The technology application to improve or innovate banking products and services (often referred to as digitising banking activities) has not only appeared recently, but also took place more than half a century ago.
The first event was the introduction of an ATM in 1967 and Barclays (UK) was the first bank to install an ATM in front of its branch office in London. In 1973, the SWIFT payment network was established through cooperation between banks and governments. A series of banks invested heavily in computer systems to record and process banking transactions, thereby minimising errors and cutting costs.
In addition, banks also became more agile and knowledgeable by analysing data collected from computer systems. The period 1980-2000 was the period when e-commerce companies like Amazon and eBay were born, promoting online payment activities. However, the number of customers using online banking grew relatively slowly and only really exploded when the Internet became popular.
The first online banking model appeared in 1983 in the United States and shortly thereafter in France and England with a simple interface, providing the most basic banking services such as money transfer, account queries and utility bill payment. In the next phase from 2000 to the present, the model of mobile banking was created thanks to the development of wireless Internet technology and smartphones.
Financial technology thrived in the late 2010s, leading to the emergence of new business models such as open banking and blockchain.
In Vietnam, the digital transformation wave of banks has been strong in the last three years, reflected in the development of new products. In early 2017, Tien Phong Commercial Joint Stock Bank (TPBank) launched the TPBank LiveBank application. In early 2018, Orient Commercial Joint Stock Bank (OCB) introduced the OCB OMNI application.
In September 2018, Vietnam Prosperity Joint-Stock Commercial Bank (VPBank) launched the digital banking application Yolo after the Timo.
Military Commercial Joint Stock Bank (MBMBBank) allows customers to transfer money via Facebook and create a new communication channel with young customers via the eMBee fanpage.
Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) released the BUNO producttransferring money with only the phone number of the recipient, no need to remember the account number.
Since the launch of Vietcombank Digital Lab in 2016, Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) has also set the development of digital banking to 2019 as a central strategy.
New product development trends are supported by a serious IT investment and application strategy in the banking sector.
Over the years, Vietnamese banks have invested heavily in core banking systems and increased part or all of the proportion of automation in their operation processes. Accordingly, new products and improvements in service quality have received positive signs when the percentage of customers using digital products increased significantly.
Although the trend of digital transformation is indispensable in the economy, there are differences in the level of investment and success in the information technology sector of banks. According to the 2017 Index of readiness for development and application of information technology, banks tend to focus on improving information technology applications to upgrade core banking, increase the level of automation, but have a decline in the deployment of basic customer relationship management, risk management, and digital signature applications.
Internet Banking services for individual customers are increasingly popular, but the increase is not much due to high saturation, while this service for corporate customers grows better.
It can be clearly seen that the gap in investment in information technology segment of banks through ICT Rankings of commercial banks in Vietnam.
In fact, the banks’ digital transformation depends on its development and positioning in the new ecosystem, with three reaction stages in the transition.
Firstly, respond to new forms of competition: At this initial stage, banks respond to changes in the supply and demand of financial services by developing channels (focusing on mobile devices) and new digital products (focusing on retail payments) to position itself in the new competitive environment.
Secondly, technology adaptation: The second phase in the digitisation process of banks involves making in-depth changes in technology platforms to transform these platforms into flexible and modular infrastructure, enable synchronisation of new technologies, as well as speed up the development of new products.
Thirdly, positioning strategy: Financial institutions with the most digital transformation level will try to make a profit from large investments in technology by applying digital strategies to change deeply and widely their organisational structure.
Currently, the digital transformation process of Vietnamese banks is mainly in phase I, but there is a differentiation between banks. In particular, the group of state-owned banks including VCB, BIDV and VietinBank with inherent advantages in capital has invested heavily in adapting to technology (phase II).
With private banks, Techcombank has invested US $ 300 million in information technology infrastructure. Recognised as a bank possessing strong information technology infrastructure, Vietnam Technological and Commercial Joint-Stock Bank (Techcombank) has maintained a free programme for all transactions of individual customers via electronic channels in recent years. Asia Commercial Joint Stock Bank (ACB) invests 300-350 billion dong each year to convert a traditional retail bank into a digital bank.
In summary, the above analysis shows the serious investment trend of Vietnamese banks in the digital transformation process and has recorded initial successes with a positive feedback from customers, despite the huge costs and investments for the conversion may adversely affect the banks’ profits in the short term.
During a certain stage of the digital transformation process, banks with a high level of transformation can provide differentiated products and services and thus generate large profits. Achieving lower costs in the short term and producing higher returns in the medium to long term depend on the right choice when investing in digital transformation, the bank’s efforts and attitudes toward changes.
