Communist Review - The Party and the State have determined that the banking sector needs to take the lead in the digital transformation process. In line with Party and State policies and orientations, the banking sector has worked diligently on comprehensive digital transformation across multiple aspects and has achieved encouraging results. However, the sector needs to implement new solutions to achieve the set objectives, maintain its pioneering position in the digital transformation journey, and contribute to the acceleration of national digital transformation towards a digital government, digital economy, and digital society.

Digital transformation is inevitable in the banking sector 

Digital transformation is the process of integrating digital technologies into all areas of business, agencies, and organizations, fundamentally changing how they operate while delivering products and services, and creating value for customers. Digital transformation helps address the relationships between the State, the market, and society; helps promote economic growth; improves labor productivity, competitiveness, and business and production efficiency; and reduces costs for citizens and businesses.

The Fourth Industrial Revolution and digitization have profoundly transformed social life and the global economy, strongly affecting all sectors and fields. The Fourth Industrial Revolution also presents numerous opportunities and challenges for each nation, organization, and individual. Therefore, digital transformation has become an inevitable trend and a mandatory requirement for Vietnam to adapt to and surmount current challenges.

In this context, the Communist Party of Vietnam has identified accelerating digital transformation as a new policy, a crucial breakthrough, and an urgent, long-term strategic task for the entire political system and society. Digital transformation is prominently mentioned in development goals and perspectives, and strategic breakthroughs outlined in documents of the 13th National Party Congress. The 10-year Socio-economic Development Strategy until 2030 emphasizes rapid and sustainable development based mainly on science, technology, innovation, and digital transformation. It calls for vigorous efforts to implement digital transformation and create a digital government, economy, and society. The 13th National Party Congress Resolution sets forth the intention to intensify national digital transformation and develop the digital economy based on science, technology, and innovation.

To implement this policy, the Politburo promulgated Resolution 52-NQ/TW on September 27, 2019, on “Some orientations and policies regarding proactive participation in the Fourth Industrial Revolution", and the Prime Minister issued Decision 749/QD-TTg on June 3, 2020, on “Approval of the ‘National Digital Transformation Program until 2025, with orientations toward 2030.’" These important documents outline the approach to the Fourth Industrial Revolution and digital transformation in banking activities. Top priority is given to digital transformation in the banking sector which has a significant social impact and is directly related to the daily lives of the people.

On May 11, 2021, the State Bank of Vietnam issued Decision 810/QD-NHNN, approving the digital transformation plan for the banking sector until 2025, with orientations toward 2030. This plan emphasizes a people-centered approach and user-friendly services as the measure of successful digital transformation. The Decision marked an important milestone, providing guidelines for the sector’s digital transformation. In recent times, the banking sector has proactively and diligently undertaken comprehensive digital transformation in various areas, including raising awareness, creating institutions, building technological infrastructure, developing services, and ensuring security and safety.

First, awareness raising: People are identified as the center, subject, goal, and driving force of digital transformation. For digital transformation to succeed, it is essential to hone awareness and mindset to effectively shift from a traditional environment to a digital one. This is one of the most important tasks and solutions in national digital transformation.

The State Bank of Vietnam is one of the first ministries and sectors to establish a Digital Transformation Steering Committee (in 2021). It has designated May 11 each year as Digital Transformation Day for the banking sector to improve organizations’ and individuals’ awareness about the role and benefits of digital transformation in banking activities. The central bank has also organized seminars, workshops, and training courses for its leaders and staff on digital transformation, and implemented programs to enhance people’s banking and financial knowledge.

Second, creation of institutions: The legal framework is crucial for the development of digital banking products and services. The lack of a consistent legal corridor is one of the factors that can slow down the digitalization process of credit institutions. Therefore, policies and regulations of the banking sector should be constantly calibrated to facilitate its digital transformation.

The State Bank of Vietnam has focused on:

1. Reviewing and proposing amendments and supplements for issues that need to be legalized^(1);

2. Implementing projects, programs, and plans to promote digital transformation in banking activities⁽²⁾.

3. Promulgating documents which facilitate digital transformation in the banking sector. The State Bank is in the process of finalizing a draft law and submitting decrees⁽³⁾ to the Government to lay the groundwork for the application of digital technology in banking activities.

