:    Paynet existing shareholders: 70  75%   VN Post			: 10  15%   IFC				: 10  15%    Paynet plans an aggressive capital increase plan in order to meet the investment needed for the supernormal growth period from 2007 to 2011. Accordingly, if IFC commits to this equity investment of $1 million, we are expected to have option to make further equity investment via right issue of up to another $2 million, before the companys planned IPO by end 2010.    Capital increase plan (in US$ thousands)                2007 2008(P)     2010(P) 2011(P)                                                                       2,132      4,263    8,527    17,647       The investments will be complemented by comprehensive advisory packages which will comprise of:    Policy advocacy: continued enabling legal framework alternative/ electronic payment is key in ensuring successful operation of Paynet.     Implementation support: Paynet has passed the initial set up period and may need less implementation support in terms of set up than to the PCB. But it would need professional business/ financial advice to prepare the company for its plan IPO/listing in local stock exchange by 2010 as its shareholders currently plan.    Fit with World Bank Group Strategy and IFC Role:    The project fits well with World Bank Group and IFCs strategy of developing financial infrastructure to enable better access to finance. Financial infrastructure is high impact, as it touches at least every 5   th    person in emerging markets, with potential to help many more. Since 2001, IFC has supported credit bureau development in over 45 countries and monitored development of credit reporting in 178 countries via Doing Business. The World Bank is the leading institution worldwide in reforming payment, remittance and securities settlement systems. Over the past 12 years, the WB has supported reforms of National Payment Systems in over 100 countries and is actively involved in the implementation of the General Principles for International Remittance Services to reduce the cost of these services.    Particularly in Vietnam, the Project fits well with World Bank Groups strategy in Vietnam to support strengthening central bank function while promoting private sector initiatives to participate in small/micro retail payment systems development and operation. The World Bank has been actively supporting the development of inter-bank large volume payment system and has suggested IFC to consider supporting the development of retail/ micro payment system. IFC Advisory is supporting the State Bank of Vietnam to develop a national automated clearing system for retail payments, initially funding a feasibility study. The proposed investment and advisory services in Paynet fits well with both World Bank and IFCs strategy.     Additionality & IFC Role:    Retail payment processing (including mobile phone banking) is a highly dynamic industry that has undergone drastic technological and business model changes over the past 5-6 years. Change continues to come from many fronts, such as banks and microfinance companies, telecom operators and other types of dynamic and independent entrants.     In Vietnam, the sector is just emerging and currently, there is no dominant player.  Some of the private sector players are keen to acquire the international expertise and knowledge that IFC brings in this sector.  IFCs global presence and knowledge, its understanding of winning business models and technological trends, combined with the mandate of promoting private sector development through increasing access to financial services makes it uniquely qualified to help spearhead this emerging industry.  IFC has invested in a mobile bank operator in Africa (Wizzit), a payment processor in the Gulf (Eastnets), and is exploring a regional partnership in this field with ANZ (Wing).    IFC Advisory Services is evaluating a payment sector advisory program, under which technical support for Paynet would be provided primarily in two areas:    Policy advocacy: where IFC will continue to support the enabling legal framework. Currently the State Bank of Vietnam (SBV) is working on regulations for all third party non bank payment operators/companies.  IFC-MPDF is currently supporting the SBV with a feasibility study for an automatic clearing house for commercial payments; and    Implementation support: Paynet is in the initial set up period and needs implementation support in the areas of strategy, network and products development.  IFCs Advisory Services is looking to provide support in term of developing a cohesive strategy to support the companys ambitious growth plan, especially expansion into other market segments such as postpaid utilities payments (electricity, water, ADSL etc.), e-commerce payment gateway for suppliers, and ATM & POS networks outsourcing and maintenance for commercial banks.  In terms of network support, while Paynet has achieved substantial results in expanding its retail network (currently, 2,000 points of presence), it is going to further expand aggressively further, most notably the planned integration with the VN Post network (of more than 15,000 points) by end 2008/ early 2009.  Advisory Services would look into providing Paynet with support to ensure such milestone integration would be successful. In terms of products, Paynet is in the process of piloting many new products such as NetCash (e-wallet), mPay (payment via Mobile phone), domestic remittance etc. These products need specialist knowledge and Paynet could benefit greatly from IFC''s advisory support.    IFCs investment and advisory services package to Paynet will help the company access global knowledge and expertise and thereby, rapidly increase capacity in order to serve the growing market demand for electronic payment products in Vietnam.  The demonstration of a successful model of emerging alternative payment platforms in Vietnam is expected to provide a tremendous boost and thereby, to provide the necessary attention to lift the alternative payment platform sector.     Project Strengths, Risks and Issues:    Strengths   Strong and committed sponsor/ management team  :   Paynets shareholders and management team are experienced and reputable businessman/ professionals, who have been very committed to Paynets business.     Business model  :   our initial assessment (thru advisory services where an international CEO of a mobile phone company in Africa came in and did a quick market diagnostic) realizes that Paynets business model has high chance of success. Its open-loop (vs. close loop) technology infrastructure allows connection with multiple telcos and financial institutions, making the economies of scale and accordingly high profitability possible.     Relatively high upside potential    Paynet is a small technology driven company, which requires relatively small initial paid in capital and with fast growing market demand, it offers relatively high upside potential.     Market growth:       Vietnam untapped retail and micro payment market is huge and offers Paynet a large potential business for years to come.     Risks   Financial reporting and transparency  :   Set up as a small company with very lean structure, Paynet has not yet paid attention to proper financial reporting and transparency. The companys account is un-audited. However, if we consider investment, we can demand international audit as precondition.     Increasing competition:    t  his lucrative business attracts increasing competition, although Paynet was the first company and has the advantage of first mover, overtime competition will impact the companys profitability. Most dangerous competition will come from telcos who possess network and clients. Paynets upcoming alliance with VN Post is seen as a risk mitigant but only to some extent.     Growth management:   if the company grows as expected, it must successfully increase and implement additional resources to support its operation. The companys success will be dependent on its ability to continue to increase its revenue by signing up more customers to use its services to achieve economies of scale needed to make the project commercially viable long term.    Macro and regulatory environment:   electronic payment regulatory framework in Vietnam is still in early stage of development and is evolving fast, adverse changes would affect the companys business. The current economic downturn in Vietnam, if prolonged, would also affect the companys     Technology & Intellectual Property:   t  he industry in which the company operates is subject to rapid and substantial technology changes. The introduction of new technologies, new industry standards or practice could render the companys products and services obsolete and unmarketable. Investing in and keeping abreast of technological developments may require exceptionally high levels of investment which the company may not be able to commit if relying on only existing sponsors. The proposed project is expected to provide needed support for private sector in developing alternative payment systems/ platforms for retail/ micro payments in Vietnam which is expected to bring about huge developmental impact via reducing cash transactions and float in the system and making basic financial services available to the large currently un-banked population.