THE CURRENT LEGAL SITUATION
OF DIGITAL TRANSFORMATION IN THE BANKING SECTOR AND A SOLUTION TO IMPROVE
EFFICIENCY
Trinh
Tuong Khiem
Van Hien University
Abstract:
In recent years, the
banking sector has made continuous efforts and closely coordinated with
relevant ministries and sectors in the digital transformation, thereby
achieving many achievements on important pillars. However, in order for this
activity to be maximally effective, it is very necessary to continue to improve
regulations and enforce the law on digital transformation in the banking
sector. Starting from there, the article focuses on clarifying some outstanding achievements in
digital transformation in the banking sector, pointing out the current
situation of limitations and inadequacies in regulations and law enforcement on
digital transformation in the banking sector and thereby proposing a number of
solutions to improve improve efficiency.
Keywords:
Digital transformation,
current situation, banking, solutions, efficiency.
Introduction
The
Fourth Industrial Revolution has profoundly impacted all aspects of social
life, presenting both opportunities and challenges. It demands innovation and
the adoption of modern scientific and technological advancements across all
economic sectors and societal facets, including the banking industry. Digital
transformation in banking plays a pivotal role, significantly influencing
economic development and integration with regional and global economies. Credit
institutions have actively prioritized and implemented digital transformation,
achieving notable results. However, to ensure its effectiveness, there is an
urgent need to review, develop, innovate, and refine policies and legal
regulations to establish a robust legal framework for digital transformation in
banking.
1.
Key Achievements in Digital Transformation in the Banking Sector
The
Fourth Industrial Revolution has significantly influenced various industries,
including finance and banking. Major banks such as Agribank, Vietcombank,
VietinBank, and BIDV have proactively adopted digital banking models to meet
the needs of individuals and businesses. Specifically, Agribank introduced the
24/7 AutoBank CDM; Vietcombank launched VCB Digibank; BIDV implemented
SmartBanking services; and VietinBank developed the VietinBank iPay Mobile
application. Digital transformation in banking has yielded positive outcomes,
including increased customer satisfaction, improved service quality, and
reduced operational costs.
The
digital transformation process in banking consists of three phases. In the
first phase, banks focus on digitalizing products and services. The second
phase involves adapting to technology and accelerating digital transformation.
In the third phase, banks, particularly those with strong capabilities,
establish competitive positions and attract more customers through
digitalization.
To facilitate rapid and effective transformation, regulatory authorities have
outlined solutions and tasks, with clear assignments and coordination among
relevant entities.
On
May 4, 2017, the Prime Minister issued Directive No. 16/CT-TTg, outlining
specific measures to enhance capabilities for engaging in the Fourth Industrial
Revolution. Additionally, Resolution No. 52-NQ/TW, issued by the Politburo on
September 27, 2019, set out policies for proactive participation in the
revolution, while the 13th Party Congress Resolution defined national
development goals for 2021–2030, emphasizing digital economy growth based on
science, technology, and innovation, with a strong push for national digital
transformation. Furthermore, Decision No. 749/QD-TTg, issued on June 3, 2020,
approved the “National Digital Transformation Program to 2025, with a Vision to
2030,” prioritizing sectors with significant social impact, such as finance and
banking, for early digitalization to enhance efficiency and reduce costs.
The
decision set specific goals for banking digital transformation, including
developing diverse distribution channels, fostering innovation, automating
processes, and promoting collaboration with fintech companies and payment
intermediaries to build financial service ecosystems. This aims to enhance
financial inclusion, bringing banking services closer to remote and underserved
populations through innovations like mobile payments and peer-to-peer lending,
while improving access to credit through reliable credit scoring models and
customer data.
On
May 11, 2021, Decision No. 810/QD-NHNN by the State Bank of Vietnam (SBV)
approved the Banking Sector Digital Transformation Plan to 2025, with a vision
to 2030. This decision is critical, serving as a foundation for the SBV to
implement Party resolutions and government tasks while clarifying the banking
sector’s digital transformation roadmap, enabling it to seize opportunities and
drive growth. Based on this framework, legislative bodies have issued numerous
legal documents to regulate digital transformation in banking, including the
Electronic Transactions Law of 2023, the Credit Institutions Law of 2024,
Decree No. 35/2007/ND-CP on electronic transactions in banking, Circular No.