Third, the development of digital transformation infrastructure: If digital transformation is likened to a house, then digital infrastructure is its foundation; thus, developing digital infrastructure will provide a solid launch pad for digital transformation. The current infrastructure supporting the banking sector’s digital transformation includes critical payment systems and the IT infrastructure of each credit institution and intermediary payment service providers; the national credit information system; and the technical infrastructure of various units, sectors, and branches connected to the banking sector during the provision of products and services to customers.

Importance has been constantly attached to digital transformation infrastructure to facilitate digital transformation of the banking sector. Key systems such as the interbank electronic payment system, the financial switching and electronic clearing system and others have been regularly upgraded to ensure continuous, seamless, and secure operations, meeting the demand for nationwide electronic payments. The banking sector aims to build an integrated ecosystem which will connect all ministries and sectors. Vietnam has initiated QR Code trials with Thailand and Cambodia which are expected to expand to other countries in the region in the near future.

The credit information infrastructure has been upgraded to enhance the processing and automatic update capacity as well as to improve the ability to collect and process data both within and outside the banking sector, aiming to expand credit information coverage to over 72.75% of adults with 55 million accounts and ensure an update rate of over 98%. The State Bank of Vietnam has coordinated with the Ministry of Public Security to authenticate over 51 million pieces of customers' credit information to clean data. The Credit Information Center (CIC) under the State Bank of Vietnam has worked with the Police Department for Administrative Management of Social Order (C06) under the Ministry of Public Security to authenticate 42.3 million customer records by offline methods, laying a crucial foundation to secure healthy credit information and prevent fraud and criminal activities in the credit sector.

The State Bank of Vietnam has established a Task Force to implement Scheme 06 on developing applications for the population database. It has also issued a plan for the banking sector to implement Scheme 06 for the 2022-2025 period, along with detailed annual task plans. Thanks to the proactive and coordinated deployment of various solutions, the banking sector has achieved several positive outcomes. The State Bank of Vietnam’s public services have connected to and utilized the National Population Database since December 2022, contributing to the fight against money laundering and terrorism sponsorship. Many banks have coordinated with the Ministry of Public Security to successfully pilot customer authentication apps using chip-based ID cards.

Fourth, the development of digital banking models, products, and services: During the digital transformation process with a customer-centered approach, credit institutions have actively developed digital banking models, products, and services. Banks have proactively deployed advanced digital technologies such as cloud computing, big data analytics, robotic process automation (RPA), artificial intelligence (AI), and machine learning in their operations, in order to provide safe and convenient products and services, thereby enhancing customer experiences. Banks have established internal centers and units to research and accelerate digital transformation. Many banks have actively collaborated with tech giants and fintech companies to improve their performance through the application of advanced digital technologies and solutions; to offer new-generation digital banking (Neobanking) services targeting young, dynamic, and tech-savvy customers; and to provide customers with superior digital experiences. Banks have also partnered with merchandise and service providers to offer banking and non-banking products and services which are safe, convenient, and deeply integrated into customers’ digital lives.

Recently, most banks have been developing digital transformation strategies and internet and mobile-based application services. Domestic commercial banks have launched digital banking applications and are striving to create their own digital products. Many banking operations such as opening payment accounts, transferring payments, and depositing/saving money, have been fully digitalized, allowing customers to perform all these tasks digitally. Several banks reported that over 90% of their customers’ transactions are conducted via digital channels. A digital banking and payment ecosystem has been established, connecting digital banking services with various other digital services across the economy. This integration provides seamless experiences and significant benefits to users in the digital space.

Fifth, ensuring cybersecurity and customer information security: Digital transformation must be accompanied by measures to ensure security, safety, and the protection of customers' legitimate rights and interests, thus guaranteeing the sustainable development of the banking system and fostering customer trust and loyalty in digital products and services. In the banking industry’s IT Development Strategy until 2025, with orientations towards 2030, information security is identified as one of the main pillars of technological development in the sector. Accordingly, the State Bank of Vietnam has been directing its subordinates to synchronously implement five groups of solutions⁽⁴⁾ to ensure the security and safety of the information system and the protection of customer data. Credit institutions have guaranteed the safety and continuous operation of their information systems, meeting the needs of individuals and businesses. As a result, the banking industry was ranked first among all sectors in the Vietnam ICT Index and cybersecurity readiness in 2020 and 2021 by the Ministry of Information and Communications. Vietnam was rated by global management consulting firm McKinsey as having the fastest digital banking application in the region.

