Advancing Digital Banking for Better Competitive Advantages, Sustainable Development

Digital transformation has become an inevitable trend, especially during the recent COVID-19 outbreak helping banks to weather the storm for sustainable development. Digital transformation helps banks and financial institutions improve their operating models, apply modern technology and digitize their processes to exploit data effectively to enhance customer experience and engagement.

Promoting digital transformation

The Governor of the State Bank of Vietnam has approved the Plan on Digital Transformation of the Banking Industry to 2025, with a vision to 2030, in order to comprehensively renovate the management of the State Bank and the operations of credit institutions in a modern direction. According to the plan, by 2025, all of the public services of the State Bank will be eligible to be upgraded to level 4; all public services at level 42 will be integrated on the National Public Service Portal; 90% of working records at the State Bank will be electronically processed and stored (except for those classified as State secrets); at least 50% of financial operations may be performed digitally.

Over 30% of the revenue of at least 60% of credit institutions will come from digital revenues; at least 50% of the disbursement and lending decisions of commercial banks and financial companies for small loans and consumer loans of individual customers will be made in the direction of digitization and automation. The basic target is that by 2030 at least 70% of the inspection and supervision activities of the State Bank will be carried out through the digital environment and its information system and 70% of banking operations of credit institutions will allow customers to perform completely in the digital environment.

On January 13, 2022, the Governor of the State Bank of Vietnam issued Directive 02/CT-NHNN on promoting digital transformation and ensuring information security and safety in banking activities. Accordingly, the units of the State Bank, credit institutions, foreign bank branches, and payment intermediary service providers are required to actively, drastically and effectively implement their tasks, and solutions mentioned in the Plan on Digital Transformation of the Banking Sector to 2025, with orientation to 2030.

In fact, the applications from new digital technologies along with the appearance of new competitors in the market such as Bigtech/Fintech presents banks with opportunities and challenges, requiring them to transform their operating models digitally to optimize operations and increase customer experience.

The COVID-19 pandemic is also considered a factor promoting digital transformation awareness in all fields, which speeds up the banking industry by 3 - 5 years, requiring the banking system to digitally transform to survive and develop. Along with that strong digitization trend, the COVID-19 pandemic has also created a leap in non-cash payment activities.

According to a survey by the State Bank of Vietnam, 95% of banks have been developing and implementing digital transformation strategies with many of them having deployed specialized departments to perform digital transformation tasks, innovative and creative initiatives. Most banks have applied new technical solutions and technologies in operation and service provision. Many banks have also applied AI, ML and Big Data technologies to simplify procedures and reduce the time for disbursement and lending. Some applications of banks that have been adopted by many customers such as VCB Digibank of Vietcombank, Omni-Channel of OCB, iPay of VietinBank, Smart Banking of BIDV, eBank X of TPBank.

Many synchronous solutions needed

Besides the great benefits, digital transformation also brings many challenges. In particular, what banks are most concerned about is safety and security. The increasing trend of high-tech crime with many new and sophisticated tricks occurs more frequently and requires banks to have effective solutions. In addition, legacy systems and challenges of system integration methods are also difficulties to overcome on the way of digitization. Many banks are still using the system that was built decades ago, so it is undeniably a key barrier to the successful digital transformation.

The limitations of infrastructure, related to the construction of synchronous and centralized digital infrastructure, standards of connecting technique, data standards, and shared databases, need to be overcome and constantly updated. In particular, the legal framework - one of the important factors affecting the development of banks in the digital era - is not clear and synchronous.

It can be affirmed that digital transformation in banking has been implemented decisively, synchronously and effectively. However, according to banking experts, it is necessary to quickly complete the legal framework related to the process of performance, operation and development of the digital transformation strategy of the banking industry. The legal corridor must be ensured for an entire ecosystem (State management agencies - banks - customers - relevant third parties). For commercial banks, it is necessary to actively change the business model toward multi-channel integration, and financial technology innovation, in the direction of building a comprehensive ecosystem for banks.

In particular, to accelerate the digital transformation process, it is necessary to have a team of high-quality human resources. According to SBV Deputy Governor Nguyen Kim Anh, human resources are considered the foundation for the sustainable development of banks and financial institutions. Therefore, the banking industry must focus on improving the quality of human resources to be able to adapt to the very high requirements of Industry 4.0. In the coming time, the implementation of solutions to adapt to the changes in the human resource market is very necessary to ensure sustainable development, associated with the development trend of the banking industry in the digital era.

By Quynh Chi, Vietnam Business Forum