35/2016/TT-NHNN (amended by Circulars No. 24/2018/TT-NHNN and No. 35/2018/TT-NHNN)
on security for online banking services, Circular No. 07/2024/TT-NHNN on
payment account usage, and Circular No. 08/2024/TT-NHNN on the operation of the
National Interbank Electronic Payment System.
This
legal framework has facilitated effective digital transformation in banking.
Mr. Duong Trong Chu, Director of the Digital Banking Division at Lien Viet Post
Bank, noted that Vietnam’s digital transformation pace is relatively fast
compared to some regional peers. A recent survey indicated
that most credit institutions recognize the importance of digital
transformation, with 42% developing digital strategies, 28% integrating digital
transformation into business strategies, and 11% implementing approved digital
transformation plans. The banking sector has
achieved significant milestones, with mobile and QR code payment transactions
growing over 100% annually from 2017 to 2023. The interbank electronic payment
system processes an average of VND 830 trillion (approximately USD 40 billion)
daily, while the financial switching and clearing system handles 20–25 million
transactions daily.
New technologies from the Fourth Industrial Revolution have been widely applied
to develop innovative products and services, meeting the growing demands of
individuals and businesses.
The
banking sector has also collaborated closely with the Ministry of Public
Security to combat crime and has pioneered the implementation of Project 06,
facilitating secure and convenient payment services. Integration with the
National Population Database has enabled credit institutions to verify customer
information, clean data, and improve access to banking services. Infrastructure
supporting digital transformation has been prioritized, with many core
operations, such as savings deposits, term deposits, payment accounts, card
issuance, e-wallets, and fund transfers, fully digitized. Over 95% of
transactions in many Vietnamese banks are conducted digitally. In the first
three months of 2024, non-cash payments grew by 56.57% in volume and 31.35% in
value compared to the same period in 2023, with internet and mobile channels
showing significant increases
(58,70% and 33,12%). At the SBV, 100% of
eligible administrative procedures are offered as fully online public services,
integrated into the National Public Service Portal, with over 90% of records
processed and stored digitally. By the end of 2023, 87.08% of adults (182 million
payment accounts) had access to banking services, surpassing the targets set in
Decision No. 1813/QD-TTg. At credit institutions and
foreign bank branches, 80% of records are processed digitally, 55% of banking
operations are fully digitized, 49% of customers use electronic payment
services, and 66% of customer transactions occur digitally, with 17 institutions
fully digitizing small-scale personal lending services. These achievements
highlight the significant progress in digital transformation in Vietnam’s
banking sector.
2.
Current State of Legal Regulations on Digital Transformation in Banking
The
overarching goal of digital transformation in banking is to comprehensively
modernize the SBV’s management, leveraging Fourth Industrial Revolution
technologies to meet government digital transformation criteria. This involves
developing digital banking models to enhance customer experiences, promote
financial inclusion, and ensure sustainable development through advanced
technology applications in governance and service delivery. While numerous legal
documents have been issued to regulate this process, achieving certain
successes, several limitations persist, as outlined below:
First,
regulations on digital banking remain incomplete. Vietnam has not yet licensed
any fully digital banks, despite this being a global trend. Delays in
establishing a legal framework for digital banks could allow foreign digital
banks to dominate the market, while domestic banks lag behind. Decision No.
283/QD-TTg, issued on February 19, 2020, mandated the development of a
regulatory sandbox for fintech services in banking. A regulatory sandbox, an
innovative tool, allows eligible fintech firms to test new technologies and
business models in a controlled environment under regulatory supervision, with
risk mitigation measures. A draft decree on a controlled fintech sandbox,
covering credit scoring, open API data sharing, and peer-to-peer (P2P) lending,
has been proposed but remains unapproved.
Second,
regulations on P2P lending are inadequate, creating loopholes for illegal
activities.
While P2P lending is an effective channel for accessing financial resources, it
poses significant risks, potentially disrupting social order and safety. The
Vietnamese government has adopted a “wait and see” approach, allowing fintech
firms to operate P2P lending without stringent regulations. However, the
collapse of P2P lending models in China and the lack of specific regulations in
Vietnam have led to unlawful activities, harming consumer rights.
Third,
regulations on third-party cloud computing services, as outlined in Circular
No. 09/2020/TT-NHNN, lack clarity on issues such as foreign third-party
providers, data storage, and compliance with the 2018 Cybersecurity Law.
