Accelerating Digital Transformation in Banking Operations

The finance - banking sector is taking the lead in applying digital technology with innovations and breakthroughs in delivery of convenient and optimal services. Especially, in the context of a complicated COVID-19 pandemic development, digital transformation is considered a new engine of growth, a key to turn risks into opportunities. Vietnam Business Forum has an interview with Mr. Nguyen Kim Anh, Deputy Governor of the State Bank of Vietnam (SBV), on this issue. Quynh Ngoc reports.

The National Digital Transformation Program to 2025, with a vision to 2030, was approved by the Prime Minister in June 2020. How has the banking sector responded to this program?

Knowing that digital transformation has been, and will be, producing a very strong impact on the Vietnamese banking industry, the State Bank of Vietnam has actively studied and issued many timely and appropriate policies and regulations to facilitate innovations and speed up digital transformation in the banking industry. As early as 2017, the SBV established the Steering Committee on Fintech to manage and foster banking - Fintech cooperation and innovations in the banking and finance sectors such as peer-to-peer lending (P2P lending), blockchain technology, electronic know your customer (eKYC) and Open API data sharing. In 2019, the SBV added functions, tasks and responsibilities to the committee to advise on digital banking operations management. Besides, banking development strategies, cashless payment development projects and action plans to carry out Directive 01/CT-TTg on development of Vietnamese digital enterprises were advised by the SBV before being submitted to the Government for promulgation or enactment. In particular, the SBV has focused on breakthrough solutions, fostered payment operations development, facilitated digital transformation of the banking industry like adding legal regulations on payment intermediaries and electronic money, adding payment agents, speeding up digital application in designing and distributing banking products and services; and issued payment standards through QR codes and domestic chip card standards.

In response to Party and Government policies, especially the National Digital Transformation Program (Decision 749/QD-TTg dated June 3, 2020 of the Prime Minister) and the Banking Development Strategy to 2025, with a vision to 2030, the SBV has continuously studied and completed the legal corridor for pacing up digital transformation of the banking sector such as Decision 1238/QD-NHNN dated July 8, 2020 on the Action Plan for implementation of the Government's Resolution 50/NQ-CP; Circular 16/2020/TT-NHNN dated December 4, 2020 allowing banks to open payment accounts using eKEY; Decision 260/QD-NHNN dated March 4, 2021 on the Information Technology Application, Digital Government Development and Cyber information Security Plan for SBV operations in 2021-2025. In particular, the SBV is actively researching and building a plan to transform the banking sector to 2025, with a vision to 2030, expected to be issued in the second quarter of 2021. The plan aims to comprehensively modernize SBV administration by effectively applying and utilizing Industry 4.0 achievements, fully meet digital transformation criteria and indicators adopted by the Government; develop digital banking models, enrich utilities and customer experiences and realize inclusive and sustainable financial goals on the basis of applying new advanced technologies in governance and delivering products and services for process automation and operational optimization.

What do you think about banking digital transformation so far?

With the above-mentioned approaches and actions, payment and digital transformation in the Vietnamese banking industry has produced remarkable results as follows:

Establishing a legal corridor for digital transformation and digital banking: At first reviewing, amending, supplementing and promulgating new regulations on payment and digital transformation facilitation like regulations on non-cash payment, intermediary payment operations, eKYC, QR code payment and chipcard standards for domestic payment cards.

Smoothly operating payment and credit information infrastructure. The automated clearing house (ACH) system processes 5-7 million interbank payment transactions per day. In 2020, the volume and value of domestic clearing and switching transactions in the whole system increased by 78% and 128% over 2019, respectively.

Developing many safe and convenient digital payment products and services: According to survey results in September 2020 released by the SBV, 95% of banks developed or planned to develop a digital transformation strategy. In particular, a majority (88%) of banks chose end-to-end digitization for both front-end and back-end. Most banks have applied cutting-edge tech solutions such as cloud computing, data analysis, big data, robotic process automation (RPA), artificial intelligence (AI)/machine learning, blockchain, and electronic know your customer (eKYC) in professional operations and delivery of products and services for better performance and increased customer experiences. Some banking services (like payment and savings deposits) are almost wholly digitized, enabling customers to perform all stages of payment service (like opening accounts, transferring money, paying bills, depositing and withdrawing money from current accounts). Many banks have applied artificial intelligence (AI), machine learning (ML) and big data technologies to rate and categorize customers and make disbursement decisions, thus helping simplify procedures and reduce disbursement and borrowing time from many days down to a day. As a result, the volume and value of digital banking transactions of many Vietnamese banks have recorded remarkable growth.

The evolution of the COVID-19 pandemic has placed greater pressure and perhaps a mandatory requirement for digital transformation in banks. How has the SBV surmounted challenges to speed up this process?

The COVID-19 pandemic has helped accelerate digital transformation in Vietnam 1-2 years sooner as both customers and bank staffs are forced to use digital technology to access and use banking services or provide services for customers. COVID-19 has helped credit institutions to realize that digital transformation is an indispensable option for them to adapt and overcome challenges of the digital age and uncertainties such as the ongoing pandemic.

As the COVID-19 pandemic has affected people, businesses and credit institutions, especially disrupted traditional transaction methods in a physical environment such as branches and transaction offices, the State Bank of Vietnam has:

Urgently studied, compiled and promulgated Circular 16/2020/TT-NHNN dated December 4, 2020, amending and supplementing a number of articles of Circular 23/2014/TT-NHNN dated August 19/2014 on guidance for opening and use of current accounts at payment service providers, thereby enabling banks to open payment accounts using eKYC. According to this regulation, banks are allowed to apply solutions and technologies to collect, check, compare and ensure the right match of customer identification information without any physical contact. The enactment of this ruling permits banks to open eKYC accounts, helps individual customers increase their experience of using banking services, saving time and effort as the eKYC implementation is made automated and online. Particularly, amid the complicated development of COVID-19 pandemic, opening an account with eKYC will help limit physical contact and transactions, reduce exposure to infections as easier online account opening is accepted and payments are made electronically.

