LAW ON DIGITAL BANKING IN SOME COUNTRIES AND EXPERIENCES FOR VIETNAM

MINISTRY OF EDUCATION AND TRAINING
FOREIGN TRADE UNIVERSITY

MASTER THESIS

LAW ON DIGITAL BANKING IN SOME COUNTRIES AND
EXPERIENCES FOR VIETNAM

Specialization: International Trade Policy and Law

PHAM THI QUYNH MAI

Hanoi – 2019


MINISTRY OF EDUCATION AND TRAINING
FOREIGN TRADE UNIVERSITY

ACKNOWLEDGEMENTS

MASTER THESIS

Firstly, I would like to express my deepest appreciation and
thanks to my mentor, Dr. Ha Cong Anh Bao for precious guidance,
comments and suggestions.
This paper is one of the last compulsory elements of Master of
International

LAW ON DIGITAL BANKING IN SOME COUNTRIES AND

Trade Policy and Law

program at the
Trade University. The
EXPERIENCES
FORForeign
VIETNAM
objective of this study is to find out recommendations for Vietnam
Government to enhance the development of digital banking. I
hope that the recommendations of this study will be useful for the
Major: International
Trade
Policy
and on
Lawdigital banking in
legislature in developing
of policies
and
laws

the foreseeable future.

COMMITMENT
I would like to assure that the research of “Law on digital

banking in some countries and experiences for Vietnam”
Full name: Pham Thi Quynh Mai

was carried out by me. All contents, tables, figures, chart
Supervisor:
Dr. Ha Cong
Anh Bao and quoted from a

illustrated in this study
are honest,
accurate

reliable source.
Hanoi,
January, 2019
Pham Thi Quynh Mai
Hanoi – 2019


TABLE OF CONTENTS

LIST OF ABBREVIATIONS
AI
API
ATM
BOK
BOT
CEO
CRM
E-banking

Artificial Intelligence
Application Programming Interface
Automated Teller Machine
Bank of Korea
Bank of Thailand
Chief Executive Officer
Customer Relationship Management

Electronic banking
Electronic Identity and Electronic Services

eIDAS
eKYC
EU
FinTech
GDPR
GovTech
ID

Directive 2014
Electronic Know Your Customer process
European Union
Financial Technology
EU General Data Protection Regulation
Government Technology Agency in Singapore
Identity Card
Korea Financial Telecommunications &

KFTC

Clearings Institute
KPMG is a global network of professional firms

KPMG
LOS

providing Audit, Tax and Advisory services
Loan Origination System

LVPS
MAS

Large-Value Payment System
Monetary Authority of Singapore
Network and Information Security Directive

NIS

2016
The OCBC Bank group comprises a family of
companies owned by Singapore's longest

OCBC Bank established local bank.
P2P
Peer-to-Peer
Personal Data Protection Act 2012 of
PDPA

Singapore


LIST OF ABBREVIATIONS
PIPA
POS
PSD1
PSD2

Personal Information Protection Act of Korea

Point of Sale
The Payment Services Directive 2007
Payment Services Directive 2015
PricewaterhouseCoopers is a global network of
professional firms providing Audit, Tax and

PwC
RPS
SBV
SEPA

Advisory services
Retail Payment Systems
State Bank of Vietnam
Single Euro Payment Area


LIST OF TABLES AND CHARTS
TABLES

CHARTS


ABSTRACT
In Vietnam, the Prime Minister has approved Decision No.986/QD-TTg on the
Development Strategy of the Vietnam Banking Sector to 2025, with orientations to
2030 which also aims to develop digital banking in order to create a basis for
improving access to banking services, in particular, broadening the network of
traditional channels in combination with enhancing the development of modern
banking channels (electronic banking, mobile banking, internet banking, etc.,)

through the application of technical advances. Policies on digital banking are made
up of two components, namely the digital banking policy and law; and the
application of technical advances. Researching policy and law governing the digital
banking is meant to be the fundamental and priority condition to facilitate both
components. This research selected policy and law in EU, Singapore, Thailand,
South Korea and China as the mirror for Vietnam thereby giving some
recommendations for Vietnam Government to amend and supplement policy and
law on digital banking.


