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
Trade Policy and Law program at the Foreign Trade University. The objective of

LAW
ON
DIGITAL
BANKINGfor
IN Vietnam

SOME COUNTRIES
AND the
this study
is to
find
out recommendations
Government to enhance
EXPERIENCES FOR VIETNAM

development of digital banking. I hope that the recommendations of this study will
be useful for the legislature in developing of policies and laws on digital banking in
the foreseeable future.
COMMITMENT
Major: International
Trade Policy and Law
I would like to assure that the research of “Law on digital banking in some
countries and experiences for Vietnam” was carried out by me. All contents,
tables, figures, chart illustrated in this study are honest, accurate and quoted from a
reliable source.

Full name: Pham Thi Quynh Mai

Hanoi,
January, 2019

Supervisor: Dr. Ha Cong Anh Bao

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
4.1.

54

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


i

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

eIDAS

Electronic Identity and Electronic Services 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 & Clearings

KFTC

Institute
KPMG is a global network of professional firms providing

KPMG

Audit, Tax and Advisory services

LOS

Loan Origination System

LVPS

Large-Value Payment System

MAS

Monetary Authority of Singapore

NIS

Network and Information Security Directive 2016
The OCBC Bank group comprises a family of companies

OCBC Bank

owned by Singapore's longest established local bank.

P2P

Peer-to-Peer

PDPA

Personal Data Protection Act 2012 of Singapore


ii

LIST OF ABBREVIATIONS
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 Advisory

PwC

services

RPS

Retail Payment Systems

SBV

State Bank of Vietnam

SEPA

Single Euro Payment Area


iii

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


iv

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:
1.1

INTRODUCTION

Research rationale
The world is coming to a new era of innovation that will change the

relationships between banks and their customers. Old-fashioned 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 balancing management with innovation and
competition.
In order to meet market demand 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,
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.


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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.
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

3

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
Company Limited, fintech companies, research institutes, universities, contributing
their discussion 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 on management and development of digital banking, eKYC,
etc., Up till now, however, there has not been a comprehensive, large-scale 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


4

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 mentioned
above thereby giving some recommendations for Vietnam Government to develop
and implement policies and law to facilitate digital banking.
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:
2.1.

OVERVIEW OF DIGITAL BANKING

Origin and development of digital banking

2.1.1. History of Digital Banking


5

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. 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

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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 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.


7

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
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


8

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 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:


9

“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
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


10

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 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 backend to the front-end 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


11

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 KBank, 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 nonhuman 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


12

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, 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


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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 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


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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 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.


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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 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.

The factors affect to digital banking

2.6.1. 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


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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 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 responsibility to
find out the pros and cons of each of the department in the banks as well as its