With an aim to meet the rising demand of digital financial services, at the same time, to develop digital banking, the Vietnamese government has approved and issued several supporting policies.

Policies of 5G development

Mr. Huynh Quang Liem, General Director of VNPT Group assessed that Vietnam has a high position in the connectivity rankings as the mobile network covers 99.8% of the population. Additionally, the Vietnam government has identified digital infrastructure as one of the pillars of the digital economy, and the 5G network deployment will play an important role in promoting digital transformation. 

On December 31, 2020, the Prime Minister issued Decision No. 2289/QD-TTg approving the National Strategy on the Fourth Industrial Revolution to 2030.  Specific objectives by 2025 are as follows:

• Fiber-optic broadband network infrastructure covers over 80% of households and 100% of communes
• Universalize 4G/5G mobile network services and smart mobile phones; 
• 80% of the population use the Internet 
• 80% of online public services reach level 4 which were provided on various means of access, including mobile devices
• The percentage of the population with an electronic payment account is over 50%;
• There are at least 3 smart cities in 3 key economic regions (North, Central, South) with 5G network coverage in these urban areas.
• By 2030, fiber-optic broadband Internet services and 5G mobile network services will be universalized 

Following the vision, Vietnam is in the early stages of the 5G network. In addition, Vietnamese electronics and telecommunications enterprises have actively produced many information pieces of equipment and telecommunications infrastructure, while in the past they had to purchase and depend on foreign manufacturers. However, there exist common problems regarding capital cost (CAPEX), licensed spectrum, and lack of subscribers to use 5G. In particular, the issue of CAPEX for 5G is of the top concern. The average revenue per mobile subscriber (APRU) in the Vietnam market is low (about 3 USD), therefore, increasing 5G revenue in the initial stage of deployment is not enough to compensate for CAPEX. Yet, actively sharing infrastructure construction is considered an effective solution for network carriers around the world to deploy 5G.

On the other hand, the 5G infrastructure is underdeveloped. When beginning the construction of 5G networks, most of the current operations are fully installed with 2G, 3G, and 4G equipment. As a result, there is inadequate space to build in 5G and other supporting infrastructure. Therefore, upgrading to 5G will incur a large cost for the telecom enterprises, so it is necessary for the firms to be well prepared in terms of both capital and capacity. Without being said, Vietnam has a well-developed telecommunications infrastructure with the 4G network covering the whole country, and 95% of the population using it. Moreover, frequency band resources and terminals are ready for 5G network construction. 

According to the assessment of Vietnamese telecommunication enterprises, it is not until 2023 - 2025 that 5G will be as popular as 4G, due to the limited coverage of 5G. Hence, more broadcasting stations are being constructed to ensure connectivity. In this way, 5G will initially be deployed in developed areas, with high population density such as large cities, or in high-tech industrial parks. When switching to 5G networks, users demand high speed with low cost, which is a challenge for carriers to provide the best user experience and increase competitiveness. 

Mr. Nguyen Phong Nha, Deputy Director of the Department of Telecommunication (Ministry of Information and Communications) said after enterprises complete commercial trial, network operators will have to send evaluation reports on technical features, commercial capabilities, market demand, and business possibilities to state management agencies, specifically the Ministry of Information and Communications, to complete the legal basis. Thus, a legal framework regulating the establishment and management of 5G carriers is still in the process of construction and completion.

Policies of non-cash payment development.

Regarding non-cash payment, many important policies and regulations to promote non-cash payment and digital transformation in the banking industry have been researched, developed, by SBV since the beginning of the year 2021. On March 9, 2021, the Prime Minister signed Decision No. 316/QD-TTg approving the pilot implementation of using telecommunications accounts to pay for goods and services of small value (mobile-money). Similarly, on October 28, 2021, the Deputy Prime Minister signed Decision 1813 approving the project of developing non-cash payment for the period of 2021-2025. The scheme sets out a series of goals, namely, the value of non-cash payments being 25 times higher than GDP, growth in the use of non-cash payment services reaching 20-25% annually, the average growth rate in the quantity and value of transactions via Internet channels reaching 35-40% per year. 

Besides, the Vietnamese government has guidelines and policies to develop non-cash payment methods. 