7

CHAPTER I: INTRODUCTION
1.1
Research rationale

The world is coming to a new era of innovation that will

change the relationships between banks and their customers. Oldfashioned banks suffer from numerous drawbacks, because they
are far behind the latest technological breakthroughs in the 21
century’s the digital economy. Thanks to innovations in information
technology and mobile telecommunications adoption, there is an
increasing trend in digital banking solutions. Digital banking is a
valuable investment opportunity because traditional banks or even
online banking are no longer able to adequately service their
customers' requirements in the digital revolution. Customer needs
cannot be satisfied by traditional banks which is unable to catch up
with the digital ages. The customers prefer digital banking to
traditional banks due to its convenience and time savings. In
Vietnam, according to a survey conducted by IDG Vietnam, 81% of

surveyees responded that they used digital banking solutions in
2017 compared to 21% in 2015 (Fintechnews Vietnam, 2018).
Digital banking not only offers great opportunities for banks,
but also brings many challenges for both banks and state
agencies. Banks shall have to clarify how to meet the high
expectations of customers; utilize new technologies, prevent
network security threats and protect customers’ information while
the state agencies are being challenged by the protection of
consumer interests, dealing with the risk of network security/data
privacy

and

competition.
In order

balancing
to

meet

management
market

with

demand

innovation
and

and

international

integration timely, many domestic banks have actively applied
new technological solutions to simplify the process and increase
the coverage of products and services efficiently. However,


8

implementation of these solutions faces many challenges due to
incomplete legal corridors. Therefore, the adjustment and updating
of policy and laws in line with the inevitable reform of banking
technology is really necessary and decisive for the long-term
development of digital banking in Viet Nam.
In such circumstance, it is necessary to have a full scaled
research about digital banking which is very important and needful
for Vietnam.
1.2
Literature review
There are a lot of domestic and foreign studies on digital
banking.
From the foreign writers’ point of view, this topic has been
addressed in several researches. The introduction of a third wave
of innovation in banking implies that traditional banks are far
behind the latest technological innovations and how banking will
evolve in the digital age (Alex Lipton, David Shrier, Alex Pentland Massachusetts Institute of Technology, Digital banking manifesto:
the end of banks? in 2016). Due to the fact that banks need

digitize their existing businesses, creating a new digital-only
banking

business

can

meet

an

evolving

set

of

customer

expectations quickly and effectively (Sonia Barquin and Vinayak
HV, Buiding a Digital Banking Business in 2018). Report of the
Working Group on FinTech and Digital Banking in 2017 by Reserve
Bank of India explained why FinTech or digital innovations have
emerged as a potentially transformative force in the financial
markets. Capagemini’s report (2017) concluded that banks are
considering fintech firms as partners and banks are increasing
adapting public cloud services. Takeshi Jingu studied financial risk
prevention as well as protection of personal information as a new
regulatory priority in his research namely China’s risk prevention
initiatives in Internet finance and Fintech sectors in 2018.

9

From the local writers’ point of view, there has been more
newspaper, conference, discussion papers, research published
related to the topic of digital banking. Some researchers had quite
valuable analysis of this topic. Nguyen Thuy Duong - Deputy
General Director of Ernst & Young Viet Nam highlighted practice
and legal framework and management and development on digital
banking in several countries, including: India, Singapore, China in
her study namely “Kinh nghiệm quốc tế trong việc quản lý và phát
triển ngân hàng số tại một số nước trong khu vực và thế giới” in
2017. A number of digital solution in digital banking such as eKYC,
electronic saving deposits has been addressed in Nguyen Hung –
General Director of TPBank, Những thách thức trong áp dụng
phương pháp định danh khách hàng trên nền tảng kỹ thuật số,
triển khai sản phẩm tiết kiệm điện tử và phát triển dịch vụ ngân
hàng thông qua đại lý ủy quyền” in 2017. Several of legal
workshops related to digital banking were held by SBV, including:
“Hành lang pháp lý cho ngân hàng số tại Việt Nam December
2017”, “Số hóa ngân hàng, cơ hội đột phá October 2018”. The
above mentioned workshops had the participation of Deputy
Governor of the central bank Nguyễn Kim Anh; representative from
the Ministry of Public Security, Ministry of Justice, State and local
banks,

