What model for Vietnamese digital banking?

Rely on traditional banking

Cake by VPBank - a digital bank, without branches or transaction offices, is the result of cooperation between Be Group - the owner and developer of the Be ride-hailing app and VPBank. Cake is providing banking products and services, allowing customers to perform all transactions such as opening a bank account, sending and receiving money online... without having to go to a transaction office. Accordingly, users open an account via mobile phone with a phone number that has standardized information from the Ministry of Information and Communications, the electronic customer identification system will help customers resolve contracts with digital signatures.

Launched in January 2021, as of March 2023, this digital bank has nearly 3 million customers, transaction value reaching about 62,000 billion VND, of which the savings channel alone reached more than 3,000 billion VND. The result does not include the added value for the parent group's Be ride-hailing ecosystem. Cake is currently expanding its consumer lending activities outside the Be Group ecosystem and receiving capital from foreign investors.

Experts recommend building legal framework for digital banking to ensure fairness for market participants

Another case, Timo digital bank is a product of Vinacapital Group, currently cooperating with Viet Capital Commercial Joint Stock Bank to operate under the new name Timo Plus. Timo Plus's main products are debit cards, credit cards, money transfers via email, online savings, cumulative investments through fund certificates... Or TNEX is a digital bank with an independent legal entity also operating through the guarantee of partner MSB, mainly performing payment transactions and some consumer lending activities.

In fact, although they are partners of digital banks, VPBank, Ban Viet, MSB... also operate their own digital banks such as VPBank NEO, Ban Viet Bank has Digimi...

So now, commercial banks operate according to the traditional model, combining digital transformation to provide products and services on technology platforms such as Internet Banking, Mobile Banking, Live Bank...

Need legal corridor

Mr. Hoang Cong Gia Khanh, University of Economics and Law, Ho Chi Minh City National University, said that digital banking is related to the activities of supplying, distributing and selling financial products and services through digital channels.

Let’s take a look at the story of Grab. From a contract ride-hailing application, this company has expanded to become an intermediary providing multiple services and in that business chain, they need a digital bank to meet the payment needs of buyers and sellers. In that context, Singapore is the first country in the region to grant an operating license to the digital bank GXS Bank of the two groups Grab and Singtel with the immediate goal of serving members in the ecosystem of these two groups, then expanding to lend to subprime customers of traditional banks.

In Vietnam, the Government also assigned the State Bank to study and develop a project on a pilot management mechanism for new business models to encourage innovation in the financial sector. However, up to now, Vietnam does not have a truly clear, complete and comprehensive legal framework for financial technology, apart from individual regulations or policy responses for a few areas such as e-wallets, payments, and mobile phone subscription money.

Although financial technology is attracting great attention in Vietnam, it is mainly focused on 3 main services: payment, peer-to-peer lending and crowdfunding. In particular, peer-to-peer lending appeared in Vietnam in 2014 with the HuyDong platform specializing in providing loans to businesses; in 2015, the Tima platform was born and is considered the first peer-to-peer lending system in Vietnam. After that, peer-to-peer lending companies flourished in the market.

Peer-to-peer lending companies are not part of the credit institution system, so they are not regulated by the Law on Credit Institutions. However, their lending activities are in the nature of a credit facility. Therefore, when a dispute arises, it is impossible to refer to the Law on Credit Institutions, which also leads to legal risks for customers borrowing capital from peer-to-peer companies. Some peer-to-peer lending companies register their business lines as financial consulting, financial brokerage and self-referral; peer-to-peer lending companies provide services connecting investors and borrowers, but current Vietnamese law does not have regulations on peer-to-peer lending activities. When establishing credit contracts, peer-to-peer lending companies use third parties to operate, causing many difficulties for state management of this activity.

From these challenges, it is clear that the need to build a complete legal system, first of all a pilot legal framework to develop financial technology, is urgent. Mr. Hoang Cong Gia Khanh said that the experience of other countries when building a new legal framework requires a balance between two goals: promoting innovation; building a fair competitive environment, ensuring the stability of the financial market, minimizing risks and protecting customers. The ideal is to create an open environment with high certainty - Vietnam of course also needs to follow this trend.

According to Mr. Khanh, the overall goal of building a legal framework for financial technology must ensure that it serves the core goals of financial market development in the digital economy, which are financial inclusion, financial stability, financial integrity and consumer protection. Therefore, it is necessary to comply with 10 basic principles: (1) Support financial technology transformation, (2) ensure innovation and creativity in financial services, (3) eliminate duplication of regulations between legal documents, (4) establish regulations for financial technology at the national level, (5) develop policies to encourage financial services businesses to protect consumers, (6) establish technology neutral rules, (7) encourage a level playing field between existing and new businesses, (8) promote cybersecurity for financial technologies, (9) support the development of financial data standards and interoperability, (10) align with international practices in the financial services sector.

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