Catalyst for Digital Banking and Electronic Payment to Develop

9:52:24 AM | 1/6/2020

From a positive perspective, the impact of the Covid-19 pandemic is accelerating the race of banks and fintech companies to digitalize services and electronic payment.

Legal obstacles

Dr. Vu Tien Loc, President of the Vietnam Chamber of Commerce and Industry (VCCI), said, there will be a lot to be done to restructure the post-pandemic economy and one of very important things is to digitize the economy, digitize enterprises and promote e-commerce. Digitalization and internationalization are becoming important requirements to foster business development. Digitization and internationalization ensure more efficient, more sustainable economic and business development.

Among Southeast Asian economies, Vietnam has advantages to develop the digital economy. Vietnam has a relatively strong digital infrastructure relative to other economies in the region. It can transform the digital economy into digital space and promote business digitization.

Statistics show that Vietnam currently has 70 credit institutions, excluding payment intermediaries such as e-wallets that have provided payment services via the internet and payment services through mobile phones. The value of financial transactions over the internet has reached over VND7,000 trillion (over US$300 billion) and via mobile phone, VND300 trillion (US$13 billion). These numbers are very meaningful, although they are small compared to the size of the economy.

Digital banks and e-wallets have many differences and have competitive advantages over traditional banking models. All customer communication channels are carried out online via mobile devices with a rich, intuitive and cohesive interface, thus enhancing customer engagement.

Although Vietnam has made certain progress in building a legal corridor for digital payment services, there are still legal obstacles and paper procedures in the current document system, making it impossible for digital payment to expand quickly and easily to customers who are keen on payment convenience. Typical issues include lack of conformity of current regulations on electronic documents and specific properties of electronic documents resulting from digital transactions; a narrow regulatory system for digital signature authentication, and unguaranteed user data privacy protection. Especially, while traditional financial institutions are bound to many legal constraints, legal regulations for Fintech companies in Vietnam are still incomplete to ensure system security.

“Compared to the hard infrastructure of the digital economy, digital technology has risen above the soft infrastructure, the legal system and the institutional system relating to the digital economy. There is a gap between the digital technology foundation and the digital economy driven platform. Therefore, these two platforms (hard and soft) for the digital economy must be implemented at the same time with boosting the digital economy and promoting digital banking and electronic payment systems in Vietnam's economy,” Dr. Loc said.

A boost to change consumer habits

Mr. Pham Tien Dung, Director of Payment Department, the State Bank of Vietnam (SBV), said, it takes a few years to issue a decree while technology keeps evolving, while new technologies can appear after only 2-3 months. Therefore, it is necessary to change and allow innovative models for things that do not have a legal basis (for example, mobile money in the past).

He said that the current growth rate of mobile banking is 200%, showing that Vietnam is growing very well. Statistics show that about 30 million people use the banking payment system every day.

However, the highest barrier is the user's habit, and, according to Mr. Dung, there is still a need for a strong catalyst to change the habit. To do so, better service quality, simple installation and easy use of mobile banking services are needed to change user habits.

To boost the digital economy, there are two points that banks need to pay attention to: How to bring ordinary users to become banks’ customers in a quickest manner; and more importantly how to satisfy customers with banking products and services. Banks need to build an intelligent ecosystem to, for example, connect with customers as power companies are doing.

Besides, the cooperation between banks and Fintech companies is a must in digital banking and digital payment. Currently, 81% of credit institutions choose a bank-Fintech cooperation model for mutual development.

Basically, Vietnam has a legal framework for digital payment and the matter of concern is developing new models. Therefore, in the coming time, the SBV will issue an action program for the banking industry to execute Government Resolution 50/NQ-CP while building a legal framework for digital banking and digital payment, he said.

The SBV is expected to submit to the Government for promulgation of a decree replacing Decree 101/2012/ND-CP on non-cash payment in June, Mr. Dung added. Accordingly, Vietnam will first have the concept of electronic money and agent banks. This is the basis for banks to develop comprehensive digital banking. While traditional banks need a week to process credit records for businesses, digital banks can disburse loans for businesses after only two hours by digitizing all data using credit authentication technology.

Besides, Vietnam needs to perfect the digital infrastructure system, with a focus placed on building and completing the technology infrastructure of the banking industry; strengthening infrastructure integration and connection and applications of the banking industry with other industries and service sectors to expand the digital ecosystem.

In addition, digital transformation and digital banking development must be aligned with inclusive financial development, digital banking development, bank - Fintech cooperation and information technology application within the framework of the national strategy for inclusive finance, while offering secure and convenient banking services at reasonable prices for people without bank accounts, especially those in remote areas, and improving financial knowledge and skills.

Dr. Nguyen Tri Hieu, expert in finance and banking

In the global digital banking development trend, it is said that Vietnam is slow and it needs to move faster. In my opinion, it is slow but firm. We should not be impatient. Vietnam's technology infrastructure is weak, while scams and frauds are still rampant. We should not be in a hurry.

As many as 40% of Vietnamese people do not have a bank account. To invite them to use the national payment system, they should be stimulated to use e-wallets. For e-wallets, there is no guarantee for users because their money can be used for investment purposes when there are now overnight investment and intraday investment. This can also be a risk to users. Therefore, if Vietnam can control this with strict sanctions and advanced technology, it will develop strong e-wallets.

For mobile money, the risk comes from telecom operators, not banks. So, money laundering may occur. Besides, the money creation function will be allowed by network operators, which is a risk to the monetary system.

Mr. Dang Van Thanh, Chairman of the Vietnam Association of Accountants and Auditors

If digital technology, computer software and accounting is introduced soon, it will quickly accelerate this trend.

The Ministry of Finance has started to apply a wide range of electronic records and digital signatures - The first step to apply digital technology.

On the bank side, the digital revolution has now enabled cashless transaction development. This trend in Vietnam is slow but firm.

In addition to money and credit business, banks circulate money flows in the economy. This is also a very important issue.

There are four things we need to do right away: Quickly improve the legal framework for non-cash payment; identify organizations and individuals authorized to provide intermediary payment services; create technical infrastructure systems; and ensure information security for users.

Mr. Nguyen Xuan Hoang, Vice Chairman of MISA Joint Stock Company

We provide support services for businesses to use banking services through our accounting applications. This system is time-saving, cost-effective and accurate. Banks will no longer need receptionists but they can still attract corporate customers to use their services.

In addition, MISA has built a secure connection system to make sure that all transactions are absolutely secure. MISA is also building a software system to assess the credit support index for enterprises to borrow money from banks, including debt payment data. This is a helpful intermediary vehicle for banks to assess the health of borrowing businesses and get customer information quickly.

We suggest early introduction of a decree in place of Decree 101/2012/ND-CP on non-cash payment. If this decree is issued soon, it will be favorable for many payment intermediaries.

As for the provision of credit information, it is necessary to soon build a corridor for credit information, establish credit intelligence service providers and ease requirements to support enterprises to access loans.

Mr. Huynh Ngoc Huy, Chairman of Lien Viet Post Bank:

The government needs to quickly build a national database, especially a personal identifier for the sustainable development of digital banking and electronic payment.

When building a digital bank, it is important to have cryptocurrencies and a national resident database because we cannot verify personal identity if we can't connect to the national population database. Therefore, the Government should immediately deploy this because this is the root of the matter.

Habits can be changed. If businesses provide good services, people will use their services. Regulatory sanctions may be also changed over time.

By Anh Mai, Vietnam Business Forum