Study on Development of Ebanking in Vietnam Finance Essay

E-banking use has grown along with other forms of Internet use. The revolution in ICT has brought and will continue to bring big changes in the life of people and nations around the world. In 2008, there were about 78.4 million internet users in ASEAN. The graph in Exhibit 3-1 shows that internet development from 2005 to 2008 in six ASEAN countries (Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam). Internet users per capita in Singapore were 72.94, the largest in the region. Internet users per capita in Malaysia were 62.57, the second largest in the region.

Typically developing, internet users per capita in Vietnam were 23.91, the third largest in the region with the highest average growth rate of 20% per annual. The Internet is perceived as a powerful tool for developing Internet banking services in Vietnam. Internet services only became available in Vietnam in 1998. Internet users in Vietnam are mostly concentrated at big towns and cities. Internet development in Vietnam from 2005 to 2009 as illustrated in Exhibit 3-2 shows that internet users were from 12.89 million in 2005 to a double of 25.15 million in 2009. The Internet development in the region and Vietnam is changing the banking industry and is having the major effects on e-banking. Although Internet use in Vietnam is still the third largest in ASEAN, this development is a good requisition for develop Internet banking services in Vietnam.

According to Ministry of Industry and Trade, Internet users are expected to have a stronger growth in 2010 and in the next years. In short, the Internet development has improved for the recent years as foundation for developing e-banking services in Vietnam According to the International Telecommunication Union, Vietnam’s telecommunications industry has been ranked as the second fastest growing worldwide (after that of China). As depicted at Exhibit 3-3, mobile subscribers development in Vietnam from 2000 to 2009 shows that there were 2.7, 5, 9.6, 15.5 and 23.7 million mobile phone subscribers in 2003, 2004, 2005, 2006 and 2007 respectively. This trend indicates a two-fold increase in mobile subscribers every year.

Between 2007 and 2008, the number of mobile subscribers grew by 195% percent from 23.7 million to 70 million. In 2009, mobile subscribers were 106.3 million. Strong growth of the Vietnam’s mobile market will boost many people to participate in electronic payment network via Mobile banking. According to the Ministry of Post and Telecommunications, mobile subscriber is expected to 140 million in 2010 and to grow rapidly over the next years. In brief, the mobile development is potential for developing e-banking services in Vietnam Since Vietnam banks made a debut on electronic payments with participation in the SWIFT system in March 1995, non-cash payments in Vietnam grew rapidly in line with the growth in middle-income people and an increasing familiarity with method of non-cash payment. Exhibit 3-4 shows the figures to underpin the positive trend of non-cash payment in Vietnam from 2001 to 2009. The percentage of cash payment in the economy decreased continuously from 23.7% in 2001, 2005 was 19.01%, 2006 was 17.21%, 2007 was 16.36%, 2008 was 14.6% and 2009 projected 14.0%. In addition, electronic payment in Vietnam has a strong growth over the past years.

According to a report commissioned by State Bank of Vietnam, percentage of cash in the total means of payment is forecasted to reduce to 13% by 2010 and to have lot of potential for further decrease over the following years. This is a great opportunity, giving a green light for the development towards a non-cash payment market on the threshold of e-banking development in Vietnam In Vietnam, e-banking adoption grew very rapidly in the past ten years. In Exhibit 3-5, e-banking first appeared in the market in 1999 but it was adopted by ACB bank in March 2001 in the form of Home banking. VCB bank launched ATM banking in Jan 2002. Besides ATM banking, other innovations are introduced place such as phone and Internet banking which provide customers the ability to access banking services from various locations and at a 24-hour by 7 days basis. ACB bank launched Phone banking in August 2003 and Call Center in 2005. During the first period of Internet expansion, commercial banks had static or interactive Websites. VCB bank launched Internet banking in Jan 2006. However, ACB bank was the first bank to introduce full e-banking channels in January 2005 while DongA bank was the first bank to introduce Mobile Internet banking in January 2008 as part of its suite of Online Banking services Vietnam commercial banks are active participate in launching new e-channels and most of them are transforming from the computerization of traditional services to supply of new e-channels At present, ATMs have become a common customer delivery channel in urban centers. ATM cards are the most popular cards in Vietnam. POS was accepted in most supermarkets. Data from Exhibit 3-6 shows that ATM, POS and ATM Card have grown dramatically since 2005. As of 2009, the entire Vietnamese banking sector has 10,000 ATMs, 37,000 POS terminals and 21.6 million ATM Card. There are three separate card payment network exist in Vietnam, Smartlink Card Services Joint Stock Company (Smartlink), Vietnam National Financial Switching Joint Stock Company (Banknetvn) and Vietnam Bank Card (VNBC). In 2008, the successful interconnection of the two inter-bank card payments brought more utilities and convenience to e-banking nationwide In recent years, the increasing e-banking has opened a new path for Vietnam commercial banks to lower the cost to serve their customers, improve their competitive position and gain customer loyalty. Moreover, e-banking have established a foundation for delivering future products and services that can be monetized such as electronic payments and remittances As of April 2010, there were about 39 commercial banks operating in Vietnam. In Exhibit 3-7 shows that twenty eight commercial banks provided ATM card, account for 72% of 39 commercial banks in Vietnam.

