Equity Analysis /

Potential and challenges for digital banking in Vietnam

    Anh Nguyen
    Rong Viet
    23 September 2019
    Published by

    In Vietnam, digital banking lies at the heart of the service proposition and competitive advantages of banks. This trend is reinforced by the Vietnamese government aim to lower the proportion of cash in circulation/M2 to 10% by end of 2020 (currently at 11.5%). Data from the SBV said that as of end 2018, the inter-bank electronic payment system processed 137,594 transactions, worth VND 73 Mn, equivalent to 13 times of GDP. 

    Internet and mobile usage growth opened up potentials for digital banking

    Traditional banking penetration in Vietnam is still low compared to other emerging and frontier markets. At the end of June 2018, there were over 72.7 million individual bank accounts (an increase of 5% compared to the end of 2017). The number of people with bank accounts is close to 43.2 million, accounting for 45% of the population, a modest rate compared to the corresponding rates in other emerging and frontier countries. According to World Bank data, the number of ATMs and bank branches per 100 thousand adults in Vietnam are at 24.3 and 3.4 respectively, indicating a lower level of penetration of traditional banking services in comparison with peers.

    Meanwhile, Vietnam's digital infrastructure (related to internet and mobile usage) is well developed, with the number of internet and mobile phone users in 2018 reaching 55.2 million and 45.8 million respectively – accounting for 57% and 45% of the population. In particular, the penetration rate of smartphones has increased sharply in the past 5 years, reaching 84% for big cities in 2017. It is forecast that the penetration of the internet and mobile will continue to expand and there will be 60 million internet users and 55.4 million mobile phone users by 2022.

    Thus, Vietnam is a country with low penetration of traditional banks coupled with high development of digital infrastructure. This means that when pushing the penetration of banking in general, Vietnam will have a great potential to promote the development of digital banking over the medium term. Indeed, Vingroup has officially jumped into the field of electronic wallets.

    However, it is still challenging to promote digital banking services in Vietnam

    Most Vietnamese still have the habit of using cash in daily payment. Since the beginning of the government’s cashless payment project, the ratio of cash in circulation/M2 shows little improvement. In addition, according to a FT Confidential research survey of cash payment in ASEAN, in Vietnam, more than 46% of respondents use cash exclusively. This is much higher than countries like the Philippines (34%).

    Percentage of urban population only using cash for payment (2018)

    Source: FT Confidential Research

    The second issue is financial information security. According to EY Vietnam's data, in 2018, there were 8,319 cyber-attacks in Vietnam banking, leading to 560,000 computers affected by malware that could steal bank account information. Vietnam ranked 7th globally in the target list of Trojan attacks in 2018.

    Last but not least, insufficient legal regulations are also a big challenge. In the past few years, the digital payment segment has grown rapidly with technology advances, but domestic legal regulations are lagging behind, making banks reluctant to apply new technologies and services. For example, Vietnam does not have a legal framework for sharing, exploiting and storing data, so banks have not been able to apply cloud computing or blockchain widely in their applications.