Experts have noted that Circular No. 09/2020/TT-NHNN provides general guidance,
leading to inconsistent interpretations. More detailed guidelines are needed,
as cloud services are critical for banks. While the SBV permits
third-party services, the Cybersecurity Law does not specifically address
banking data, and legal grounds for a separate regulation are lacking, though
clarification is necessary.
Fourth,
customer identification (eKYC) is limited to anti-money laundering and payment
account opening, not universally applied across banking operations. Other SBV
circulars do not address customer identification, and while laws permit the use
of national databases, specific guidelines on accessing and utilizing these
databases are absent. This forces credit institutions to develop separate data
systems, compromising security, transparency, and the ability to detect
violations. Additionally, open banking models, allowing third-party payment
providers to access customer data via secure open APIs, are emerging. The SBV’s IT Department
has signed cooperation agreements with South Korean agencies on open API
development, but Vietnam’s open banking remains underdeveloped due to the lack
of regulations on API scope, data usage, and technical standards.
Beyond
regulatory gaps, the enforcement of laws on digital transformation in banking
faces challenges:
First,
technical infrastructure lacks synchronization, hindering the creation of a
digital ecosystem connecting banks with other sectors to serve customers. Data
sharing with banks remains risky due to insufficient legal frameworks. In the
first half of 2024, the Ministry of Public Security’s Cybersecurity Department
(A05) reported 211,000 cyberattack warnings and 20 severe incidents, including
ransomware targeting financial institutions. Criminals have installed
devices to steal ATM data, used customer information for fraudulent
transactions, and created fake bank websites and messages.
Second,
consumer habits, such as a preference for cash and trust in physical
transactions over digital banking, pose barriers to digital transformation.
Third,
limited human resources hinder digital transformation. The process requires
highly skilled personnel capable of adopting modern technologies, but the
workforce often lacks access to up-to-date knowledge, limiting progress.
Fourth,
implementing eKYC for online account opening faces challenges. Despite
regulations allowing eKYC, risks remain, as some customers have used forged IDs
to open accounts, and inadequate post-verification processes enable fraud.
3. Recommendations to
Enhance Legal Frameworks and Improve Digital Transformation in Banking
While
authorities have promptly issued legal documents to regulate digital
transformation in banking, the rapidly evolving nature of technology has
exposed limitations in both regulation and enforcement. To address these, the
following recommendations are proposed:
First,
expedite the issuance of a decree on electronic identification and
authentication, alongside a decree on personal data protection to safeguard
user privacy online. Additionally, accelerate the approval of the draft decree
on a controlled fintech sandbox for banking.
Second,
supplement regulations on third-party cloud computing services, addressing
foreign providers, data storage, and compliance with the 2018 Cybersecurity
Law. Clarify bank responsibilities in cases of customer data breaches,
determining whether banks colluded with perpetrators or if errors were
intentional or unintentional.
Third,
continue researching and issuing regulations on open banking services, data
sharing, third-party participation, and implementation roadmaps to develop open
banking in Vietnam. Mr. Tran Phuong, Vice General Director of BIDV, suggested
learning from global approaches, such as the EU’s mandatory data-sharing
regulations versus Asia’s voluntary models, to craft suitable policies.
Fourth,
complete the National Population Database and establish mechanisms for banks to
access this data online for customer verification, critical for preventing
fraud, money laundering, and scams. Provide guidance for credit institutions to
utilize national population and business databases via direct connections.
Fifth,
organize conferences to gather insights from stakeholders. Events like the
“Future of Digital Banking Strategy in Vietnam” forum, the “Legal Issues in
Monetary and Banking Services in the Digital Era” seminar, and the “Current
State of Electronic Transactions in Banking” discussion have provided valuable
recommendations to refine the legal framework.
Sixth,
promote public awareness of the benefits of online transactions over cash,
collaborating with credit institutions to offer incentives. Organize legal
education workshops to encourage public participation in digital
transformation.
Seventh,
enhance cybersecurity measures to protect bank and customer data, including
investments in next-generation firewalls, anti-malware software, and measures
to prevent data leaks via workstations, devices, networks, email, and internet
access.
Conclusion
The
Fourth Industrial Revolution has transformed all aspects of society, including
banking, necessitating digital transformation in Vietnam’s banking sector.
Authorities have issued timely legal documents to regulate this process,
contributing to national objectives. However, evolving societal conditions have
revealed limitations in the legal framework, rendering some regulations
outdated. Therefore, refining legal regulations and enhancing enforcement are
urgent priorities to advance digital transformation in Vietnam’s banking
sector.
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