Digital innovation a top goal for banking

May 28, 2024 | 10:00
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Vietnam’s digital transformation is being accelerated on the back of the supporting policies and market demands. Kalidas Ghose, chairman of UNOBank, discussed with VIR’s Bich Thuy how innovation in banking solutions can promote digital transformation.

The government has been working on policies to support digital transformation in the banking sector. How has the process been so far?

Digital innovation a top goal for banking
Kalidas Ghose, chairman of UNOBank

The Vietnamese government should be commended for its progressive and proactive efforts to support digital banking. The regulations put in place and the decisions made to modernise the financial industry over the past five years provide a clear roadmap for success. They have also laid the legal groundwork with laws on e-transactions, cybersecurity, and the draft Law on Digital Technology Industry, all essential pieces of the puzzle.

The government has also paved the way financially. Over $625 million is being invested, which shows a serious commitment to innovation. Vietnam’s digital payments are now surging – up 40 per cent. Thus, banks are catching up and rolling out digital transformation plans to improve the customer experience with all sorts of advanced technology.

But the rulebook still needs some work. Despite the progress made, some legal frameworks need further refinement. These modifications should be able to remove any remaining roadblocks for progress. Digital lending is still challenging because the legal framework for e-signatures needs further clarification and modification to make it more effective. The same goes for the banking agent model and the sandbox mechanism for fintech – these also need to be revisited and strengthened to deliver the desired results.

With more refinement of the regulations and a level playing field for all players to work together – banks, fintech, regulators – we can iron out these wrinkles and unlock the full potential of digital banking.

What are the opportunities and challenges for digital banking in Vietnam, and can you compare the Philippines’ fintech environment to that of Vietnam?

There is tremendous opportunity for Vietnam’s digital banking sector. The rise of neobanks and over 200 fintech companies create a supportive ecosystem for digital banking. Cashless payment transactions are increasing rapidly, supported by government policies and regulatory initiatives like the fintech sandbox, which fosters innovation and expansion.

The State Bank of Vietnam’s strategic focus on financial inclusion and risk mitigation further supports the digital banking landscape.

As to challenges, the legal framework needs to be revamped and expanded to keep pace with the times. Clarity and consistency in the directives will help in effective implementation. The technical infrastructure lacks standardisation, which hinders seamless integration across the banking sector and other industries, stymieing growth opportunities.

Cybersecurity threats and limited digital literacy, especially in rural areas, pose risks. A lack of trust among affluent segments and competition between neobanks and traditional banks present further hurdles.

Vietnam and the Philippines have comparably significant underserved populations and rapidly growing fintech markets. However, the decision of the Philippines banking regulator to introduce the licensing framework for digital banks have enabled accelerating the pace of financial inclusion many times over by bringing over 6 million new customers into the fold of formal finance. The regulator has also made significant progress in developing comprehensive guidelines for virtual assets.

Vietnam, meanwhile, has focused on financial inclusion and risk mitigation, whereas the Philippines emphasises financial literacy and advanced regulatory measures. Its central bank has granted approval to several digital banks similar to licences issues in Singapore, Malaysia, and Indonesia. Vietnam is expected to gain as such licenses are issued to digital banks aspiring to serve this market.

How can banks foster innovation in banking solutions to promote digital transformation in the sector and achieve comprehensive financial inclusion in a country?

Innovation is not magic – it is the result of smart strategy. I firmly believe we need to ditch the silo mentality. A unified banking platform that incorporates the fintech companies – the ride-hailing apps and e-commerce platforms that understand their customer segments inside out – to work together with the traditional banks and neobanks can collectively offer solutions to meet a broader range of needs and bring financial inclusion to the masses. Imagine a ride-hailing app where you can seamlessly pay for your journey or even apply for a microloan for your motorbike – that’s the power of collaboration.

Open APIs are a game-changer. They connect banks to a world of possibilities where data flows freely, scoring mechanisms become more sophisticated, and the demand for financial services skyrockets. It is a win-win for everyone – banks reach new customers, and they get a smooth banking experience.

Then there is embedded finance. Super apps can seamlessly offer banking services within the same app a person already uses to order food, a cab, or book a hotel. Embedded finance creates a financial ecosystem that’s convenient and expands our customer base organically.

Of course, none of this works without the right people. We need tech-savvy minds to develop and implement these innovative solutions. A skilled workforce is the engine that drives digital transformation and keeps our operations running smoothly.

Finally, regulators are our partners in progress. We must work hand-in-hand to create an environment fostering innovation while safeguarding consumers and their data. Clear guidelines and a supportive regulatory framework are essential for developing and adopting new tech.

Banks are on the right track. Vietcombank’s pre-payment security features, Agribank’s digital channel advancements, and ACB’s mobile banking app – are all fantastic examples of innovation in action. They are making banking more accessible and user-friendly for everyone.

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