E&Y

institutes,

Company

universities,

Limited,

fintech

contributing

their

companies,
discussion

research
to

the

workshop on the digital banking development and the need
adjustment and updating of policy and laws to govern and
facilitate the digital banking services in Vietnam.
Thus, all of the researches mentioned above are tended to
focus on an specific aspect of the law on digital banking such as:
the appearance of digital banking, competitiveness between
fintech and banks, financial risk and data protection, experiences

10

on management and development of digital banking, eKYC, etc.,
Up till now, however, there has not been a comprehensive, largescale study in terms of laws on digital banking of several countries
(including EU, Singapore, Thailand, South Korea and China) in
order to evaluate (i) experiences for Vietnam; (ii) ability of Vietnam
to learn from experiences from such countries; (iii) opportunities
and challenges when application of such countries’ experiences on
digital banking law as well as recommendations for Vietnam
government to amend and/or supplement laws on digital banking.
1.3
Research questions
Question 1: What is law on digital banking?
Question 2: What are differences between electronic banking
and digital banking?
Question 3: How do some countries in the world promulgate/
revise their policies and laws to govern digital banking?
Question 4: Which law on digital banking of Vietnam need
amending?
1.4
Scope of the research
There are lots of studies on electronic banking (or online
banking)

where

researches

on

digital

banking

are

almost

nonexistent. Thus, this study selected the data and information on
the development of digital banking and selected countries
(including EU, Singapore, Thailand, South Korea and China) as well
as Vietnam during the period of 2012 to 2018 to evaluate (i)
policies of such countries on digital banking; (ii) legal framework
on banking sector in general and digital banking in particular; (iii)
protection of customers’ information; and (iv) new technologies
which give rise to the blooming of digital banking.
On that basic, this research will find out experiences for
Vietnam when analyses the achievement as well as drawback of
selected

countries

recommendations

mentioned
for

Vietnam

above

thereby

Government

to

giving
develop

implement policies and law to facilitate digital banking.

some
and


11

1.5

Research methodology
The research approach of this study is qualitative research to

make a

primarily

theoretical

dissertation.

The methodology

including selection and discussion of theoretical material and
descriptive material, publication research, law research and case
review, include both present and historical information, and
detailed comparison of regulations, theories in terms of their
applicability.
1.6
Structure of thesis
This thesis comprises of 6 chapters, which are:
Chapter 1: Introduction
Chapter 2: Overview of digital banking
Chapter 3: Policy and Law on digital banking in some
countries
Chapter 4: Policy and Law on digital banking in Vietnam
Chapter 5: Recommendations for Vietnam on amendment of
law on digital banking
Chapter 6: Conclusion
CHAPTER II:
OVERVIEW OF DIGITAL BANKING
2.1.
Origin and development of digital banking
2.1.1. History of Digital Banking
In the mid 1970s, the automated teller machine (ATM) was
first launched at a branch of Barclays bank which is considered as
the earliest forms of digital banking. The electronic ATM is
developed by John Shepherd-Barron, the De La Rue Company
Limited. Thanks to ATM, customers could conduct banking
transactions including cash withdrawals and check deposits (Linda

Rodriguez McRobbie, 2015).
It was not until 1980s that the online banking is introduced to
the customers. Together with the blooming internet, producers
started to sell their products online which give rise to the
appearance of the Internet banking or online banking. Online
banking allows customers to conduct several banking transactions
such as money transfer, bank statements, and electronic bill
payment through the internet by means of banks’ website or app.