Most Vietnam commercial banks launched many ATMs across the country in order to boost accessibility to banking services instead of opening new branches immediately because it is an investment that requires more time and resources. Five commercial banks supplied Home banking service. Few commercial banks launched Home banking services, account for 12% of 39 commercial banks in Vietnam. Seven commercial banks had Phone banking.

Numbers of commercial banks provide Phone banking service not much, account for 18% of 39 commercial banks in Vietnam. Twenty seven commercial banks implemented Internet banking, account for 69% of 39 commercial banks in Vietnam. Twenty three commercial banks launched Mobile banking, account for 59% of 39 commercial banks in Vietnam Home banking is provided by five commercial banks (ACB Bank, Ocean Bank, VietA Bank, Vietcombank and VietinBank. These five banks are large-sized commercial banks in capital, high-technology and services. Exhibit 3-8 presents Home banking utilities in five Vietnam commercial banks.

The Home banking utilities are limited in only allowing customers to check account balances, transfer money and pay bills. The number of commercial banks not only provides few Home banking services, but number of customers is also very low.

Because the service costs high and these banks only encourage customers which are high number of payment. Furthermore, to use this service, customers must equipped PC and line at their own cost The limitation of Phone banking is no screen to follow up the transaction or receive order confirmation and restricted transactions. As shown in Exhibit 3-9, Phone banking services are provided by seven commercial banks (ACB Bank, Giadinh Bank, SeABank, HabuBank, SouthernBank, SCB Bank and Vietcombank). These bankers only allow customers to check their balance and access information. Moreover, the Phone banking is considered as an additional distribution channel and is offered as a way of backing up their Internet banking in case of system error Vietnamese customers are moving towards Internet banking. This service is provided by most of commercial banks in Vietnam and customers could use various services on a 24/7 basis.

The banks started Internet banking initially with simple functions such as accessing information about interest rates, checking account balances and loan. Thereafter, e-banking services were extended to bill payment, fund transfer between accounts and cash management for corporate. Now, few banks facilitate payment for e-commerce transactions by directly debiting bank accounts or transferring money. As illustrated in Exhibit 3-10, all Vietnam commercial banks provided account enquiry utility. Nearly half of Vietnam commercial banks had money transfer utility. And one third Vietnam commercial banks provided bill payment utility.

However, some utilities such as online inter-bank fund transfer, online-shopping using bank cards and online deposit are not come in use Mobile banking is a term used for performing balance checks, account transactions, payments etc. via a mobile device such as a mobile phone. Mobile banking today is most often performed via SMS or the Mobile Internet but can also use special programs called clients downloaded to the mobile device (Wikipedia). Mobile banking provides customers with the ability to stay connected with their finances even when they are on the go Although mobile phone market develops very fast with more than 106 million subscribers, Mobile banking is still at the early stage of development. Seeing enormous potential of Mobile banking, twenty three Vietnam commercial bankers provided some Mobile banking services as shown by the chart in Exhibit 3-11. However, most of them offer customers the ease of using their mobile phone to check account balances, pay bills and even locate ATM that was based on SMS. There is only one bank (DongA Bank) to offer an option for customers to conduct several transactions such as bills payment, deposit and money transfer into other people’s bank accounts via customers’ mobile. The reason that most Vietnam commercial banks do not offer more services on Mobile banking was due to customer demand The Master plan on e-commerce development in the 2006-2010 periods which was implemented in 2005 is the first State’s macro policy with comprehensive orientations and solutions and specific action program with the view to enhancing e-commerce development nationwide.

