Introduction
Advantages of digital banking
Achievements
Challenges
Solutions
"Digital banking" is a model that operates on the basis of technological processes to provide services to customers through digital devices without the providers' physical branches.
Digital banking (also known as "virtual banking") is often confused with online banking (which includes internet banking, SMS banking and mobile banking services), since all banks involve digitalisation. Digital banking is mainly used as an umbrella term to outline all forms of financial transaction that take place with the use of technology.
In Vietnam, although the development of digital banking was initially quite fast and it has been accepted and implemented by many commercial banks, neither a definition nor licences for digital banking have been set out in any legal legislation.
The group of customers on which digital banks tend to focus is the dynamic young workforce, which is willing to accept new experiences and modern technological changes. Another group of customers that has a lot of potential for development is people who live in remote areas. Due to the geographical nature and rugged terrain of such areas, it can be difficult for people to get to bank branches to make transactions. Providing digital banking services helps these people save time and travel costs and avoid risks and dangers associated with bringing money to the centre of a district or province to make payments.
These factors led to the January 2020 publication of Decision 149/QD-TTg, which concerns the introduction of a national financial inclusion strategy by 2025 and the implementation thereof by 2030.
There are numerous advantages of digital banking, including:
- access to bank accounts 24 hours a day;
- increased convenience;
- lower fees; and
- higher interest rates.
Developing digital banks also promotes compliance in the legal sphere. It would make marked progress in the use of non-cash payments and encourage the use of e-payments in the national economy, pursuant to Decision 2545/QD-TTg (2016), which approved a scheme on the development of non-cash payments in Vietnam between 2016 and 2020.
Digital banking also:
- supports and adapts to the new development trends of the sharing economy, pursuant to Decision 999/QD-TTg (2019) on the development of the sharing economy; and
- contributes to promoting digital technology applications that suit the needs and payment capacities of all nations.
The goal for the digital economy to account for approximately 30% of the gross domestic product by 2030 – in accordance with Decision 2289/QD-TTg (December 2020) on adopting a national strategy relating to the fourth industrial revolution by 2030 – is also getting closer to achievement.
Further, digital banking is relevant in the context of the covid-19 pandemic, which has seen a drastic decline in cash usage due to the risk of contamination. Research in microbiology has shown that pathogenic agents – including viruses, bacteria, fungi and parasites – can survive on banknotes and cash for 16-17 hours. Therefore, to avoid the risk of covid-19, it is much safer to make online transactions.
According to the State Bank of Vietnam (SBV), as of December 2020:
- the number of transactions made via internet channels reached 297.4 million;
- the number of payments made via mobile phone channels reached 696.3 million, totalling nearly D7.8 trillion ($339.13 million);
- the number of payments via points of sale exceeded 232 million, totalling D395.86 trillion ($17.21 million); and
- the number of payments via automated teller machines (ATMs) reached 660 million.
This shows that Vietnamese banks are entering the digital transformation period with the rapid development of digital services. So far, several banks have started to deploy digital banking services, for example:
- TPBank has deployed LiveBank to help customers scan fingerprints, use facial recognition and establish electronic know-your-customer (eKYC) identification to register and log in to their accounts;
- VPBank has launched Yolo digital bank after the Timo model; and
- OCB has launched the digital bank OCB OMNI.
On 11 May 2021 the SBV promulgated Decision 810/QD-NHNN, which concerns the approval of a plan for the digital transformation of the banking sector by 2025 and the implementation thereof by 2030. This decision sets out ambitious objectives to gradually create solid legal foundations for the development of digital bank models. It establishes a roadmap and clearly states nine implementation solutions for digital bank models.
The SBV not only helps credit institutions to take the right steps, in line with the general global trend, but also helps to accelerate the national digital transformation and bring sustainable and practical values to Vietnam. With this new move, the legal framework and policies regarding payment-related activities will continue to be improved for the application of new technologies. Hopefully, a licence for the registration of digital banks will soon be introduced, leading to the acceleration of this model in Vietnam in the near future.
