Banking digital transformation- no longer an option but a mandatory requirement


The State Bank of Vietnam (SBV)’s Deputy Governor Nguyen Kim Anh said that digital transformation is no longer an option but a mandatory requirement and a strategic direction to help the banking industry compete effectively and develop sustainably in the industry 4.0 era.

Digital transformation to better serve  people and customers

In order to bring into full play achievements gained over the past years and keep up with the national digital transformation process, on May 11, 2021, the Governor of the SBV signed the Decision No. 810/QD-NHNN to promulgate a plan for the banking sector’s digital transformation to 2025, with orientations to 2030.

The Resolution No. 52-NQ/TW of the Politburo and the Resolution of the 13th Party Congress define one of the country's development goals and orientations for the 2021-2030 period as developing a digital economy on the basis of science, technology and innovation and promoting national digital transformation. In the Prime Minister’s Decision No.749/QD-TTg approving the programon"National digital transformation to 2025, orientations to 2030", the banking sector,  a sector having social impacts, related to people on a daily basis, changing its awareness fastest, bringing efficiency, and saving costs, is identified as a priority sector in terms of digital transformation. Therefore, the SBV has been assigned the task of conducting digital transformation in the banking sector towards providing digital banking services, developing a banking and financial service ecosystem to promote national financial inclusion; promulgating mechanisms and policies for businesses performing digital transformation to have favorable access to credit; developing an e-Government toward a digital government.

According to  Deputy Governor Nguyen Kim Anh, the fourth industrial revolution (Industry 4.0), the digitization trend has far-reaching impacts on most industries, fields, and the context of the Covid-19 pandemic requires people, businesses and banks to strongly shift to digital communication. Vietnamese banks are facing great opportunities and challenges in this new context. In order to adapt to the "new normality", banks must quickly plan and implement digital transformation by accelerating the application of new technologies, transforming business models toward compact and flexible ones, building organizational culture that adapts to changes and constant innovation, developingproducts, delivering customer-centered services, providing digital skills, building digital culture for the workforce, attracting and retaining digital talents with  dynamic working environments, competitive remuneration policies, etc. For these transformation efforts and activities to go in the right direction, achieve good results and create a spillover to the whole industry, it is necessary to clearly define goals, from which, a roadmap will be proposed for implementing appropriate solutions and tasks with thesmooth coordination and unified implementation among relevant units of the banking industry.

Therefore, it can be seen that the development and issuance of the banking sector’s digital transformation plan  is of great importance for the SBV not only to realize and implement the Party's Resolutions, the tasks assigned by the Government and the Prime Minister, but also to clearly define the orientations and implementation plan of the banking industry amid the trend of digital transformation, helping the banking industry to seize the opportunities and overcome the challenges of Industry 4.0; thereby contributing to the successful implementation of the National Digital Transformation Program, supporting the development of a digital economy in Vietnam.

Regarding the overall goal in digital transformation of the banking industry, Deputy Governor Nguyen Kim Anh said that the plan for digital transformation of the banking industry was developed based on a people and customer-centric approach. The overall goal of the Plan, although divided into two groups - the SBV and credit institutions, is aimed at better serving  people and customers.

Specifically, for the SBV, the overall goal is: "Comprehensively renovating the management activities of the SBV in the direction of modernity, effectively applying and exploiting the achievements of Industry 4.0 technology, fully meeting the  Government's digital transformation criteria and indicators". This goal is associated with the task of building and developing an e-government and a digital government to provide digital services for people and businesses and apply technology for more effective decision making and social management.

For credit institutions, the goal is to be able to "develop digital banking models, increase utility, improve customer experience and realize the goal of financial inclusion, sustainable development on the basis of promoting the application of new and advanced technology in governance and management and provide products and services in the direction of automating processes, optimizing business operations." With this goal, digital transformation at credit institutions is associated with the task of increasing utility, customer experience and product supply in the direction of process automation, business optimization, without going into technical issues, such as upgrading information technology and data systems... in order to enable credit institutions to be creative and flexible in the implementation process.

In general, overall goal in the Digital transformation plan is defined on the perspective that banking industry as a service provider serving people, businesses, and customers, and this approach is always consistent with the plan building standpoint, namely that "improving product and service quality, improving customer experience and meeting customer needs are measures of the effectiveness of the digital transformation process."

Determining to realize the goals

According to Deputy Governor Nguyen Kim Anh, the goals set by the banking industry in the Plan are very specific and extremely challenging, with specific goals serving as a basis for measuring and evaluating digital transformation activities of the banking industry. Specifically, in addition to the targets determined on the basis of ensuring consistency with the goal of digital transformation in the Decision No. 749/QD-TTg, the plan sets out a number of specific targets related to the provision of professional services at credit institutions such as: at least 50% of operations will be performed entirely in  digital environments by 2025 and 70% by 2030; the number of customer transactions on digital channels will reach at least 70% by 2025 and 80% by 2030; the rates of decisions on providing and disbursing small loans and consumer loans to individual customers, made by commercial banks and financial companies in the direction of digitization and automationwillreach at least 50% by 2025 and at least 70% by 2030.