The Master plan laid foundation for the implementation of several activities related to e-banking. In 2007, two Decrees on electronic transactions in finance (Decree No. 27/2007/ND-CP) and electronic transactions in banking (Decree No. 35/2007/ND-CP) were issued to instruct the implementation of the Laws on Electronic Transactions in term of data messages. Moreover, the Decree on Digital Signatures (Decree No. 26/2007/ND-CP) formed the legal basis for the development of digital signatures and digital signature certifying services, the prerequisites for developing electronic transactions nationwide. According to a report from Economist Intelligence Unit as presented in Exhibit 3-13, Vietnam which was 64th in e-readiness rankings 2009, have made substantial progress in recent years in making digital channels available to citizens for information provision and consultation The development in banking payments has been recently reflected positively. According to Government Website’s news, the Government’s Decree on implementation of non-cash payment and SBV’s project on development of non-cash payment in the period of 2006-2010 and a vision to 2020 was a solution and a legal framework for electronic transactions. Of the payment revenue via banks in first quarter of 2010, the non-cash and cash payment has accounted for 85% and 15% respectively. Interbank electronic payment system, the national payment system, can process two million transactions per day, improving the payment quality and capital liquidity of the economy.

Card payment services also had a sound development. The payment systems of the two biggest card payment alliances, Banknetvn and Smartlink, which account for more than 90% of the card payment market share, have now been linked together.

According to the SBV, together with the rapid development of non-cash payment services, the proportion of cash in total payment methods has decreased. Robust development of electronic payment facilities and non-cash payment services will be a good opportunities for e-banking adoption Vietnam is a good place for growth in the e-banking sector due to high literacy rate and young of the population. Young population will make the e-banking market fast growing. According to a 2007 survey conducted by McKinsey on personal financial services in Vietnam as plotted in Exhibit 3-14, young adults whose 21 to 29 years old play a large role in using e-channels.

Younger people are generally considered more receptive to new technologies than older people are. The growing trend of younger customer is likely to prefer automated access. In addition, the needs of young customers and middle class customers will become more and more diversified. These high literacy rate and young of the population open opportunity for developing e-banking services in Vietnam Vietnam has adequate prerequisites for the development of e-banking: Vietnam’s ICT industry and financial institutions have cooperated with the Government to develop infrastructure services on e-payment such as Inter-bank Payment System, Electronic Clearing System and Card Payment System with four bankcards alliances. These systems give bankers systematical support to develop e-banking in the country. Supportive ICT and telecommunications services are available.

Vietnam enjoys access to first rate ICT firms with all of the ICT wares and technical support services necessary to develop e-banking. The regional or global nature of these ICT firms creates the opportunity to develop existing platforms and applications for e-banking services. There has been significant growth in the use of ICT in Vietnam. The number of mobile phone subscribers and the number of Internet users have increased as shown in Exhibit 3-2 and 3-3. The ICT market is expected to be driven by companies increasingly adopting e-banking as well.

Deregulation of key sectors, liberalization of economic policy and moves to integrate Vietnam into the global economy have been key drivers of increased ICT adoption in Vietnam. The development of e-banking in Vietnam has become an integral part of the Government’s efforts to make the country to be high level in technology. The Government has issued of laws on electronic transaction to encourage the use of e-banking. Although there is a progress in non cash payment in transaction, habit of cash usage of the most population is still a big obstacle for developing e-banking. In Vietnam, cash is “king” and still remain as the main method of payment for personal consumption. Traditionally, Vietnamese prefer to keep cash at home or the form of gold or lending to their relatives.

For corporation, especially SME, still prefer to receive and pay cash in business transactions. Many high value transactions have not been conducted through banks as people may not have confidence in the banks.

Cash usage habit limits the development of advanced payment methods. Most Vietnamese customers of electronic services in the banks are mainly employees with relatively high and stable salaries from leading industries such as financial institutions, post and telecommunications, information technology, real estate, aviation and construction etc. Therefore, Vietnamese with low education and low income were less likely to participate in e-banking. The reasons are that most Vietnamese earn low income, have little need for opening bank accounts and there are some drawbacks such as computer illiteracy, security, fraud, and theft have deterred Vietnamese from participating in e-banking. In addition, many Vietnamese customers are still uncomfortable with e-banking while the benefits of such advancements have been welcomed by most of the educated ones.

Low skill of using information technology applicants and weakness in English is also a psychological barrier to actively participate in e-banking The development of e-banking in Vietnam is further threatened by foreign bank competition. Recently, some of the wholly-owned foreign banks have been granted licenses to conduct retail banking in conjunction with regular commercial banking services provide a variety of advanced e-banking services. This leads to a large gap between the computerization of foreign banks and that of local commercial banks. In addition, the unequal development and use of ICT among Vietnam commercial banks slow the introduction of e-banking services. Since investments on e-banking depends each project and business separately, Vietnam commercial banks have not enough synchronized system to develop e-banking services. All the 39 Vietnam commercial banks engaged the use of ICT as a platform for effective and efficient delivery of banking services such as: electronic payment cards, Internet banking and Mobile banking services are gradually being introduced Although literacy rate in Viet Nam is very high, the majority of Vietnamese have had a low awareness on e-banking. E-banking services have not become popular because the customer still prefers the comfort of having a bricks-and-mortar branch to visit.

