Vietnam Banking – Towards the forefront of Digitalization
By Aditya Kapoor
A closer look into the Vietnamese banking sector and the challenges faced by banks in the age of rapid #DigitalTransformation
The Vietnamese economy is developing fast. At the heart of this progress is the country’s expanding banking sector. The top 10 commercials banks already account for 66% total assets and 46% charter capital of the whole banking system, while the local banks hold 90% of the market share in retail services due to their larger networks. With rising affluence and tech-savviness among the young population in Vietnam and the rapid development of consumer finance and banking infrastructure, digital banking is predicted to be the next big step towards a wholesome financial inclusion of customers from all age group.
What holds the key to the Vietnamese banking sector?
Banking is at the cusp of digitalization, and there is a huge potential in Vietnam. With only 20% of more than 90 million citizens in Vietnam holding bank accounts, there is room for greater expansion of the retail banking segment. This is the perfect platform for banks to increase activities in retail banking to grow their loans and deposits in the country and gives them the incentive to reach out to the consumers of today and the future.
Also, with a mere 3% of the population owning credit cards, banks can also look forward to tap on this opportunity to grow transaction values by cards through digitization. Using digital technology, banks can also attract new customers, while simultaneously encouraging existing customers to use more products and services on offer. With the rising popularity of e-commerce in the country, it is estimated that card transaction value will continue to rise by more than 50%. Platforms like PayPal and Facebook are also gaining in popularity as digital payment platforms.
The consumer needs go beyond convenience
87% of the Vietnam population is under the age of 54. That is a huge chunk, and a potential sure shot target to enable digitalization. According to this piece, the middle class in this country will increase to 33 million people in 2020 (approx.). With 60% of Vietnamese under the age of 35, and 58% of the population being digital natives, consumers demand more convenient and accessible financial services.
But this is not all. The correlation between millennial growth and mobile penetration is for all to see. Vietnamese millennials – 20% of the population, are the fastest growing consumer finance industry’s market segment. And, around 40 Million Vietnamese have now access to the internet which is about 44% of the population. The millennials want a credit card to enable them to satisfy their immediate buying needs. Many of them will qualify to get one within the next 5 years. Additionally, take a look at the image below and see for yourself where digital banking ranks among other activities on a smartphone.
Online activities which people do on their smartphone
This is not a coincidence, and banks will have to pull out all the stops to make sure digitalization is the way forward not only for them but also for the consumers.
But Vietnamese banks have challenges or their own
It goes without saying that technological advancements need to be at the top of the ‘to-do’ list for Vietnam banks. Check out this blog, which talks about “digital bank means banks have to inherently become digital.” With most banks extending mobile banking and internet banking services, technological application is key to banks’ success. Continuous and deep digitization in every traditional banking transaction and service is the way to go in the future. It comes as no surprise that when compared to other nations in APAC on the lines of ‘Adopting omnichannel distribution strategies in retail banking’, a lack of internet penetration is possibly hampering the growth of digitization in Vietnam
Source: EY, Winning through customer experience. EY Global Consumer Banking Survey, 2014
But before this, banks need to take a closer look at the inefficiencies at hand. Banks lack a common vision for digital banking. Interfaces and systems are not integrated, infrastructures are outdated and the ability to access multi-channel is poor. Although the retail banking market keeps looking for cost-effective ways to increase financial inclusions, it needs to develop a wide-ranging suite of domestic and cross-border products or solutions for their respective target market.
In the future, retail banking in Vietnam will require more technological investment to engender new products and competitiveness. This needs to be taken care of first before banks can even think of moving ahead with digitalization.
How do Vietnamese banks meet customer expectations?
With the core problem lying in product diversity and technological advancements, banks in Vietnam need to come up with an ‘end-to-end customer-centric model’ in order to transform themselves and become truly digital. Delivering an optimal customer experience is a combination of ease of access to financial services, diverse product offering, and a digital banking platform. Making sure the customer can seamlessly transition from one channel to another and can still access all the services will help Vietnamese banks exceed expectations.
For retail banking in Vietnam, pricing and bundling of products and offers will allow the bank to innovate and to tailor solutions that fit their client base. Bundling must encompass a wider net of products – allowing for cross-selling – using attractive pricing or loyalty schemes in one product to incentivize the take-up of other, higher margin services. This will help to increase the lifetime value of the customer with relationship-based pricing and help deliver the most suitable offer with the optimal product offering.
Building a centralized platform which can help deliver business services seamlessly, working along with the current technology infrastructure is the key to such success. This centralized platform will help banks overcome the technical and business challenges of the current tech systems by breaking the system silos and keeping the end customer at the center. Such platform reduces time-to-market significantly and helps exceed customer expectations.
All this will eventually lead to the effective management of customer and offer life-cycles in an omnichannel environment. In this day and age of rapid digital transformation, Vietnamese banks can’t afford to ignore the want of customers, who want to switch to digital banking soon. The basics are in place in Vietnam. All that is needed is for the bases to be covered. Only then will there be a boom in terms of banking and only then will digital transformation truly take over. The time to act is now!