12

The modern digital banking world today was attributed to the
development of the ecommerce systems in the early 2000s.
Browser-based website and smartphones’ apps of banks gave
customers easy access to banking transactions on the go beyond
ATM machines and banking branches.

In 2017, over 60% of

consumers use their smartphones as the preferred method for
digital banking (Jim Marous, 2017).
Customer behavior is changing

rapidly,

especially

the

younger generation of consumers, who regularly use smartphones
and the internet to make purchases online. Banks which want to
retain existing customers and attract new customers have to
quickly digitize existing banking operations and move on to a
completely new digital business model. As a result, digital banking
appears and enables almost banking transactions to be carried out
through electronic devices such as smartphone, tablet, and laptop
without presence of customer at banks’ branch. In other words, the
traditional banking model that is dependent on the branch network
will eventually be transformed into an integrated model of digital
banking.
2.1.2. Electronic banking and digital banking

Digital banking and electronic banking are two concepts that
are gradually gaining popularity among customers because of its
convenience and efficiency compared to traditional channels.
Basically, these two types are quite similar in many respects, but
in reality, there are still significant differences. Electronic banking
was launched in Vietnam when the Internet usage is blooming.
Banking transactions such as balance inquiry, withdrawal, money
transfer, and savings are replaced by online operations (i.e.
internet banking, mobile banking) as long as the customer is
connected to the Internet. However, electronic banking is still only


13

an alternative solution under the control of the traditional bank.
Applications of digital banking will have all the functions of a real
bank as mentioned above. All transactions are conducted online

and you can send inquiries, questions only by mobile device. In
general,

electronic

banking

is

just

a

utility

of

the

bank,

concentrating only on digitizing some of the core features of the
bank, while digital banking embraces every programs and
activities undertaken by banks and their customers. That is the
difference

between

the

two

concepts

Digital

Banking

and

electronic banking. It can be said that digital banking is the trend
of the future because this form of banking will help customers as
well

as

financial

institutions

save,

reduce

costs

and

time

significantly.
2.1.3. Fintech and threats to bank

FinTech stands for financial technology, which means the
application of new, innovative, and modern technologies in the
financial

sector

(including

banking,

insurance,

investments,

retirement funds, payment services and financial infrastructures,
etc.,), to provide customers with transparent, efficient and
convenient financial solutions or services at a lower cost than
traditional financial services. Fintech companies are innovative
because they are not dominated by legal barriers like banks.
Continuing to apply the latest technologies, especially automation
technologies, artificial intelligence, social network data analysis,
Fintech companies are said to bring a better experience, higher
productivity than the products of banks. In addition, Fintech
companies accept risks in a wider range, higher levels, so they are
more likely to reach out to customers who are not banks’ customer
or not qualified to be bank customers.

14

The development of Fintech has really become a threat to
the existence of organizations providing retail financial services in
the world, specifically here are traditional banks. In the current
development trend, banks themselves have realized that there
must be a comprehensive transformation in the way they operate,
provide products and services if they do not want to be an empty
chain in the financial system. Thus, many traditional banks choose
to become digital banks because only digital technology can meet
the needs of customer integration quickly, conveniently and safely
which is different from traditional business model.
Banks are now moving from a competitive approach to
cooperation as a partner with Fintech. Basically, the partnership
here is conducted in the win-win model, in which banks will be able
to apply and update modern technologies without spending too
much on cost while Fintech can exploit the customer network, data
and capital of the bank. Investigations by many international
organizations show that the cooperation between banks and
Fintech is quite fundamental which facilitates banks to adopt
technological solutions to provide products and services met the
needs of the market. Specifically, according to a survey of
Fintech's global financers in 2017 by KPMG, when interviewing
Fintech's development strategy for the banking sector, it is
becoming increasingly important that 81% of the interviewed
banks favor a cooperative model, which is 20% increase compared
to the past (KPMG, 2017). Meanwhile, according to PwC Global
Fintech report in 2017, an average of 45% of banks surveyed
globally have collaborated with Fintech companies in developing

and supplying products higher than 32% of banks surveyed in
2016 (PwC, 2017).
2.2.
Definition of law on digital banking


