A relatively high smartphone penetration rate and a tech-savvy young population have acted as a catalyst in increasing the adoption of digital banking in Vietnam. In the banking and payments sector, which are critical pillars of the economy, digital offerings and adoption have witnessed great reception.
As a result of advancements in technology, banks have been able to automate processes, increase productivity, improve customer service, and reduce operational costs, according to Nguyen Quoc Hung, Secretary-General of the Vietnam Banks Association (VBA).
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The country has more than 90 million citizens, but only 20% have access to banking services. The underbanked population indicates the massive potential for the online banking sector to grow in Vietnam. Moreover, it represents an excellent opportunity for banks to increase e-banking activities in the country and reach out to the consumers of today and tomorrow.
The digitalization of cards can be a good opportunity for banks, as only 3% of the population owns credit cards. In addition to attracting new customers, banks can also look into increasing the number of products and services offered to existing clients.
Moreover, the amount of card transactions is likely to increase by more than 50% with the recent exponential growth of e-commerce in the country. Digital payment platforms such as PayPal have also become popular.
Millennials have started playing an intricate part in mobile banking: they represent the consumer finance industry’s fastest-growing segment, at 20% of the population and growing. Credit cards enable millennials to fulfill their immediate needs for purchases.
2022 digital banking industry trends in Vietnam
Digital banking on desktop
According to the International Data Corporation (IDC) report, the country’s digital financial services revenue will reach USD 3.8 billion by 2025.
Digital transformation strategies have become part of most, if not all, Vietnamese banks. It is also common for emerging firms to take on more risk than traditional banks and make inroads into critical financial services.
Per the Fintech and Digital Banking 2025 (Asia Pacific) IDC InfoBrief, mobile transactions in Vietnam have the potential to grow by 300%. This rapid increase will be crucial in reforming the entire digital banking ecosystem.
Response to industry trends
What Vietnamese banks are still lacking
Research published by Vietnam Investment Review indicates that Vietnamese banks have made significant progress toward digital banking despite some challenges, such as connecting with untapped customer segments, redefining the role of bank branches in customer experiences, and closing the gap between customers’ intentions and their actual use of digital banking.
The need to bridge the gap between consumer’s demands and their behavior
To open a new account, digitalizing the process could reduce the processing time to a few minutes instead of a few hours. As a result of advanced analytics, banks can anticipate customers’ needs and make relevant offers and message them at scale, at the right time, and through the channels they prefer.
Consumers use digital banking for about 68% of their interactions with banks, primarily to inquire about balances or make simple transactions. A complex transaction, involving a loan, an insurance policy, or an advisory service, allows banks to develop value propositions tailored to the customer segment’s needs.
Since 70% of Vietnamese consumers use multiple channels to fulfill their needs, banks can reimagine their customers’ entire journeys for a more seamless end-to-end experience.
As a result of gaps in customer service at branches, 40-50% of Vietnamese consumers surveyed cite that they switched banks in the last year. For banks to make their customers’ journeys seamless, they must train employees in digital products and standardize their service quality.
Shifting the focus to millennials, pioneers of digital banking
As an example, TPBank was the first bank to fully launch the idea of digital-first banking, driven by changing consumer mindsets and their pioneering willingness to accept digital services compared to more traditional banks.
By promoting its “electronic know your customer” (eKYC) feature, TPBank aimed to reach younger consumers. The feature allows Vietnamese to purchase financial products online conveniently and securely. TPBank users can verify their identity by taking a selfie with the eKYC app.
Opportunities in Small and Medium Enterprise (SME) banking
Vietnamese banks have focused on SMEs, but there have been gaps in their traditional business models that have prevented banks from making remarkable progress.
- In many cases, bank propositions are primarily based on secured lending, representing their primary gap. These are typically big-ticket, collateralized loans. There are only a few loan products available to SME clusters.
- Even though commercial credit and underwriting processes are more appropriate for large businesses and corporations, they still apply to SME credit applications.
- It is difficult for most banks to provide a seamless process for onboarding and servicing small businesses through digital O2O (online-to-offline and offline-to-online).
The challenges facing micro SME (MSME) banks in Vietnam are unique as they face high operation costs and a lack of adequate banking services. Based on McKinsey’s analysis, micro and small-sized enterprises might represent a “white space” market – constrained by supply but with great potential to generate revenue.
Internal catalysts for finance digitalization
In Vietnam, there are significant internal enablers supporting digital banking and financial services. Some of them include:
- Favorable Macroeconomic and Demographic Factors: Vietnam has a thriving population of 96.5 million, with youngsters making up 70% of the population. Moreover, the GDP per capita is projected to rise to USD 4,449 by 2025.
- Consumer Digital Readiness: Vietnam has high consumer digital readiness with a 66% internet penetration rate and 130% mobile subscription rate.
- Entrepreneurial Business Environment: Vietnam is the 3rd most active start-up ecosystem in ASEAN, behind Singapore and Indonesia
- Robust Digital Infrastructure: Over 99% of households now have access to 4G networks, and Vietnam’s three major mobile carriers have finished testing commercial 5G service, intending to reach 25% coverage by 2025.
- Strong Government Support For Digital Transformation: In banking and financial services, the adoption of new technologies is strongly encouraged. Initiatives such as establishing Fintech Steering Committee, the Banking Strategy, and Directive 16/CT-TTG add to the digitization initiatives.
Owing to the pandemic wherein people were expected to practice social distancing, the digitalization of banking received a significant boost. However, banks need to consider how they can get involved as ecosystem builders, orchestrators, or owners from a market perspective since so many non-financial institutions have already entered the digital ecosystem.
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