Many Vietnamese customers are still accustomed to tangible banking transactions and reluctance to change. Few banks provide the transactions of buying and selling goods, paying bills, transferring funds, and managing investments. Working manner in general and purchasing habit in particular are still under traditional form. Many non-users do not know the existing e-banking services.

These pose serious problems for the development of e-banking. In addition to the hesitation of participating in e-banking in Vietnam due to low awareness, there has been mistrust between customers and banks involved in the e-banking transactions such as quality, reliability, security, risk and privacy. It is believed that customers do not have confidence to make any big financial transactions and stay away from online services involving financial exchanges. Therefore lack of system security concerns as the prime reasons for low client’s trust in Vietnam e-banking system E-banking development choice of Vietnam commercial banks focus on its core-banking technology, core-capacity. The Vietnam commercial banks acknowledged that their e-banking adoption is greatly influenced by ICT infrastructure driven by core banking system. A factor which is being the key strength in development of e-banking in Vietnam is that majority of Vietnam commercial banks have deployed core-banking in their day-to-day operations. This has also considered as the basic deployment of modern core banking toward e-banking in order to close the gap with foreign banks. Vietnam commercial banks have offered a range of e-banking services such as SMS banking, Mobile banking, Internet banking and ATM card based on the core-banking system.

According to TEMENOS (SIX: TEMN), the global provider of integrated core-banking systems, eleven of thirty Vietnam Commercial banks has installed TEMENOS T24. The others have installed Flexcube SYMBOLS, Huyndai and Sylverlake. Majority of Vietnam commercial banks are having strong willing to develop in e-banking services towards modernization. On top of all these, there is a clear trend towards a greater degree of commitment in e-banking adoption . The commitment of bank’s management to invest in innovative technology to provide non-users with access to e-banking services have considered as a key factor in the success of developing e-banking.

Moreover, the bank’s management has become more aware of the possibilities and benefits of e-banking. Many Vietnam commercial banks are on significantly restructuring to adapt to the new e-banking standards. Bank restructuring process continues to be fostered by the SBV. E-banking is being promoted by Vietnam commercial banks as an essential component of a restructuring strategy to achieve greater efficiencies in e-business. In addition, under the pressure of foreign banks with full e-banking services, Vietnam commercial banks are being forced to restructure their organizations, operations and activities such as working 24 hour a day and 7 days a week In general, most commercial banks have not yet provided customers with full e-banking services. It only allows customers to check their balance, access information such as exchange rates, interest rates and consultative information useful for investment on a Web presence. Many e-banking services do not meet customers’ expectations: they have to personally go to the bank to buy services or deposit their money.

Many banks fail to supply services relating to investment, trade in real estate or financial leasing via e-channels. Cross selling products/services are still low delivery of products and services essentially through branch network which requires direct contact with customers; off-site transactions and services distribution are fragmented due to undiversified and limited e-banking services. In addition, four alliances in the ATM network are creating segmentation of networks where the customers of this networks sometimes unable to access to others’ network. The investment in e-banking is higher than that in bricks-and-mortar banking. The applicability of e-banking to Vietnam commercial banks depend on ICT capital expenditure at start-up stage. High start-up cost of e-banking prevents banks from investing in e-banking.

Although the e-banking services proved to be much more cost effective than traditional services, most Vietnamese commercial banks have an absent significant investment on e-banking due to their capital limitation. Currently, majority of Vietnam commercial banks have had no proper strategies with clear roadmap for developing e-banking services. The e-banking development strategy of Vietnam commercial banks has not linked yet the reform of the SBV with the encouraging electronic payment. Lack of well-defined e-banking strategy that is aligned with business strategy is also one of the most common problems in e-banking adoption of Vietnam commercial banks. In addition, their level of strategic awareness is low and they have not yet developed an marketing strategy to attract customers to adopt or move into using e-banking services.

Therefore, they require planned efforts of bank management to boost the development of e-banking services. The current e-banking infrastructure of Vietnam commercial banks still remains insecure due to lack of risk management competences. With e-banking activities, Inadequacy of risk management efforts involve in banks’ management oversight, information security programs and legal and compliance issues. The incompetence of risk management is likely to prevent e-banking services from growing

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