15

To start with, let us begin with the term “digital” and
“digitalization”.
The term “digital” is typically used to refer to the storage of
data in the form of digital signals represented using the numbers 1
and 0. In digital banking, the term refers to information and the
format in which it is stored, such as digital KYC or eKYC, digital
customer records, etc. The term “digitalization” goes beyond
simply digitization. In this sense, books don't simply become
ebooks, but a complete interactive and multimedia experience;
business processes give way to online dialogues between parties
that were not previously connected directly.
As mentioned in Section 2.1.2 above, digital banking is a new
and broader concept than the concept of e-banking, which is the
higher stage of e-banking. In practice, the concept of digital
banking is understood in the narrow sense, which is online channel
of banking. The digital banking mentioned in this thesis is
understood in a broad sense.
Digital banking is able to carry out most banking transactions
automatically through the internet. Customers who conduct bank
transactions by digital banking do not have to go to a bank branch
and minimize the paperwork involved. At the same time, the
digital banking features can be implemented at any time,

regardless of space, so customers are completely active. With
digital banking, only by financial application or website you can
use all features such as: bank remittance, money transfer; pay the
bill; loans; savings deposits; engage in financial products such as
insurance, investment, personal finance and corporate finance.
There are many definitions of digital banking, for examples:
“Digital Banking - a new concept in the area of electronic
banking, which aims to enrich standard online and mobile banking
services by integrating digital technologies, for example strategic


16

analytics tools, social media interactions, innovative payment
solutions, mobile technology and a focus on user experience.”
(Paper of 5th International Conference on Governance in India Financial Services
Sector: Reform and Remedies, 2018, p.125). This concept clearly states
that digital banking is a higher stage of online banking and mobile
banking. By listing solutions and services offered through digital
banking, this definition still emphasizes the purpose of digital
banks to increase user experience.
Contrary to this definition, Fivedegree took a completely
different approach when it came to arguing that digital banking is
the digitalization of all products and services as well as the
traditional banking process and the further development of online
banking or mobile banking. This definition clearly states that the
bank requires each step of the bank's operation process to be
automated and specifically: “Digital banking means the full
digitization of banks and all its activities, programs and functions.
It’s not just about digitizing your services and products - the frontend that customer see - but also about automating your processes

(the back-end) and connecting these worlds with middleware.
Digital banking is about the automation of every step of the
banking relationship, and it goes way beyond an online or mobile
banking platform.” (Fivedegree, 2018).
Another definition which focuses on benefits of digital
banking for both commercial banks and customer has been
explained by Rajendra Kumar Tolety. In particularly, “Digital
Banking is the application of technology to ensure seamless endto-end (STP in the 'old' jargon) processing of banking transactions
and operations; initiated by the client, ensuring maximum utility to
the client in terms of availability, usefulness and cost; to the bank
in terms of reduced operating costs, zero errors and enhanced
services.” (Rajendra Kumar Tolety, 2018, p.2).


17

Bearing all of the above mentioned objective, features,
characteristics as well as benefits of digital banking, from the
author’s point of view, Digital Banking is a combination of
emerging new technologies (i.e. eKYC, big data, API, artificial
intelligence,

etc.,)

in

financial

services

organizations

to

accommodate changes in internal and external relationships that
improve service and experience of customers in order to adapt to
the highly competitive business environment and improve the
business management capability of commercial banks in the near
future. As a result, Law on digital banking is a system of rules
on Digital banking that are created and enforced by a state
to

regulate

behavior

amongst

state

agencies

(i.e.

government, state bank), credit institution (commercial
banks, fintech) and customers including but not limited to
(i) the establishment, operation, management of digital
banks; (ii) requirements and conditions for the credit
institution when providing digital banking product and
services; (iii) rights and obligations of the customer when

using digital banking product and services.
2.3.