Nevertheless, in the process of digital transformation, the banking industry has faced several critical challenges. One such challenge is the difficulty in exploiting information about the national database. So far, only four commercial banks have signed an agreement with the Ministry of Public Security on the exploitation of citizen identification data, which took effect on 1 July 2021. Due to not being able to directly connect to the citizen database, banks implementing eKYC solutions have to set up a post-inspection department to check all collected information from electronic data to ensure safety.
The second challenge is that the legal corridor for digital banks is still not specific. Currently, the organisation and operation of banks is conducted following the provisions of the Law on Credit Institutions 2010, which was amended and supplemented in 2017, and its guiding documents. Meanwhile, e-transaction activities are carried out in accordance with the provisions of the Law on E-Transactions 2005 and its guiding documents. These documents are not up to date with new technology, which may slow down the development of technology applications in the sector.
There is also a serious problem relating to personal information security. The Information Security Administration recorded over 2,000 cyber-attacks on information systems in Vietnam in the first half of 2020, most of which targeted financial institutions and banks. Cases of customers using services improperly and being tricked into accessing fake bank pages mean that fraudsters can take advantage of and appropriate money in customer accounts.
In addition, digital banks will often cooperate with a third party during operation, such as TP Bank deploying the biometric services of PFT. However, the responsibilities of such parties in the process of collecting and protecting personal data are ambiguous. Neither the current cybersecurity law nor the law on credit institutions have specific regulations on what information "personal data" includes.
Finally, the synchronisation of regulations remains difficult, which causes confusion and creates gaps in application. For example, the issuance of Circular 16/2020/TT-NHNN grants permission for banks to open checking accounts online or through eKYC for customers. Therefore, some banks allow customers to open online checking accounts using a one-time-password code over their phone without going to the bank or signing anything. For transactions exceeding D100 million ($4,350), multi-factor authentication is applied at the final approval step; however, the electronic or digital signatures of the parties are still excluded.
Meanwhile, article 13a of Circular 16 sets out the requirements for agreements on opening and using a checking account between a bank and a customer. The article states that even if such agreements are made online, a form is still required and the parties still need to conduct signing via e-signatures to comply with Decree 35/2007/ND-CP on electronic transactions in finance. Thus, whether it is legal for banks to conduct the opening of a checking account without the customer's signature remains questionable.
Completing the legal framework is the priority in creating favourable conditions for digital banking to develop. Policies and regulations relating to digital banking need to be improved, such as:
- policies relating to the creation of an information platform and a national citizen database;
- regulations on the process of electronic customer identification; and
- network security laws and regulations.
The government needs to tighten regulations on IT security. The SBV needs to survey the experience and development trends of digital banking globally in the promulgation of legal documents and, at the same time, consider raising the level of administrative penalties for committing violations in order to ensure general prevention.
For example, the government needs to issue documents similar to the EU General Data Protection Regulation (GDPR). The GDPR details the responsibilities relating to the collection and processing of personal information, including the responsibility of the person who directly conducts the work of collecting and processing personal information in the enterprise.
A draft decree on the protection of personal data was posted on the website of the Ministry of Public Security to solicit public comments in April 2021. Finalising the decree is a necessary step in aligning Vietnam's domestic regulations with international standards, directly reducing the rate of cybercrime and reassuring customers when using digital banking.
In order for the identification of customers to be synchronised and effective, the government should take the lead in upgrading the population's national data infrastructure to authenticate customers and support payment solutions. There should also be a policy to allow the national population database to be shared and openly connected with service industries such as banking, telecoms and insurance to support the development of digital banking and finance and promote financial universalisation, especially for people in rural and remote areas.
Finally, promulgating the new decree governing electronic identification and authentication is essential. In April 2021 the Ministry of Information and Communications released a draft decree regarding electronic identification and authentication to create a legal basis for the management and use of related services. The Vietnamese government needs to consult citizens and ministries to rapidly issue the official decree, with the aim of creating favourable conditions and contributing to ensuring information security and safety for individuals and organisations when participating in electronic transactions.
For further information on this topic please contact Thanh Minh Vu at LNT & Partners by telephone (+84 28 3821 2357) or email ([email protected]). The LNT & Partners website can be accessed at www.lntpartners.com.