Promulgated Circular 04/2020/TT-NHNN dated March 31, 2020 and Circular 19/2020/TT-NHNN dated December 30, 2020 (amending and supplementing regulations on payment service fees via the SBV). The SBV has instructed credit institutions to exempt and reduce fees for public service payments and money transfer transactions during and after the COVID-19 pandemic, aiming to assist people and businesses to overcome hardships caused by this plague. This measure has encouraged people and businesses to use more electronic payments and accelerated digital transformation by creating consumer habits and behaviors and using appropriate services.

Despite the satisfactory results before and even during the COVID-19 pandemic, there were still challenges in digital transformation in the banking sector that require appropriate solutions as follows:

The legislation of regulations in the banking sector to match actual developments and digital trends in banking operations gradually establishes a solid legal foundation for the formation and development of digital banking services.

Challenges emerge from synchronizing and standardizing technical infrastructures to facilitate seamless interconnection and integration with entities in the digital ecosystem.

Concerned agencies must coordinate and synchronize relevant regulations. In the near term, it is essential to focus on building a mechanism with respect to connection and sharing of national database on population managed and operated by the Ministry of Public Security, allowing credit institutions to deploy eKYC in a fast, secure, accurate and cost effective manner; coordinate with the Ministry of Information and Communications to amend, supplement existing regulations or issue new ones on electronic contracts, electronic signatures/digital signatures, electronic customer identification and authentication to create a consistent regulatory corridor for safe and secure banking transactions on digital platforms.

Other challenges include changing consumer perceptions, habits and behaviors; ensuring security, safety and confidentiality of customer data; mobilizing and allocating sufficient resources for digital transformation, as well as promoting mobile payment, expanding access and provision of digital payment and digital banking products and services for people in rural and remote areas.

What directions, policies and solutions has the SBV adopted to support accelerating digital transformation in the banking industry?

To speed up inclusive digital transformation in the banking sector, right in the second quarter of 2021, the State Bank will launch the Digital Transformation Plan for the banking sector to 2025, with a vision to 2030, with a focus placed on the following main tasks and solutions:

First, fostering communication, strengthening digital transformation in the banking industry.

Second, further building/coordinating to complete a legal corridor to facilitate the development of digital banking products and services, with the short-term focus placed on: (i) Studying to complete the legal system (from laws and decrees to guiding circulars); (ii) making a decree in place of the Government's Decree 101/2012/ND-CP on non-cash payments to facilitate the development of digital payments; (iii) submitting to the Prime Minister for consideration and promulgation a decree on Fintech management in the banking sector (Regulatory Fintech Sandbox); (iv) reviewing, amending and supplementing standards and regulations to strengthen, standardize interoperability and facilitate digital transformation.

Third, developing digital infrastructure; upgrading and completing important payment systems, connecting infrastructure and data for digital transformation goals at the SBV and banks like expanding, upgrading and building technology infrastructure for provision of digital products by upgrading and completing the electronic interbank payment system, the 24/7 automated clearing house (ACH) system with real-time payment processing; seamlessly connecting with other systems and platforms.

Fourth, effectively building and operating e-government at the State Bank of Vietnam; developing e-government toward a total digital government in terms of management, supervision, direction and administration of the State Bank by building and upgrading information technology systems, providing public services in a simple, convenient manner.

Fifth, establishing and developing digital banking service models at credit institutions; strongly applying Industry 4.0 to banking operations; developing digital banking services where digital payment is a gateway to seamlessly connect with other banking services such as mobilization, lending, investment and insurance.

Sixth, developing and effectively using digital data such as upgrading centralized database, effectively mining data sources.

Seventh, strengthening security and confidentiality in provision of banking services: upgrading the information security system, enhancing the protective response to the network system to quickly handle any security risks.

Eighth, focusing on human resources, seeing quality human resources as the decisive factor for banks to succeed in digital transformation.

Ninth, implementing solutions to support digital transformation in the banking industry such as international cooperation, promoting scientific research, applying digital technology to banking operations.

We are living in the digital age, so I think all banks need to prepare well for digital banking. Digitalization is crucial to banks in a highly competitive society today.  However, the investment in digital transformation varies from bank to bank, based on their existing foundation and desired effects. Then, banks are only determined to focus on the digital platform. For example, some banks will invest heavily because they want to grasp a top position in the digital banking market, but others will seek to cooperate with digital technology partners to work out an appropriate investment level. At ACB, a reasonable part of our profit will go to banking technology investment and strategy-based business operations. We will implement digital banking, not only limited to payment and deposit products, but also expanded to credit products. We will also scale up digital transformation in our branches, transaction offices, operators and headquarters. Currently, ACB has six digital banking channels through smartphone applications, websites and integrated partner systems using Open APIs to meet the demand of all customers, including individuals, business households and enterprises of all sizes. New technologies such as eKYC and big data analytics have been deployed in recent times. In the long term, we plan to upgrade core-banking, rebuild and completely refresh applications and websites, and scale up digital banking service providers in order to enhance user experiences and achieve new business goals. Mr. Do Minh Toan, ACB General Director

Source: Vietnam Business Forum