Main types of digital banking
In the course of transformation from traditional banking to

digital banking in terms of infrastructure, back-office, distribution
channels, as well as service products, the digital banking model is
divided into four types hereunder.
2.3.1. Digital is a brand
Many traditional banks with full range of identification
services find it difficult to reach young customers and they do not
want to change their image with existing customers. Thus, setting
up a new brand through the design of products, sales and
promotion policies that appeal to young customers is a safe
strategy. This is basically seen as a new type of digital bank


18

despite the fact that it will take the advantage of infrastructure,
back-office, and distribution channels of the traditional bank
whenever possible. The Singapore-based OCBC's FRANK brand and
YOLO by VPBank Vietnam are prime examples of the digital
banking brand.
2.3.2. Digital banking is distribution channel
User experience is important and can be achieved by
providing online and mobile services that focus on the user
experience. This pattern often re-uses the existing office and
banking license, and then builds and releases products and

services with an enhanced user interface that is completely
different from the existing service products provided by traditional
banks. This model shall be deployed in test and learn approach. In
particular, after pilots and tests, the digital products and services
shall be full deployment in flexible and agile execution. Moven in
the United States is a good example of this type.
2.3.3. Digital bank is a subsidiary of traditional bank
Large banks with comprehensive innovations have found that
their current banking systems are too large and cumbersome in
their transition. As such, they set up a subsidiary as a stand-alone
banking model with all the systems from the back-end to the frontend completely separated from the parent company. A typical
example is HSBC's First Direct. In Vietnam, VPBank's Timo has
been established as e-banking channel of VPBank which just use
back-end system of VPBank and provide stand-alone digital
products, services, and sales force.
2.3.4. Full-scale Digital bank
Full-scale digital bank is based entirely on the core of digital
technology. Some banks built in this model may not exist any
Branch or use branches for accelerating digital only. Bank officers
shall be disseminated with digital in term of company regulations,
culture and innovation. Take an example of South Korea’s K-Bank,


19

customers of these banks will interact with the bank primarily
through technical channels.
2.4.
Main characteristics of digital banking
2.4.1. Automation

According to the traditional branch model, the bank only

works for 8 hours, while the majority of customers, especially
individuals, also work at the same time, so they do not have time
to go to the bank. Therefore, the requirement to automate the
process of providing products and services, banking procedures
through non-human channels is a compulsory requirement of
digital banks. It provides solutions that support the automation of
product creation and delivery processes to integrate digital
distribution channels, providing high-tech content to customers.
For the new core banking systems in the market, automation is
supported through new features such as product packaging by
customer segments, which easily manages the delivery of these
products through different distribution channels.
2.4.2. Decision making support
In order to simplify the process, and provide appropriate
products and quickly to the right customers on different channels,
the bank’s system also have to handle large amounts of internal as
well as external data which is used for the decision-making
process. Therefore, the digital banking application system needs to
be able to analyze data for more accurate, faster and better
decision making based on customer choice and risk management
of the bank. In addition, core banking solutions such as Customer
Relationship Management (CRM) and Loan Origination System
(LOS) are good solutions for automating processes in the areas of
customer care, marketing, sales, decision support, automation of
key processes in the business.
2.4.3. Innovation