Challenges facing digital transformation in the banking sector

Despite encouraging progress in digital transformation, the banking sector is faced with several challenges including:

- Incomplete, inconsistent, and unclear legal framework to promote digital banking and foster innovation amid the Fourth Industrial Revolution. Further review, supplementation, and enactment are needed.

- Insufficient synchronization and standardization of technical infrastructure to facilitate interconnectivity and seamless integration between the banking industry and other sectors to form a digital ecosystem that provides integrated services to customers.

- Inconsistent application of technology in the entire banking system, which hinders the sector’s efforts to create major breakthroughs and significant changes across the board. Modern and innovative banking services are mostly provided by large banks.

- Growing cybersecurity risks due to increasing high-tech crimes with new, sophisticated, and unpredictable tactics. Stakeholders’ and users’ awareness of digital transformation and risks in online transactions remains limited. A segment of the population, especially in rural and remote areas, is still hesitant to access and use digital payment services.

- A shortage of high-caliber, professional, and regionally and globally qualified personnel specializing in information technology and digital transformation.

Solutions to promote digital transformation in the near future

To address the aforementioned challenges and maintain the achievements gained in line with Party and State guidelines, the banking sector will focus on the following solutions in the coming period:

First, continue to refine the legal framework to facilitate digital transformation, while reviewing and amending regulations on data connection and use, and on security, safety, and confidentiality in electronic banking operations, including biometric authentication.

Second, continue to build and improve the technological infrastructure to support the provision of digital products; and strengthen the integration and connectivity with other ministries, sectors, localities, and branches to offer banking products and services on digital platforms suitable for each region.

Third, simplify and optimize processes and operations while focusing on an enhanced customer experience, as well as vigorously apply digital technology to develop and provide safe and convenient products and services while ensuring information security for IT systems, digital banking services, and digital payments. International cooperation in digital transformation will be intensified to develop and integrate new technologies into banking operations.

Fourth, accelerate communication to improve public awareness of the safe and appropriate use of banking services on digital channels. Customers will be equipped with the necessary knowledge and skills to protect themselves from risks in digital transactions. The banking sector will continue to closely study and apply innovative models and solutions to ensure the security, safety, and legitimate rights and interests of customers in a timely fashion.

Fifth, focus on training, including training in science and technology development and application, to improve the quality of human resources, especially in leaders and prominent experts.

---------------------

(1) The Law on Anti-Money Laundering approved by the National Assembly; proposed revisions to the Law on Credit Institutions, and the  Law on the State Bank of Vietnam  
(2) The Directive on promoting digital transformation and ensuring information security and safety in banking operations; the Plan on digital transformation in the banking sector until 2025, with orientations towards 2030; the State Bank of Vietnam’s digital transformation plan for 2022 and 2023; the Plan of Action of the banking sector's Digital Transformation Steering Committee for 2022 and 2023; and the banking sector’s Plan to implement the national strategy on the development of the digital economy and digital society until 2025, with orientations towards 2030.
(3) The draft revised Law on Credit Institutions, the draft Decree on Non-cash Payment, and the draft Decree on regulatory sandbox of financial technology (Fintech) operations in the banking sector.
(4) 1. Reviewing and issuing legal documents and directives; conducting inspections to ensure the safety of information systems and prevent cybercrime within credit institutions; regularly monitoring and supervising IT infrastructure and critical payment systems. 2. Promoting communication to improve public awareness of information security while using e-banking services and digital banking and digital payment apps. 3. Deploying technical solutions to strengthen information safety. 4. Improving the banking sector’s information security incident response network. 5. Collaborating with relevant authorities in preventing high-tech crime and handling banking fraudulences.

This article was published in the Communist Review No. 1026 (November 2023)