What you need to know about digital banking in Vietnam
Southeast Asia has become a key market for digital banking. New fintechs, technology companies and incumbent banks are beginning to embrace the opportunities of online and cloud banking, helped by a young, dynamic population and a market open to innovation.
Vietnam, in particular, is showing serious potential for digital banking, but what is it about this rapidly growing country that is so attractive for innovative financial solutions?
What’s significant about Vietnam?
Part of the attraction is that there are clear signals of a major cultural shift surrounding banking in Vietnam. Historically, public trust in the country’s financial system has been low, owing to a sclerotic and weakly-regulated industry. In addition, Vietnam, like many Southeast Asian societies, is increasingly becoming cashless.
It’s also important to remember that a large portion of Vietnam’s legacy banking system is state-owned or run.
This means Vietnam’s core banking infrastructure is old and creaky: traditional tech stacks have an average age of around 17-and-a-half years. This is a serious problem in a country of at least 96 million people, 60% of whom are totally unbanked or seriously underbanked and lack access to credit and investment products.
The presents substantial opportunities for innovative cloud and digital banking providers to enter the Vietnamese market and connect an unbanked population with modern, digital financial services.
It’s easy to identify where those opportunities lie. There are an astonishing 157 million mobile connections in Vietnam – even in rural areas, almost 60% of the population owns a smartphone. And with more than 70% of Vietnamese aged under 30 years old, there are tens of millions of digital-savvy consumers who might eagerly welcome a cloud banking provider.
What is happening already?
It all sounds very exciting, and indeed, most Vietnamese banks are already implementing new digital transformation strategies, hoping to gain an early competitive edge and capture a larger market share while making their operations more cost-efficient.
Vietnamese fintech startups are also having a good time, taking advantage of lower barriers to entry and easy access to capital. With the COVID-19 pandemic having encouraged rapid digital adoption and generated greater demand for remote services, 2021 saw investment pour into new digital-native organisations across the country.
These rapid developments have already made the Vietnamese market much more dynamic and competitive. Financial institutions are competing to deliver innovative cloud-first products, utilising APIs, artificial intelligence, mobile apps and other technological innovations that bring real benefits to consumers.
This inevitably has something of a democratising effect, with customers demanding even more transparency and more control over their finances.
What problems exist?
Invariably, entering the market in Vietnam is not without its challenges. Digital banking is still young, and the kind of transformation required for it to thrive nationwide needs more than just a lick of paint.
Financial literacy, for instance, is still relatively low, and most consumers still demand little more than a savings account. In addition, although Vietnam aims robust data privacy laws at financial institutions, there is still hesitancy around issues like cyber security.
The problem, therefore, is to a certain extent a cultural one, rather than a technological one – digital banking may need time to bed-in before adoption becomes more widespread.
But one of the key barriers is that Vietnam is still yet to establish clearly defined digital banking regulations. This lack of clarity means fintechs looking to launch a new digital bank often must partner with an existing financial institution and integrate with outdated legacy systems, which can make the process slow and cumbersome.
However, the partnerships formed by large banks with significant market penetration and nimble, digital-focused fintechs provide growth opportunities for both.
Nevertheless, Vietnam has clearly recognised the opportunities of digital banking. It seems unlikely that a proper regulatory framework won’t be developed soon, as both the government and business communities work together to make the market more open and flexible for what could be a significant driver for economic growth and financial inclusion.
For more information about how Oradian helps firms respond to changing consumer expectations and stay ahead of changing regulations and emerging opportunities in markets like Vietnam, get in touch today.
