Digital Banking Innovations in Vietnam

Most Southeast Asian economies are leapfrogging to digital banking, thanks to the rising internet and smartphone penetration. The digital banking space in Vietnam is thriving on the back of rapid FinTech adoption, a booming e-commerce industry, and COVID-19 impact. In Q2 2020, visits to e-commerce apps reached 12.7 billion. The e-commerce Gross Merchandise Value is expected to rise to $23 billion in 2025. Online payments increased by 76% in Q1 2020, with the total value rising to 129% compared to 2019.

Vietnam’s Digital Readiness Reflects High Growth Potential

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Revenue from digital financial services in Vietnam is expected to reach $3.8 billion by 2025. Mobile transactions in the country are likely to increase by 300% between 2021 and 2025, as per a report by IDC.

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With a 30% banked population and just 2% of the adult population with a credit card, Vietnam has some of the fewest bank branches and ATMs in ASEAN. However, about 72% of the adult population owns a smartphone, and internet penetration is at 66%. The country has over 4.2 million digital wallet users spread roughly across 20 digital wallet brands. Vietnam is one of the first countries to have successfully piloted 5G. Its first 5G commercial trial was launched by Viettel Group in December 2020.

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Vietnam is known for its entrepreneurial environment. With 136 FinTech startups and 24 incubators, accelerators, and innovation labs, the country has emerged as a startup hub. Vietnam expects to see at least five Tech Unicorns by 2025 and 10 by 2030.

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Regulatory Environment for Digital Banking

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Vietnam’s banking sector has traditionally been plagued by a weak regulatory system. Rapid development in FinTech has led to inadequate legislation for monitoring operations in P2P lending, new payment methods, cross-border transactions, and sharing user data over Open APIs, among other verticals. The State Bank of Vietnam (SBV) is expected to revise current legislations to support credit institutions and banks adopting new technologies, such as cashless payments and e-KYC.

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In 2018, the SBV introduced a development strategy for the banking sector till 2025. Further, it formulated multiple implementation plans to increase institutional capabilities, reinforce SBV’s bank inspection and surveillance, and strengthen the banking sector. 

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Basel II compliance is expected to push banks to improve their capital and risk management thresholds. As a result, lenders will look for overseas investors to raise capital. Seven Vietnamese banks have met Basel II requirements ahead of schedule. Various regulations have been passed to manage intermediary payment services, optimize ATM and POS networks, and increase bank payments for public services.

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Digital Banking Capabilities of Existing Banks

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A majority of Vietnamese banks have either implemented or are developing their digital transformation strategies. According to an SBV survey, 93% of banks are investing in technology innovation and expanding to digital banking. Incumbents in Vietnam are increasingly partnering with FinTechs to support rapid innovation. Consequently, B2B companies can leverage collaborations with incumbents as they update their legacy systems. Many banks have designed apps with smart, user-friendly interfaces, implemented free programs for issuing and maintaining cards, and opened accounts using eKYC.

Vietcombank is a major state-run bank that has VCB Digibank, a full-service digital banking app. BIDV, another state-owned bank, initiated its digital transformation campaign via the BIDV iBank app. It launched its BIDV Home app (for home loans) and a digital banking center in 2019. TPBank launched LiveBank, its automated banking services, in 2017.

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Core banking and payments system modernization are the top two priorities of the top eight banks in Vietnam. Major digitization transformations in banks include introducing online real-time trading systems, robotic process automation, AI applications, and third-party data in risk management.

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Neobanks Aiming at Bringing About a Change in Consumer Behavior

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Even though COVID-19 has accelerated digital transactions, the concept of neobanking is relatively new in Vietnam. Due to the pandemic, Momo, Vietnam’s top payment app, has doubled its transactions since February 2020. Likewise, VNPay, a QR gateway, saw a 600% increase in payment transactions.

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Timo is a leading neobank launched by VPBank in 2016. Timo relaunched its services with Viet Capital Bank in September 2020 to meet the changing customer behavior.

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VPBank launched neobank Cake in collaboration with Vietnamese ride-hailing app Be. Cake digitally offers all core banking services, including instant account opening, transfers and payments, bill payments, and deposits.

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VPBank’s YOLO, Zalo Pay, VnPay, and Fin-Fan are the other popular neobanks in urban Vietnam. TNEX is an upcoming launch-ready neobank from Maritime Bank, which claims to be Vietnam’s first ‘youth bank.’

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According to estimates, new digital challengers pose a threat to 30% of the business of Vietnamese banks.

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Positive Investment Trends

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Vietnam has emerged as a startup hub in Southeast Asia with investments worth $815 million. FinTech drew $117 million, accounting for the largest share of investments. Foreign investors play a significant role in funding Vietnamese startups. Here are some notable investments:

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• Investment by SoftBank and GIC in VNPay, $300 million
• Investment by Goldman Sachs and Standard Chartered in Momo, $28 million
• Investment by Belt Road Capital Management in Tima, $3 million
• Investment by Insignia Venture Partners in Finhay, $1 million
• US-based 500 Startups aims to invest in 80 Vietnamese startups by 2021

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The Government of Vietnam has established a number of funds at the state and provincial/city levels; it is collaborating with countries and banks to develop funding & innovation programs and provide loans, technical training, and business mentoring.

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E-commerce, FinTech, AI, food technology, enterprise solutions, and information technology services have dominated funding rounds in recent years.

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Future Readiness

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The digital banking transformation in Vietnam looks promising but is marred by challenges. The absence of skilled professionals, low funding, the inability to scale, and slow regulatory reforms continue to hamper the move to digital. Many banks lack clear digital strategies. 

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Legacy systems challenge the implementation of digital solutions. Regulatory reforms must continue in order to attract foreign investments and international professionals.

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Macroeconomic and demographic factors favor Vietnam—the country has a 7% GDP (as of 2019) growth and a 70% adult population. Consumers are digital-ready, and the country is backed by strong digital infrastructure supporting the commercial launch of 5G and high smartphone penetration. Most importantly, Vietnam’s digital transformation is fueled by strong government support.

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Digital banking will be the future of Vietnam’s banking system. Therefore, banks need a strategic and long-term action plan for digitalization. Banks with a strong digital ecosystem can gain a competitive advantage.

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