Banks' digital transformation in need of new legal framework

New legal framework should be set to balance the bank’s innovation, ensure the stability and competitiveness of the market, and protect customers

At the conference on digital economy, talking about the impacts, opportunities, and its utilisation for Vietnam. Tran Hung Son, vice president of the Institute for Development and Research in Banking Technology urged improvements in the Vietnamese legal framework on digital transformation at banks.

He stated that the efinance sector plays an important role in the digital economy. It is also a sector whose innovation goes beyond current regulations. Regulations are necessary on capital mobilisation, payment, and investment management services.

Banks' digital transformation depends on how well they grow and position themselves in the new ecosystem. There are three stages in banks’ digital transformation, such as reacting to new forms of competition, technology adaptation, and strategic positioning.

“Banks are at the first stage of their digital transformation journey and part of them are in the second stage. No bank has made it to the third stage yet,” said Son.

The digital transformation can complicate current risks or create new ones. The lack of a legal framework can hold up the adjustment of the transformation. A new legal framework should be released to improve banks’ innovation, ensure the stability and competitiveness of the market, and protect customers.

Son added that challenges in the legal framework are of three aspects: regulations in the finance sector have not kept up with technological developments, relevant regulations still lag behind those in other countries, and there is a lack of connections between banks and fintech organisations.

Additionally, the legal framework needs to target four core points, including comprehensive financial development, finance stability, finance integrity, and customer protection.

Vietnam has been seeing a strong digital transformation wave with a multitude of new products launched over the past four years.

At the beginning of 2017, TPBank introduced its TPBank Livebank application while in early 2018, OCB launched its OCB OMNI. In September 2018, VPBank opened its digital banking Yolo after its introduction of Timo. Military Bank allowed customers to transfer money via Facebook and created a new interactive channel with customers via the eMBee fanpage. BIDV launched its BUNO to conduct easy transfers with only the use of a phone number.

According to the Vietnam ICT Index 2019, banks tend to focus on updating core banking and automation. However, banks partially ignore base investing in resource management and risk management.

Although internet banking services for individual users such as transaction checking, transfer, and savings are increasingly popular (as the services have already reached their saturation point), these services are still underdeveloped while services for business users are growing at a better pace. From 2016 to 2019, digital banks reflect a marked increase as well.

There is still a difference between banks' technological investment. Particularly, BIDV led the Vietnam ICT Index from 2017 to 2019 in the categories of infrastructure and IT application. State-owned VCB, VietinBank, and Agribank ranked lower than other joint-stock commercial banks.

Nam A Bank ranked second in terms of human resources and online services. GP Bank ranked last regarding online services and infrastructure.