“To determine the above targets, the SBV has monitored and grasped the actual situation of digitaltransformationat credit institutions and conducted a survey throughout the industry. The results show that digital transformation activities have been actively implemented by credit institutions with as many as 95% of credit institutions having been developing and implementing their digital transformation strategies. In addition, most banks have applied new technical and technological solutions in their operations and service provision. 9 out of 19 operations have been completely digitized by some banks (such as: making savings deposits; term deposits; opening and using payment accounts; bank cards; e-wallets; money transfer; human resource management; accounting - finance...). Many banks have also applied AI, ML and Big Data technologies to evaluate, classify customers and decide on disbursement, etc. to simplify procedures and shorten disbursement and lending time. In addition, the number and value of banking transactions via digital channels have grown strongly, in which the growth rate of mobile payment in 2020 compared to 2019 was 114% by quantity and 118% by value; the number of QR code paymenttransactions increased 72.9% . The automatic clearing and settlement system for retail transactions (ACH) processes 5-7 million interbank payment transactions per day. In 2020, the growth rates of transaction volume and value were 78% and 128 % respectively compared to 2019…” - Deputy Governor Nguyen Kim Anh informed.

In recent years, the SBV has also actively considered and promptly issued  appropriate regulations to facilitate digital transformation activities such as non-cash payment, payment via intermediaries, opening accountsand identifying customers by electronic means eKYC, e-banking services, issuing technical standards (QR, chip cards...) to enhance standardization, increase connectedness in the banking industry and between the banking industry and other industries.

To achieve the above objectives, the Plan has set out nine groups of tasks and solutions. Among them, there are specific and decisive solutions such as: reviewing, proposing to promulgate or amend and supplement legal regulations to create favorable conditions for digital transformation at banks, prioritizing a number of fields such as non-cash payment, electronic lending, collection, exploitation, processing and sharing of customer data with third parties, electronic transactions, etc. ; expanding the connection and information provision infrastructure: upgrading the infrastructure for data processing and classification and provision of credit information; upgrading the portal connecting Credit Information Center (CIC) with the risk management and credit assessment systems of credit institutions to allow online exploitation and checking of customer credit information; deploying the centralized infrastructure for connection, exploitation and sharing of data with the National Population Database (National Population Database), enterprise, sector and fielddatabasesto exploit, synthesize data for information verification, customer classification and evaluation;building and developing digital banking models at credit institutions: developing and implementing the digital transformation plans/strategies; building and implementing branch models that allow customers to perform automated and self-service transactions; researching and applying credit scoring solutions with acustomer database; promoting research in integrationand connection with other industries and fields to establish a digital ecosystem...

“Given the current situation of the digital transformation implementation and  trends at credit institutions, together with the specific solutions and tasks in Decision 810, I believe that the specific goals in the Banking Industry Digital TransformationPlan are feasible” – Deputy Governor Nguyen Kim Anh affirmed.

According to Deputy Governor Nguyen Kim Anh, digital transformation of the banking industry is no longer an option, but a mandatory requirement and a strategic direction to help the industry compete effectively and develop sustainably in the new industry 4.0 era. The Covid-19 epidemic has shown the importance of the infrastructure of the banking industry such as the payment system, the credit information system in supporting banks operate stably and smoothly, quickly meeting the needs of people, businesses and government agencies, responding well to the trend of digital transformationand speeding up of entities in the economy. That partly reflects the careful preparation, proactive participation and good adaptability of the Vietnamese banking industry to unpredictable fluctuations and risks in the long and arduous digital transformation process.

In the process of digital transformation, the banking industry has been facing a number of key challenges. The first is the challenge of the synchronization and the suitability of the current legal regulations related to electronic transactions, signatures, electronic documents, identification and authentication of electronic customers, data sharing, customer information security and business processes... with the practical application of digital technology in banking activities. Secondly, the challenge involves synchronizing and standardizing technical infrastructure to facilitate seamless interconnection between the banking industry and other industries and fields to form an ecosystem,provide multi-utility services for customers. And thirdly, the challenge comes from the process ofchanging awareness, habits, consumer behaviors; ensuring security and safety and mobilizing and allocating resources for digital transformation.

The Plan also sets out tasks and solutions to handle the above challenges. These include studying, proposingto amend and supplement legal regulations to create favorable conditions for bank digital transformation, giving priority to the following issues related to the application of digital technologies such as: collecting, exploiting, processing and sharing customer data; electronic transactions; developing and implementing a mechanism for controlled testing of financial technology activities in the banking sector; issuing data standards, technical standards, etc;in parallel with expanding and developing electronic switching and clearing systems for retail payment transactions towards establishing a unified and synchronous payment infrastructure, capable of integrating and connecting with other industries and fields, thereby expanding the digital ecosystem;researching and deploying a centralized infrastructure to allow connection, exploitation and sharing of data with the CIC, enterprise, industry and field databases to exploit and synthesize data for information verification, classification and customer reviews;at the same time, implementing financial education programs for people and businesses to enhance knowledge and skills of financial management, improve understanding of using banking products and services on digital platforms in a safe and effective way; ensuring network safety and security and focusing on human resource development for digital transformation.

In order to successfully implement this Plan, the SBV proposes  the Government implement three solutions:

Firstly,  speeding up the research and development of the Law on Electronic Transactions to replace or amend and supplement the  2005 Law on Electronic Transactions to create a legal basis for Ministries and branches to complete relevant legal provisions, promote digitalization, digital application, and create a favorable transaction environment for people and businesses through digital channels, electronic methods.

Secondly, issuing a Decree on electronic identification and authentication and forming a legal basis for data protection and user data privacy protection in the network environment.

Thirdly, completing the construction of the CIC, developing a mechanism to allow the banking industry to access, exploit, and share online information  from this database to serve the reconciliation  and verification of customer identification information by electronic means.

Research and International Cooperation Department