• Decision No. 316/QĐ-TTg on approval of the pilot application of using telecommunications accounts to pay for small-value goods and services. 
• Decision No. 1813/QĐ-TTg on approving the scheme for development of non-cash payment in Vietnam for the period 2021 - 2025
• Decision No. 2545/QD-TTg, on approval of the project to develop non-cash payment in Vietnam for the period 2016 - 2020
• Decision No. 241/QD-TTg on approval of the Scheme to promote payment through banks with public services: Tax, electricity, water, tuition fees, hospital fees and payment of social security programs…
• Directive No. 22/CT-TTg on accelerating the implementation of solutions to develop non-cash payment in Vietnam

Thanks to the policies, the technology platform for online payments is being improved, which is expected to increase the rate of cashless payments. Furthermore, a network of banks and electronic payment gateways has significantly developed recently. In detail, the current network and branches of credit institutions in Hanoi include 112 branches of State-owned commercial banks, 175 branches of joint-stock commercial banks, 5 branches of joint venture banks, 16 bank branches with 100% foreign capital, and 7 branches of finance leasing companies. In other respects, commercial banks are now also deploying many other electronic payment systems, for example, via the internet and mobile phones. These two methods are experiencing relatively rapid growth as there have been 78 organizations providing payment services via the internet and 45 firms providing via phone, with the quantity of transactions up to several hundred quadrillion VND. With the trend of digital transformation, many domestic banks are also applying new advanced technologies in e-payment, face recognition, fingerprints, biometrics to name a few. 

Nevertheless, when it comes to mobile money,  Mr. Duong Trong Chu, Director of Digital Banking Division of Lien Viet Post Bank pointed out challenges faced by digital banks which are due to the habit of using cash by Vietnamese, the trust of the users in physical rather than digital banks, and loose policies in implementing digital transformation in banking. Thus, it is necessary to have new integrated payment methods that are more convenient for people and businesses. 

In addition, communication and commercial marketing has not been paid attention along with the strategic goals, orientations, and major policies for the development of payment activities have not been fully and properly recognized by the public. Therefore, not only people but also businesses have little or vague understanding of payment services and electronic payment facilities.

Recommendations from Viettonkin: 

The challenges in the process of digital transformation still remain to be solved by credit institutions. Nonetheless, Viettonkin has some recommendations for foreign investors in the digital banking sector of Vietnam. 

It is the right time to invest in Vietnam!

Over the past decade, Vietnam has experienced the fastest growth in the number of middle-income people in the world (World Data Lab, 2021). Specifically, Vietnam will have an additional 23.2 million people join the middle class by 2030. In 2000, less than 10% of the Vietnamese population belonged to this category, but this figure has increased to 40% in 2021. The President of Vietnam - Mr. Nguyen Xuan Phuc - assessed that the middle class can account for 50% of the whole population by the end of 2045.  In addition, as Vietnam is in the golden population structure, in which nearly 56% of people are under the age of 35, the highest rate compared to countries with similar income levels in the region, meaning that Gen X and Gen Y are forming most of the labor force and Vietnam's consumer market. The rapid growth of the young middle-income class in Vietnam will create the basis for domestic consumption of services and higher value-added products. This will likely bring new investment opportunities in financial services and sustainable products.

The change of mindset towards digital transformation has accelerated the digital economy. In particular, the political system of Vietnam, from the government, the National Assembly to all the Ministries, is determined to go digital through initiative policies, and a sandbox mechanism recently.  Thus, digital banking and financial institutions are indispensable parts and have a positive impact on the stakeholders of the digital economy, and reversely can benefit from those stakeholders. 

The digital banking market in Vietnam is still in the premature stage. Digital transformation activities of Vietnamese banks mainly focus on retail distribution channels, the rest such as lending are only semi-automatic. The ecosystem is established but still underdeveloped. Up to now, no bank has been able to allow entire lending in the digital environment. This means that the market is not saturated and spares plenty of room in the market space for foreign investors. 

Vietnam offers a great opportunity for investors in the corporate customer segment!  

As Vietnam participates in different dynamic free trade agreements, the country wants to leverage the resources of all members. Hence, financial institutions play a significant role in executing the FTAs, which increase demand for the Vietnam market, directing the trade flows towards this country. Therefore, digital banks must be one step ahead to service this customer segmentation. In addition, in the context of the Covid-19 pandemic, mobility is restricted, so business customers prefer digital banking to ensure secure and optimal transactions.  

The improved legal framework has created better ease of access for investors 

With active participation in the FTA, the Vietnamese government is tenacious to implement institutional and administrative reform, especially developing a legal system to enforce the effect of FTAs. Therefore, the government and the SBV have built, deployed, and learned from the sandbox for digital banks. In the upcoming years, Vietnam is trying to gradually build a clear legal framework for digital banking operations and management.  This can motivate further investment into Vietnam.

There are many modes of market entry to the digital banking market in Vietnam!

Banks and investors can choose digital banking as an alternative way to venture into Vietnam and penetrate financial services. This can be realized through the establishment of digital banks, cooperation with VN bank and stakeholders.

Digital transformation is a strong movement in Vietnam!

