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
EXPERIENCES FOR VIETNAM

Trade Policy and Law program at the Foreign Trade University. The
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”
name:All
Phamcontents,
Thi Quynh Mai
was carried out byFull
me.
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..........................................................................i
LIST OF TABLES AND CHARTS...............................................................iii
ABSTRACT....................................................................................................iv
CHAPTER I: INTRODUCTION..............................................................1
1.1 Research rationale.......................................................................................1
1.2 Literature review..........................................................................................2
1.3 Research questions.....................................................................................3
1.4 Scope of the research................................................................................3
1.5 Research methodology.............................................................................4
1.6 Structure of thesis.......................................................................................4

CHAPTER II: OVERVIEW OF DIGITAL BANKING......................4
2.1. Origin and development of digital banking.................................4
2.1.1. History of Digital Banking................................................................4
2.1.2. Electronic banking and digital banking...................................5
2.1.3. Fintech and threats to bank...........................................................6
2.2. Definition of law on digital banking..................................................7

2.3. Main types of digital banking...............................................................9
2.3.1. Digital is a brand.................................................................................10
2.3.2. Digital banking is distribution channel.................................10
2.3.3. Digital bank is a subsidiary of traditional bank...............10
2.3.4. Full-scale Digital bank......................................................................10
2.4. Main characteristics of digital banking........................................11
2.4.1. Automation..............................................................................................11
2.4.2. Decision making support................................................................11
2.4.3. Innovation................................................................................................11
2.4.4. OmniChannels.......................................................................................12
2.5. Advantages and disadvantages of digital banking...............13
2.5.1. Advantages.............................................................................................13
2.5.2. Disadvantages......................................................................................14
2.6. The factors affect to digital banking..............................................15
2.6.1. Client centricity approach.............................................................15


2.6.2. Technological innovation................................................................16
2.6.3. Organizational flexibility................................................................16
2.6.4. Get creative with marketing........................................................17

CHAPTER III: POLICY AND LAW ON DIGITAL
BANKING

18

IN SOME COUNTRIES..........................................................................18
3.1. Policy and Law on digital banking in some countries..........18
3.1.1. European Union....................................................................................18
3.1.2. Thailand....................................................................................................22

3.1.3. Singapore.................................................................................................27
3.1.4. South Korea............................................................................................32
3.1.5. China...........................................................................................................38
3.2. Experiences for Vietnam........................................................................44
3.2.1. Lessons learned from selected countries............................44
3.2.2. Risk Identification and Mitigation Mechanism..................48

CHAPTER IV: POLICY AND LAW ON DIGITAL
BANKING IN VIETNAM........................................................................54
4.1. Digital banking development in Vietnam....................................54
4.1.1. Overview...................................................................................................54
4.1.2. Case Study...............................................................................................64
4.2. Opportunities and challenges.............................................................68
4.2.1. Opportunities.........................................................................................68
4.2.2. Challenges...............................................................................................69
4.3. Policy and Legal framework on digital banking in Vietnam
71
4.3.1. Policies of the Government of Vietnam on digital
banking....................................................................................................................72
4.3.2. Vietnam Laws on digital banking..............................................75

CHAPTER V: RECOMMENDATIONS FOR VIETNAM ON
AMENDMENT OF LAW ON DIGITAL BANKING........................82
5.1. E – KYC mechanism....................................................................................82
5.2. Non-cash Payment.....................................................................................83
5.3. Authorized agents of banks.................................................................84


5.4. Electronic banking accounting vouchers.....................................85
5.5. Regulation on loans..................................................................................87

5.6. Regulatory Sandbox.................................................................................88
5.7. Protection of Customers’ information and Data Security. 89
5.8. Adoption and Application of new technology...........................90
5.8.1. Artificial intelligence.........................................................................90
5.8.2. Open APIs.................................................................................................92
5.8.3. Block chain..............................................................................................92

CHAPTER VI: CONCLUSION..............................................................94
LIST OF REFERENCES..............................................................................96


LIST OF ABBREVIATIONS

AI

Artificial Intelligence

API

Application Programming Interface

ATM

Automated Teller Machine

BOK

Bank of Korea

BOT

Bank of Thailand

CEO

Chief Executive Officer

CRM

Customer Relationship Management

E-banking

Electronic banking
Electronic Identity and Electronic Services

eIDAS

Directive 2014

eKYC

Electronic Know Your Customer process

EU

European Union

FinTech

Financial Technology

GDPR

EU General Data Protection Regulation

GovTech

Government Technology Agency in Singapore

ID

Identity Card
Korea Financial Telecommunications &

KFTC

Clearings Institute
KPMG is a global network of professional firms

KPMG

providing Audit, Tax and Advisory services

LOS

Loan Origination System

LVPS

Large-Value Payment System


LIST OF ABBREVIATIONS

MAS

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

PIPA

Personal Information Protection Act of Korea

POS

Point of Sale

PSD1

The Payment Services Directive 2007

PSD2

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

PwC

Advisory services

RPS

Retail Payment Systems

SBV

State Bank of Vietnam

SEPA

Single Euro Payment Area

LIST OF TABLES AND CHARTS
TABLES
Table 1: Top 5 Centers in GFCI 24..................................................28
Table 2: Number of ATMs per 100,000 adult population and over
1000 km2 of some countries in 2016............................................55

CHARTS
Chart 1: Thailand’s internet and mobile banking transaction volume......................22
Chart 2: South Korean Internet-only banks take off................................................33
Chart 3: Adoption of internet banking and mobile banking in China.......................39
Chart 4: Executive Responeses on Digital Security Vulnerabilities Faced by
Stakeholders (%), Q2 2017......................................................................................50
Chart 5: Growth rate of ATM transaction and value................................................56
Chart 6: The groth rate of POS, quantity transactions..............................................57
Chart 7: The number and value of transactions via Internet banking and mobile
banking in the period 2015 - 2016...........................................................................58
Chart 8: The number and value of electronic wallet transactions during the year of
2012 to 2016............................................................................................................60


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.


1

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,


2

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.


3

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


4

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


5

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.

6

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

concepts
customers

banking

and

electronic

that are gradually gaining
because

of

its

banking

are

popularity

convenience

and

two

among

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


7

connected to the Internet. However, electronic banking is still
only 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

investments,

sector

retirement

(including
funds,

banking,

payment

insurance,

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


8

they are more likely to reach out to customers who are not
banks’ customer or not qualified to be bank customers.
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


9

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


10

“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

interactions,

strategic
innovative

analytics
payment

tools,

social

solutions,

media
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


11

end-to-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).
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.


12

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
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

13

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,
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


14

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

Relationship

banking

Management

solutions
(CRM)

such

and

as

Loan

Customer
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
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


15

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, the face-toface 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.

16

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
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