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In the process of building a digital bank, it is necessary for
the bank to carry out research and development in order to
innovate, breakthrough and take advantage of the development of
technology in the banking sector. Thanks to several innovations
such as biometrics, block chain and near field communications,
payment transactions are more and more popular with customers.
Artificial intelligence, social media-based support channels and live
chats are notable waves in the banking industry which enables the
improvement of customers’ experiences. Innovation labs are
founded in many banks in cooperation with Fintech companies to
explore new banking applications.
2.4.4. OmniChannels
To meet the needs of customers, banks must modernize to
have many channels connected with customers such as branches
and

transaction

offices;

Internet

Banking,

Mobile

banking;

Customer Contact Center, social networking channel (i.e. Facebook
fan page). Technology platform to ensure that banking services are
easily provided on a variety of channels, with similar quality is also
a must. A very important requirement of digital banking is that
when banks deploy multiple channels to connect with customers,
such

channels

must

have

interconnectedness

and

ensure

uniformity of services among the channels that the customer has
transacted. Take an example of a customer inquiries about the
service of savings deposits and has entered information to perform
deposit transactions on the internet, select the transaction point,
the next morning which customer performs deposit transactions,
bank officer must already know the customers’ information and
requirements to advise, support customers complete the savings
deposit procedures. The system of banks must take advantage of
the information that customers entered on the internet the day
before without having to re-enter information or ask customers,

21

the face-to-face meeting with customers is just for the purpose of
customer authentication, record of documentary as well as advise
further the information to meet with the customer needs. As such,
the digitization of products, processes have been done both on the
internet and bank’s counters where the counter channel must
communicate and inherit the information provided by the customer
by internet channel. To do so, the bank must make a major
investment in technology with the latest features that allow banks
to provide the so called ommi channels and improve customer
experience across channels.
2.5.

Advantages and disadvantages of digital banking

2.5.1. Advantages

Digital banking becomes increasingly fundamental in the

banking industry because of its main characteristics of digital
banking mentioned above.
Firstly, digital banking enables customers in remote areas
take advantage of banking solutions and services. Thanks to the
evolution from traditional banks to digital banks, customers in rural
areas can get access to banking services. In addition, they can
carry out various bank related procedures such as money transfer,
savings deposits and loans with ease. Never before have online

payment transactions been done as easy as it is carried out by
digital banking since all customers’ account history, transactions,
their partners’ account number is tracked through banking
applications. Customers do not have to go to the bank and wait for
their turns as payment happens right after a click of a button.
Customers can check their account balance anywhere and at any
time to prevent fraudulent charges.
Secondly, as mentioned in

section

2.1.3

above,

the

development of Fintech has really become a threat to the


22

existence of organizations providing retail financial services in the
world, specifically here are traditional banks. As a result, banks are
under pressure to enhance customer’s experience reduce their
costs to remain competitive. Thanks to automation of functions,
processes by digital platform, there is no need in hiring lots of staff
for costly back-office processing operations which also give rise to
fewer operational risks and errors. As a result, banking process
shall be simpler and quicker, new digital products and services

could be launched quickly to react to market demand. This enable
banks to supply full service with the same innovation and quality
level as fintechs.
Thirdly, digital banking plays an important part in helping
banks quickly adapt to new issued legal regulation. For example,
the

State

bank

of

Vietnam

has

promulgated

Circular

No.

14/2017/TT-NHNN on methods of calculating interest on depositing
and credit extension transaction between credit institutions and
customers in 29 September 2017 which shall take effective only
after 3 months since the date of issuance. Failing to comply with
the new guidance of SBV on methods of calculating interest on
depositing

and

credit

extension

transaction

between

credit

institutions and customers, banks shall be subject to threat of
financial penalties as well as additional penalty measures such as
Revocation of licenses, certificates; termed suspension of one or
more than one banking activities and other business activities.
However, with digital core banking, banks can quickly and
completely comply with new legislation in terms of setting up new
module calculating interest and automation of operation on
amendment of contract on depositing and credit by publishing new
terms and condition on website, giving automatic notification to


