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Banking & Finance

Digital the only way forward

Released at: 07:58, 04/08/2019

Digital the only way forward

Photo: VET Magazine

It's clear that digitalization is a prerequisite for local banks to survive and develop in the new era.

by Hong Nhung

The Orient Commercial Joint Stock Bank (OCB) officially launched its OCB Omni digital banking service in April, becoming the first integrated bank in Vietnam to move to an omni-channel digital platform that allows customers to switch between devices during a single transaction. A raft of other banks in Vietnam are also rushing to implement technology projects towards developing digital banking and digital ecosystems, creating a new competitive dimension in attracting users. Digitalization is becoming a strategic key for local banks to bolster their competitiveness, enhance their business performance, and drive growth.

Into the new era

The advent and development of state-of-theart payment technologies are driving banks into the digitalization playground to stay abreast of new trends that cut costs and increase revenue while bringing more benefits to customers, Mr. Le Anh Dung, Deputy Director of the Payment Department at the State Bank of Vietnam (SBV), told the Vietnam Banking Conference 2019 last month in Ho Chi Minh City.

Following the government’s roadmap towards a cashless economy by 2020, local banks are acutely aware of the need to move ahead with digitalized solutions. The Vietnam Prosperity Joint Stock Bank (VPBank) has invested heavily in a digital transformation project since 2013, to differentiate itself and win over customers with technology. “Digitalization has been carried out comprehensively, from providing products and services to improving distribution channels and expanding product portfolios,” said Mr. Nguyen Chien Thang, Digital Sales Director in the Digital Banking Services (DBS) Division at VPBank.

Last year marked a breakthrough for the division after five years of implementing the digital transformation project. Seventy-five per cent of its transactions had to be made at the counter in 2013, but a mere 8 per cent needed the personal touch by 2018. In the second quarter of this year, transactions via mobile banking were eleven times higher year-on-year in transaction volume and nine times higher in value.

As one of the first banks in Vietnam to embark on the digital journey, OCB’s digital strategy is embedded into its core business. “We put in a lot of effort into understanding where we could harmonize our digital strategy with our ongoing business model, which includes the physical network,” said Mr. Sanjay Chakrabarty, Head of Consumer Banking and Deputy CEO of OCB. “We worked with well-established consultants to build our roadmap and it took us a while to gain full clarity on the digital transformation we wanted to bring about. We realized it was so such more than just technology; it is also about mindset and culture.”

The process has changed the way the bank does business. “Ninety per cent of all new customers we acquire now made at least one online transaction in the first six months while 45 per cent of our credit cards are being issued exclusively through digital channels,” he explained. “We have unsecured pre-approved loans that are delivered and fulfilled through digital channels, and we are now selling insurance as well as investments through our OCB Omni platform. This has resulted in a significant enhancement of the customer experience.”

Similarly, Vietnam International Bank (VIB) is actively engaged in transforming its business to digital. “Starting seven years ago, VIB has taken a further step forward by adopting SOA Architecture in preparation for digital transformation,” Mr. Tran Nhat Minh, CIO and Deputy CEO of VIB, told VET. “This year, we have launched to the market our completely new internet banking and mobile banking WAP platform, which incorporates full basic banking services. The number of customers using internet and mobile banking has rocketed, tripling the number from a year ago.”

The bank continues to reinforce its digital platforms by embracing digital technologies such as robotics automation, machine learning, and chatbot, providing seamless digital experiences across channels to both internal and external customers. Thanks to its consistent move towards digital transformation, VIB has gained significant momentum, with 20 per cent of new retail customers now on-boarded through digital channels, 60 per cent of retail customers using digital channels with the bank, 72 per cent of bank-wide transactions being conducted through digital channels, and 11 per cent of credit card applicants being successful.

Adaptive strategies

Industry 4.0 is still in its early stages, according to banking analyst Mr. Nguyen Tri Hieu, so Vietnamese banks have massive opportunities in their digital transformation, with 66 per cent of the population being internet users and 72 per cent using smartphones, and banked customers being responsive to the trend, with 44 per cent using digital services and the e-wallet market booming, with more than 10 million users. The government is aiming to make Vietnam a cashless economy and digital banking development is critical to this mission. For banks, each has its own strategies to develop digital channels and payments.