The government has kicked off the trend through several resolutions on Industrial Revolution 4.0. Along with this, the Prime Minister has issued plans and strategies for the whole nation to transform digitally. The atmosphere has generated good resources and an ecosystem for digital banks to develop

Conclusion

Despite challenges, ample opportunities are waiting for those who take risks. As an FDI consultant, Viettonkin is working with stakeholders from different countries to leverage resources from developed countries including the US, Western EU. And, Viettonkin is willing to support and provide technical and professional assistance for the development of digital banking services, and the digital transformation of the financial service sectors in Vietnam. This is an initiative that we have joined and hope to cooperate with relevant stakeholders. 

If you are interested in investing in the Vietnam Fintech sector, don't hesitate to contact our Vietonkin consultant team via email or contact page. Our professionals, who are insightful of the Vietnam market and legislation, can provide detailed advice on penetrating this potential market. 

The wake of the Covid-19 pandemic and the swift change in the behaviors of consumers have pushed the banking sector in Vietnam towards digital transformation. The post-Covid “new” normal has presented Vietnamese banks with challenges. To survive, they have to catch up with the digital trends; however, new opportunities are open to them and investors in this sector when digital banking seems promising to grow. 

Market potential

In Southeast Asia (SEA), digital sectors have experienced substantial growth, reaching 100 billion USD in 2020, expecting to surpass 300 billion USD in 2025. In the region, Vietnam currently ranks 3rd in attracting investment in companies operating on online platforms, including digital services and fintech. Besides, by 2025, Vietnam's digital economy will account for about one-fifth of GDP, which will increase by 7 - 16% by 2030, equivalent to about 28 - 62 billion USD, signaling the golden time to promote digital business. 

Customer behavior

In a recent survey by KPMG, in Asia–Pacific emerging markets, the share of consumers actively using digital banking increased sharply, rising 33 percentage points from 54% to 88% in a period of 5 years (2017- 2021). In contrast, the level of digital adoption among consumers in developed Asia–Pacific markets has remained stable at approximately 90%. The increase in active digital bank users is arguably higher in Vietnam compared with APAC - emerging and some APAC - developed markets, with the numbers rising by 41 percentage points to 82% in 2021 (KPMG, 2021). 

The population of Vietnam is currently more than 98 million people (General Statistics Office, 2021), of which 70% are in the adult age, and 72% own at least a smartphone which is equivalent to approximately 70 million people. This number of Vietnamese smartphone users ranks second in SEA, only behind Indonesia. Likewise, 67% of Gen Y users choose mobile as a common payment method, and 61% of them prefer opening an account online rather than going to the banks (MB Bank, 2021 quarterly report). Concurrently, 80% of Gen Z use digital banking on smartphones, becoming the generation that sets the pace for the future development of digital banking. Furthermore, as the population of Vietnam largely comprises the young generation, with the ability to quickly adapt to new technology and being tech-savvy, an increasing number of people have adopted digital financial services, which has presented a potential pool of customers for the growth of digital banking in Vietnam. The number of banking application users in Vietnam recorded a growth of 73% in the first 9 months of 2020, the highest rate in the entire region. However, digital banking penetration is still moderate, and Vietnam's digital financial services have a lot of room for development in the coming years.

In 2021, Vietnam record 8 million new digital users of which 97% are using online services, and 99% intend to keep doing so. Also in the report “Year in search” of Google, the search interest in “ ngân hàng online (online banking)”  and “mở thẻ online (open card online)” increase by over 58% and 76% respectively.  Rising searches in 2021 paint a picture of how the many newcomers have not only dipped their toes into the online world but also taken the plunge to integrate digital into their lifestyles. In the next five years, eight in 10 merchants anticipate more than half of their sales to come from online sources, 81% of them likely to increase their usage of digital payments in the next one to two years. 

This is a watershed moment for the bank to think about digital ways to be readier to respond to future changes that may lie ahead, while still keeping the customer at the center of what you do.

Collaborations with Fintech 

The survey on Fintech activities of financial companies globally in 2017 by KPMG shows that 81% of banks oriented cooperation models. According to the Global Fintech Report 2017 of Capgemini Information Technology Group (France), 77% of bank managers surveyed considered Fintech as a future cooperation partner.

In Vietnam, current fintech transactions are also based on collaboration with bank accounts. Therefore, the development of digital banking will have several advantages when integrating its products and services with Fintechs. In this way, fintech firms will help banks expand the reach of their digital financial products and services. In addition, capital resources are a challenge for all fintech companies. Especially when it comes to raising capital for credit activities and increasing transaction volume and consumer lending, only banks have the ability to perform as Fintechs are currently limited to low-volume transactions. Accordingly, banks can help fintech companies scale up the volume of their transactions substantially.

Conclusion

Ample opportunities are waiting for those who take risks. Yet, the investors should consider the legal framework in the digital banking sector. If you are interested in investing in the Vietnam digital banking sector, don't hesitate to contact our Vietonkin consultant team via email or contact page. Our professionals, who are insightful of the Vietnam market and legislation, can provide detailed advice on penetrating this potential market.