This is a sea change for Vietnam, where most financial transactions rely heavily on physical interaction.
“Technology benefits banks by driving process automation, improving productivity, improving customer experience and reducing operational costs,” said Nguyen Quoc Hung, secretary-general of the Vietnam Banks Association (VBA).
“It’s a heated race towards digital banking continues in Vietnam, with banking services finding their way into every corner of life,” he added.
This process has received a boost during the pandemic as people are forced to minimize direct contact with each other. And this is clearly evident in banking and payments, key pillars of the economy that have seen a remarkable revolution in digital offerings and adoption.
With a tech-savvy young population and a relatively high smartphone penetration rate, Vietnam has seen a surge in digital payment volumes, from online marketplaces, bill payment services, retail outlets to small convenience stores and even vegetable and fruit vendors.
“I used to use cash and nothing else for grocery shopping,” Lan, a 30s office worker who lives in Hanoi, told the Vietnam News Agency, “but the pandemic has changed the way I shop.
“Today, I usually have groceries delivered to my home and later transfer the money to the seller via mobile banking. It’s safer and more convenient that way.”
According to a report by SaaS cloud banking platform Mambu, around 85 percent of Vietnamese bank customers are more likely to use online and digital banking services than they were a year and a half ago.
The report shows that nearly 61 percent of consumers worldwide have increased their use of digital banking services, and 41 percent have started using them for the first time due to the pandemic. In Vietnam, these numbers are higher at 70 percent and 54 percent, respectively.
“I can find almost everything I need in my banking app,” Lan adds. “It’s not just for transferring money anymore; Now I can pay bills, top up my phone, book flights and do other things with the app.”
About 95 percent of lenders in Vietnam have embarked on a digital transformation strategy, State Bank of Vietnam (SBV) Deputy Governor Pham Tien Dung noted at a conference on smart banking in November.
To date, almost 80 banks offer internet banking solutions, and mobile banking services are available at 44 banks. The country has 45 intermediary payment processors, over 90,000 QR code payment terminals and nearly 298,000 point-of-sale (POS) terminals, Dung said.
“Digital banking in Vietnam is pretty good,” said Med, a Moroccan-Canadian who has lived in Vietnam for five years.
“You can actually back out with your phone. Just like you don’t need an ATM card, you can just take your phone to the ATM and withdraw money,” he said. “When I got here, there wasn’t that option.”
Over 90 percent of transactions in many banks are currently processed through digital channels, central bank data shows. In the first nine months of 2021, mobile banking payments increased by 76.2 percent in volume and 88.3 percent in value compared to the previous year. For Internet banking payments, the figures were 51.2 percent and 29.1 percent, respectively.
“So we can safely say that the digital transformation in the industry has made great strides at the time of COVID-19,” said SBV Deputy Governor Dung, adding that the key point in this is the formation of a digital payment ecosystem with digital Means of payment are banking solutions integrated into other business services. It allowed users to enjoy seamless experiences in different areas of the digital space, he noted.
partnerships for a cashless society
In this scenario, collaboration between banks and fintech companies is evolving, driven not only by increasing customer adoption but also by regulatory developments.
The number of fintech companies in Vietnam has nearly quadrupled in the last five years, from just under 40 in 2016 to over 150 in 2021, according to the SBV. The country’s fintech landscape is currently dominated by payments companies, which make up 24 percent of the total population account, followed by peer-to-peer lending (16 percent) and blockchain, crypto and remittance (14 percent).
According to the Fintech in ASEAN 2021 report, US$375 million in funding flowed into Vietnamese fintech startups this year, which are the third largest in Southeast Asia after Singapore and Indonesia.
According to a 2018 SBV analysis, up to 72 percent of fintech companies in Vietnam have chosen to work with banks rather than compete directly.
“Fintechs and banks are working together in a way that is sure to benefit both parties and society,” said Pham Quang Dung, chairman of Vietcombank.
VNPay, one of Vietnam’s tech unicorns and largest provider of digital payment solutions, is among the most successful stories of a fintech company that partners with banks to leverage their vast customer base.