Mr. Minh revealed that VIB is investing 6-7 per cent of its total revenue in technologies. “We will not only be investing in new digital technologies but also investing to improve legacy systems,” he said. “We can’t get rid of the legacy systems quickly, but we also can’t delay the digitalization process, so we plan to get the best of both worlds by proactively developing and upgrading two types of technologies at the same time and ensuring they work well together to serve our traditional business and our digital business.” Digital banking is one of the top strategic directions of VIB over the next decade.

“Digital transformation is not just a trend, it is a must for us to survive over the next ten years,” he went on. “We are nurturing a few internal digital solutions to serve internal customers with the aim of providing smart and interactive tools to support our staff and sales force, with the same target of saving cost and time for both customers and banks and providing the best experience.”

Digital business and digital banking have been two of the most critical time-consuming investments by OCB since 2016, according to Mr. Du Xuan Vu, Head of the bank’s Information Technology (IT) Division. The bank also established a Digital Banking Department within the Retail Banking Division in early 2018 to run all digital banking initiatives, with amazing achievements. “At OCB, we categorize digital banking into two fields - ‘digital optimization’ to improve what has been done in the new digital manner, and ‘digital transformation’, to create more new business models via exploiting digital technologies and supporting capabilities,” he explained.

The bank will enhance five fundamental platforms: OCB Omni (OCB digital banking), Omni Go (onboarding), Omni Merchant (merchant banking), Open-API (open banking for strategic partners and ecosystem), and a Supply Chain Financing Platform (SCF), in which Open-API and SCF are the two main focuses this year at the front end while core-banking upgrades and eoffice are two in the middle and back end. Applying blockchain, robotics, and artificial intelligence (AI) in the platforms are its main technology tasks for the next few years.

Challenges in transformation

Local banks, though, still face certain challenges in digital banking transformation. Identifying four major barriers to digitalization - low consumer trust of new services, developing networks to accept new payment methods, government support policies, and technology - VPBank has invested heavily for a few years to educate its customers through a range of promotional programs, so that users will become familiar with new technologies, and has focused on maximizing its ecosystem expansion through integration with service providers. “More than half of licensed ewallet providers in Vietnam are our partners,” Mr. Thang said.

Regarding interaction between banks and consumers, Mr. Hieu said synchronization is still lacking, leading to a host of difficulties for local banks over recent years. “Banks’ security systems haven’t been completed, and criminal incidents are occurring internally at local banks, which impair confidence among customers,” he said. In regard to the country’s vision of a cashless economy, he suggested the government quickly compile a strict legal framework on cashless payments, e-wallets, and cybersecurity, but which is sufficiently transparent for the development of the country’s digital banking and finance ecosystem.

However, according to Mr. Vu from OCB, interaction could be seen as both a challenge and an opportunity. The challenge is easy to see in daily activities, in which e-KYC, security, seamless experiences, and speed to market are areas that banks should improve significantly, while they could also effectively utilize technologies to provide secure and convenient ways of banking and overcome problems from interaction and competition.

In his opinion, the two most difficult barriers on the path to digital banking are balancing IT security and customer convenience, then prioritizing which technologies should be invested in and deployed. Banking nowadays takes less time than before, but wrong decisions could put a bank well behind its competitors in just a few months.

Digitalization in the banking industry is an invaluable element for banks to survive and develop during Industry 4.0 because of the growing number of customers using products and services provided by fintech companies. Under pressure to enhance the customer experience, increase revenue, and cut costs, banks have been forced to step up their digital investments and strengthen cooperation with fintechs to learn and purchase new financial technologies to improve their operational processes.

Therefore, according to a forecast from the Research Department at LienVietPostBank (LPBResearch) released last year, digital banking must be the next step taken by retail banks in Vietnam, though most of them have no strategic development at the moment. LPBResearch sees that banks will take stronger steps in researching and using digital banking to bring customers new experiences and cut operating costs over the years to come.

For many organizations, the building blocks for a data-driven, customer-centric digital banking business are already in place. In order to carry through with the transformation and survive in this fast-paced digital landscape, however, banks must shift to a more flexible technology architecture and a new way of working, build up their data and analytics capabilities, and develop a plan for acquiring and developing the new talent required for the workforce of the future.”
Mr. Bruce Delteil, Partner at McKinsey & Company in Hanoi

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