23

customer on the new term and condition which shall save time and
money for banks.
Finally, digital banking is said to be a good chance for
traditional banks to take the advantage of new technologies. Big
data, API, block chain, artificial intelligence are expected to have

fundamental influence on increasing the efficiency of the sales
process
2.5.2. Disadvantages
Despite a number of advantages mentioned above, there still
some disadvantages that the customers may have to confront with
when using digital banking.
Firstly, it might be difficult for the customer to learn how to
make transactions by means of internet banking, mobile banking,
CRM, ATM at the beginning. Although some digital banks have
detail guidance and demo video on how to use digital banking
services such as opening accounts, making savings deposits,
issuing debit card, but not all digital banks/ websites have such
facility. Hence, a new customer shall have to spend time on using
digital devices to transact by digital banking.
While traditional banks have physical presence, full scaled
digital bank does not have any branches or offices which make it
hard to build up trust and confidence in customers using digital
banking products. Where customers make a saving deposit of large
sums of money, they may have lots of concerns about how they
can contact the digital banks if the bank server goes down, their
password is stolen or identity is theft. In such a case, it might be
difficult for the customers to log in to their account and make any
transactions whatsoever. Besides, the customers shall neither take
the advantage of contacting the bank officer nor the bank’s hotline
for customer service because digital bank is teller-less bank and


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the incidence of server might also give rise to the overloaded

status of the hotline of the contact center department.
Digital banks shall enable customers to transfer money or
pay bills in a couple of minutes. However, digital banking shall not
be customer’s choice when they have to carry out complicate
transactions. For example, a customer who is the buyer in Share
purchase agreement (an agreement setting out the terms and
conditions relating to the sale and purchase of shares in a
company) would like use escrow account opening and service. The
escrow account agreement which is signed amongst the seller, the
buyer and the bank shall set out conditions for fulfilment of Share
purchase agreement and due date. Accordingly, funds meant for
payments under the Share purchase agreement shall be blocked in
the escrow account and the seller shall receive them only after
required conditions are met. In such a case, the traditional bank
shall be guarantor and controller for the performance of such
agreements. Most of the digital banks cannot offer such services
which require an in-person visit and transaction amongst seller,
buyer, and bank.
2.6.
2.6.1.

The factors affect to digital banking
Client centricity approach
Where products centricity is the key strategy of the

traditional banks, client centricity is the new approach of in digital
transformation. Before the evolution of digital banking, traditional
banks have operated as product-centric where current customers
are provided with more new products with lower cost and
customers have to come to banks for all of their financial service’s

needs. However, with the existence and appearance of banks’
competitors like fintech, customers who need a new financial
service may have another choice other than banks. In such a case,
banks should change it approach and concentrate in increasing


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customers’ experience. This requires a change in mindset of the
bank officers which results in changes in their habits, beliefs,
behaviors and other new skills to satisfy digitized customers. By
means of training, workshops and communication, all of the
departments of the bank shall be forced to pay attention to new
digital and technology products and services. Besides, banks’
employee shall have to be well adapted to “test and learn”
approach where they can test, use and sharing feedback on digital
products and services of the bank.
2.6.2. Technological innovation
An agile technological platform is one of the most important
features which enables improvement of the customer experience.
Thanks to this platform, banks could enhance their customer
experiences while offering new digital products such as lending,
money transfer, and personal wealth management products,
investment products. Additional functionalities should be added
and integrated with the existing core banking system which will
require highly automated solutions. At a deeper level, this trend
will require banks to open up their systems or middleware layers to
third parties and use open APIs.
2.6.3. Organizational flexibility
In addition to technological transformation, organizational

structure which changes from traditional banks into digital banks is
also a must. This trend forces banks to establish the so called
Transformation Project Manager Department to make sure that
bank’s officers are moved to necessary teams quickly so that all of
the new digital products and services are launched timely. The
members of above mentioned department should be well-qualified
experts with experience managing a number of large-scale
projects at the same time, clear understanding of legal issues, and
high level with agile banking development. They shall have the