Race for Banking Digitalisation

With a population of over 90 million, of which 69 per cent are young people at working age, Vietnam is seeing its income per capita on the rise. Retail banking retail of domestic lenders is not very developed because they traditionally focus on wholesaling. Retail banking has been developed for just five years or so. Therefore, there are a lot of opportunities for banks to deploy retail products and services.

 

The popularity of cash in commercial payment is a major difficulty to banks in developing retail products. According to the World Bank (WB), although Vietnam has a young and large population, only 31 per cent of Vietnamese people have bank accounts, equal to a half of the world rate. This proved that banking retail in Vietnam is fledging.

 

In addition to huge untapped potential in the retail banking sector, global integration pressures also force banks to develop this business. According to the agreed roadmap and commitments in the ASEAN Economic Community (AEC), all barriers and differences in the banking sector among AEC countries will be eliminated by 2020, thus forming an AEC banking system that operates on par with local banks in member countries. Then, retail banking competition will become increasingly fiercer.

Investing in technologies is the only way to develop retail banking. Domestic commercial banks have to invest a lot on technology and information security. In the current tough competition environment, banks with best services and utilities for customers will gain advantage.

 

In Vietnam, electronic banking was launched by commercial banks five years ago. For the time being, most of banks have internet banking and mobile banking applications but utilities are not many because most customers see them as alternative channels to transfer money and pay bills for utility services like electricity, water and internet. Some banks have integrated some new features into their internet and mobile banking applications but they are overall quite simple. Currently, many have started to provide online payment services, from electricity, water, telephone, internet, air ticket to cable TV service. Some lenders even upload their applications to all three popular mobile operating systems, namely iOS, Android and Windows Phone.

 

Ernst & Young (EY), a global financial services provider, announced a report on electronic banking surveys, saying that Vietnamese banks should consider developing other products and services rather than only internet banking and mobile banking. Mr Liew Nam Soon, Deputy General Manager of Financial Banking Services in ASEAN and EY Singapore, said internet or mobile banking is just the first step for a digital banking. He said banks can use digital technology to integrate their products and services into others like mutual funds and insurance companies.

 

Indeed, banks will still have to rely primarily on their branches and transaction offices to distribute their products and services by 2020.

 

What hinders banks from investing in and applying modern technologies to catch up the world? Small operating scale, limited capital base and insufficient personnel are hard-to-overcome hindrances. Reforming systems, addressing weaknesses and conducting mergers and acquisitions have made many banks bigger and healthier. When the AEC starts to operate, Vietnamese banks will have to digitalise its products and services to better compete with biggest financial institutions in the region. For that reason, investing in technology is more urgent than ever.

 

In addition to ATM and POS, digital services via mobile phones, internet and social networks will develop. The steps that some banks take are to apply digital technologies based on current business models and leverage their levels in the future; and develop new solutions to add values for customers by digital technologies. As Vietnam advances its deeper integration process of Vietnam into international markets and many banks in the region arrive in Vietnam with modern industry-enabled products, Vietnamese banks have to make strong investments to fill the gap between banks and customers. These steps must go together technology risk management and information security because technologies may help reduce costs but operational risks may increase. Meanwhile, risk management is a weakness for many banks.

 

At the Vietnam Retail Banking Forum 2015 held in mid-November, many raised concerns over customer information security when digital banking is applied. Dr Can Van Luc, Senior Advisor to BIDV President, said electronic banking services are essential and rapidly developing. The world average rate will be 35-36 per cent and the rate in Vietnam is 25-30 per cent in at least five years. Bank attacks will increase significantly, estimated at 30-40 per cent. Therefore, banks should have adequate defence system for data centres and other facilities.