Great potential to promote development of digital banking in Vietnam: Brokerage

Ngoc Thuy 16:16, 2019/09/21

As of end 2018, the inter-bank electronic payment system processed 137.6 million transactions worth VND73,000 trillion (US$3.13 trillion), 13 times the country’s GDP.

Vietnam is a country with low penetration of traditional banking services but rather high development of digital infrastructure. This means that when pushing for penetration of banking in general, Vietnam will have great potential to promote the development of digital banking over medium term, according to Viet Dragon Securities Company (VDSC).

In Vietnam, the banking industry is considered to be one of the leading sectors in the application of advanced technology. New services and applications in this sector are heavily reliant on new technology. In the context of digital economy, digital banking lies at the heart of the service proposition and competitive advantages of banks.

This trend is reinforced by the project to develop non-cash payment for the period of 2016-2020 of the Vietnamese government, which aims to lower the proportion of cash in circulation/M2 to 10% by end of 2020 (currently at 11.5%). Thus, digital banking has been promoted strongly in Vietnam during recent years. Data from the State Bank of Vietnam revealed that as of end 2018, the inter-bank electronic payment system processed 137.6 million transactions worth VND73,000 trillion (US$3.13 trillion), 13 times the country’s GDP.

Internet and mobile usage growth opened up potential for digital banking

Traditional banking penetration in Vietnam is still low compared to other emerging and frontier markets. At the end of June 2018, there were over 72.7 million individual bank accounts, an increase of 5% compared to the end of 2017. The number of bank account holders is close to 43.2 million, accounting for 45% of the population, a modest rate compared to other emerging and frontier countries.

According to World Bank data, the number of ATMs and bank branches per 100 thousand adults in Vietnam are at 24.3 and 3.4, respectively, indicating a lower level of penetration of traditional banking services in comparison with peers.

Meanwhile, Vietnam's digital infrastructure (related to internet and mobile usage) is well developed, with the number of internet and mobile phone users in 2018 reaching 55.2 million and 45.8 million, respectively – accounting for 57% and 45% of the population.

In particular, the penetration rate of smartphones has increased sharply in the past 5 years, even reaching 84% in big cities in 2017. It is forecast that the penetration of the internet and mobile will continue to expand and there will be 60 million internet users and 55.4 million mobile phone users by 2022.

Challenge to promote digital banking services in Vietnam

Most Vietnamese still have the habit of using cash in daily payment. Since the beginning of the government’s cashless payment project, the ratio of cash in circulation/M2 shows little improvement. In addition, according to a FT Confidential research survey on cash payment in ASEAN, in Vietnam, more than 46% respondents use cash exclusively. This is much higher than the Philippines (34%) and the rest (20% or less).

The second issue is financial information security. According to EY Vietnam's data, in 2018, there were 8,319 cyber-attacks in the Vietnamese banking industry, leading to 560,000 computers affected by malware that could steal bank account information. Vietnam ranked 7th globally in the target list of Trojan attacks in 2018.

Last but not least, insufficient legal regulations are also big challenge. In the past few years, the digital payment segment has grown rapidly with technology advances, but domestic legal regulations are lagging behind, making banks reluctant to apply new technologies and services. For example, Vietnam does not have a legal framework for sharing, exploiting and storing data, so banks have not been able to apply cloud computing or blockchain widely in their operations.

However, in August, the government approved the promotion of "sharing economy model" which would allow new policy testing mechanism (sandbox) for the deployment and application of new technologies. This method has been successfully implemented by many countries and is expected to shorten lead time in the new policy research and design.

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