Many banks are now implementing digital technology applications such as Big Data, Artificial Intelligence (AI), and Application Programming Interface (API) to their systems. But on the other hand, the financial market of Vietnam at present does not have a digital bank and there is as yet no scheduled licensing for the establishment of a digital bank in the country.
Legal challenges
It can be said that the potential of Vietnamese fintech companies is huge. However, due to the unclear and incomplete legal environment, the trust of consumers and the market is still modest and unclear. The current activities of fintech are still very limited compared to their potential, with some fintech companies even face risks. Compared with other countries in the region, products such as peer-to-peer lending, crowdfunding, financial consulting, asset management consulting, data management, insurance technology, and cryptocurrencies, are not yet officially present in Vietnam.
Challenges of digital transformation in the banking and finance sector today face a lack of human resources for digital transformation. While organizations participating in the banking financial market require a large staff with knowledge of information technology and banking finance. Investment costs for building database, building hardware and software, rebuilding process, training, and testing costs to ensure continuous risk-free operations, integration between new investment and previous investment activities, are all in need of streamlining.
There is a requirement for security of customer information in digital technology transactions. There are still many unclear legal provisions and lack of uniformity in processes, customers need to be identified in unspecified digital platforms, while there are no regulations on electronic contracts, digital signatures, and digital assets have also not caught up with the digital transformation process.
As shortcomings prevail, legal and institutional issues are still a big challenge for digital transformation in the banking and finance sector. In principle, when promulgating a legal regulation to regulate the operation of an organization in the financial market, banks must ensure the following three factors.
One, legal surety will clearly define what is to be put on the market and clearly stipulate the conditions under which it is to be supplied. Two, there needs to be equality among market participants. Three, regulatory requirements must consider the level of risks. These are the main obstacles for the promulgation of legal regulations for digital transformation and the operation of fintech companies in the financial and banking market in Vietnam.
New digital bank
In the amended draft for Law on Credit Institutions, the Government has added a number of essential features to support digital transformation in the banking and financial sector in the near future. First, supplementing credit institutions to conduct business activities by electronic means in accordance with regulations of the State Bank of Vietnam, and also other business activities of credit institutions via electronic transactions.
Second, supplementing regulations governing credit granting activities by electronic means in internal regulations, on credit granting approval, and on storing credit records. Third, assigning the Government to regulate and control financial technology activities in the banking sector. Fourth, additional activities of treasury services for payments.
These are very vital, necessary, and reasonable new regulations. On the basis of these principles, the Government and the State Bank of Vietnam will continue to issue legal documents under the law that are necessary for commercial banks and credit institutions to implement digital transformation activities in their operations.
However, the draft Law on Credit Institutions still has some issues that need further consideration. Firstly, the new draft law only stipulates that credit institutions and foreign bank branches may conduct business activities by electronic means in accordance with the State Bank of Vietnam regulations on banking activities and other business activities of credit institutions, branches of foreign banks, and regulations of law on electronic transactions.
There are no regulations allowing Fintech companies to participate in providing banking or financial services. Recently, Fintech companies have provided many new products, services, and models in banking such as lending, capital raising, payment, insurance, investment, and personal financial management. But Fintech companies are not credit institutions.
The draft law only provides general provisions, which may lead to the appearance of entities that are not credit institutions such as Fintech companies, which may not be subject to the regulations of the draft law, and hence there will be no basis for the Government and the State Bank of Vietnam to implement regulations.
Currently in Vietnam there is no digital bank. In the draft law, there are no regulations related to the establishment, organization, and operation of digital banks. This type of bank brings great benefits to users, such as convenience in monetary transactions, saving of time and effort, saving of overhead costs, and keeping all data safe.
In order to support the digital transformation of the financial sector in Vietnam, the banks must offer provisions to strengthen the general principles in the draft law so that there is a basis for the Government and the State Bank of Vietnam to implement the testing of new technology and for the deployment of new products, services, and business models in financial activities with the participation of Fintech companies for future growth towards a more convenient digital form of dealing with money and finances.