Its VNPay-QR, an interoperable cashless payment network, serves approximately 22 million users and over 150,000 merchants nationwide. Although VNPay has its own mobile platform, most VNPay transactions are processed through the QR function built into the mobile apps of the 40 partner banks.
“Bank-fintech collaborations are an inevitable trend,” stressed Vietcombank’s Dung, adding that many Vietnamese banks are also actively looking for suitable partnerships with fintechs.
Welcoming the development, PLA Secretary-General Hung said Vietnamese lenders should work with fintech companies to develop a common ecosystem so they can leverage each other’s strengths to improve customer experiences.
CIMB Vietnam, a subsidiary of CIMB Group, an ASEAN banking company, launched its digital banking offerings back in 2018. It embraced the partnership strategy early on, partnering with several fintechs including Korean Unicorn Toss, EzQ -Own social commerce platform ON and e-wallet SmartPay to provide users with value-added services.
In October, CIMB Bank and fintech startup Finhay launched a co-branded debit card, Vietnam’s first-ever 3-in-1 bank account powered by eKYC (electronic Know-Your-Customer), a digital customer identification solution and -remote verification.
The Vietnamese government has encouraged the adoption of advanced technologies by enacting a series of regulations to guide the banking and financial services sectors.
In March 2017, the SBV established the Financial Technology Steering Committee, a body dedicated to building an enabling regulatory framework for the development of the fintech ecosystem and creating opportunities for local fintech companies.
Deputy Prime Minister Le Minh Khai has approved a five-year project (2021-25) to develop cashless payments. The project aims to accelerate the growth of cashless payments with improved security and confidentiality while making it more accessible to city dwellers as well as those in rural, remote and mountainous areas.
Project goals include: the value of non-cash payments will be 25 times higher than GDP; and the share of payment methods in e-commerce will be 50 percent by 2025. In addition, 80 percent of 15-year-olds will have a bank account, while the number of cashless payment points will increase to over 450,000.
That’s what Deputy Prime Minister Khai said at a recent conference digital transformationtowards a cashless society is an inevitable and growing trend in the age of the Fourth Industrial Revolution. Citing the adage “kill two birds with one stone,” he said a cashless society will not only help Vietnam boost economic recovery but also achieve the goal of financial inclusion.
What’s next?
The digital transformation in the banking system still faces some obstacles, said VietinBank Deputy General Manager Tran Cong Quynh Lan. One is a lack of consistency in the legal mechanisms supporting this process. Lan mentioned opening a bank account remotely as an example, saying that eKYC can be used for customer verification, but users still need to visit physical branches in person to grant a digital signature.
This means the process will not be done entirely digitally, he said. “If a digital signature cannot be issued online, the following steps will be interrupted.”
To successfully go digital, Vietnamese banks must not only develop their own digital ecosystem, but also work together to build one for the entire industry, said Pham Anh Tuan, board member of Vietcombank and director of banking and technology modernization.
“It is very important because a common ecosystem will allow banks to share data and information; especially when it is linked to ministries, agencies and other sectors, risks can be reduced.”
In addition, the current legal environment is not keeping up with the pace of digital transformation in banking and is hampering the development of new financial services, PLA Secretary-General Hung said, calling for a major overhaul of the regulatory framework.
In the face of such issues, the government is pushing for a regulatory sandbox for fintech in the banking industry, allowing lending institutions, fintech solution providers and other innovators to directly test products and services in a tightly controlled environment overseen by relevant government agencies .
Regulators should develop the sandbox based on the following principles – encouraging innovation, improving financial accessibility, protecting borrowers’ and investors’ rights, limiting risks to acceptable levels and promoting financial literacy, suggested Pham Xuan Hoe, former deputy director of the Banking Strategy Institute.
The central bank is also building a regulatory framework for the application of fintech enablers or key Industry 4.0 technologies such as eKYC, Open API, Big Data, Artificial Intelligence, Blockchain and Cloud Computing./.
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