Vietnamese banks under mounting pressure to adopt technological advancements

VnExpress International had an exclusive interview with executives of India-based information technology company Tech Mahindra, who are in Hanoi to attend the Asian Banker Summit 2016, to discuss the importance for banks to stay on top of the competition through technological innovation.

New entry on data warehousing

Commercial banks in Vietnam have just embarked on the journey of adopting technologies. The roadmap starts with upgrading core banking, then building data warehouses to enhance business intelligence capability, and internet and mobile banking.

Niraj Vedwa, senior vice president of Tech Mahindra, described the process of technology adoption by Vietnamese banks.

“Banks in Vietnam, in recent years, have focused on strengthening their core banking. At least 14 -15 banks, that we know, have invested with speed in core banking, transforming their old legacy system into a new one with best of breed technologies. An integrated core banking system will make it faster for banks to create and launch new products with differentiated features which will in turn attract more customers to banks,” said Niraj.

“Besides, outdated legacy systems are increasing costly for Vietnamese banks to run and maintain. They become a major stumbling block for business growth,” he added. “Bigger banks have been quick to experiment with digital initiatives and solutions including mobile banking and internet banking. And now smaller banks are catching up.” 

Indian-based information technology company Tech Mahindra, part of a $16.9 billion Mahindra group, offers digital transformation solutions to over 800 companies across 90 countries. It entered Vietnam four years ago and has provided various technology services to six local banks which include the country’s leading state-owned banks and large partly private commercial banks.

“We are building a data warehouse at one of the four largest banks by assets. We expect it will come into operation by the end of this year,” said Vasudevan Subramanian, head of ASEAN business development of banking, financial services and insurance. "Larger banks in Vietnam are getting into data warehousing. These banks have a massive database of customer-related information. Deployment of a data warehouse enables them to have better understanding of their customers, then reach out to their customers more effectively.” 

Irresistible rise of digital banking

In these years of digital revolution, banks have to proactively reach out to new customers and enhance business agility through digitization. This is especially true to Vietnam where a large population is living in remote areas with no access to banking services. Banks cannot reach out to these prospective unbanked and under-banked customers due to high infrastruture costs of opening branches.

Tech Mahindra says its “Branchless Banking” is one of cost-effective banking services solutions. “Branchless bank is actually the extension of traditional banking services to people who don’t have direct access to banks. With branchless banking, people in remote areas now can make payments, transfer money, and do some sorts of basic savings,” said vice president Manish Goenka.

He said Vietnamese banks have not adopted ‘branchless banking’ because it is quite new. But he sees "huge market growth potential" that local banks can exploit by using the solution.

Executives of India-based information technology company Tech Mahindra, including Niraj Vedwa, senior vice president, global head of banking payments and cards (M), along with Manish Goenka, vice president and ASEAN chief (R) and Vasudevan Subramanian, head of banking, financial services and insurance in the ASEAN region (L), in an exclusive interview with VnExpress International.

Bank restructuring in Vietnam 

In Vietnam, the State Bank of Vietnam is looking to reduce the fragmentation of the industry through mergers and acquisitions and reducing the number of commercial banks to 20 by 2017. 

“When banks merge with other banks, they must standardize their merged core banking systems and their technology platforms. Information sources which previously were separate in two places now come into one. Banks need more IT support than ever when mergers and acquisitions happen,” explained Vasudevan, ASEAN region head.

“Through acquisitions or mergers, small banks have a chance to scale up operations quicker. Besides, small banks aren’t financially capable of investing enough in technology as they need to. And due to lack of technology, they fall behind,” he added.

Integration brings competition

Vietnam is integrating further into the global market. As a result, local banks are faced with mounting pressure from foreign players and higher requirements from the international market.

“If Vietnamese banks don’t invest in technologies, foreign banks will take away foreign investor customers. If you want those customers, you have to take action: invest in technology, ” said Manish Goenka. 

In order to comply with various international regulatory requirements, Vietnamese banks need to improve their data management and upgrade their technological capabilities.

The ASEAN Economic Community (AEC) will create an integrated financial market in the region by 2020. All the ASEAN countries will need to upgrade their payment systems for them to integrate and work on one platform.

However Vietnam, along with Laos, Cambodia and Myanmar, still doesn’t have a completely functional high value real time system in place.

Wave of Fintech startups

“Fintech, or financial technology, is happening big time in more developed markets where conditions are more mature, things like venture capital, start-up ecosystems are more established,” said Manish Goenka.

“Banks are actually encouraging the Fintech ecosystem by becoming their partners and investing in those Fintech start-ups. Why? Because innovation can happen much faster when you are small, but when you become big and significant, innovation will slow down. I’ve seen many large banks putting millions of dollars in Fintech start-ups in Silicon Valley, in Singapore, then they use Fintech solutions to make banking services more efficient,” Manish said.

He also pointed out that the wave of Fintech is not going to sweep over emerging markets like Vietnam anytime soon. However, banks in Vietnam can get the best out of available Fintech solutions, for instance, branchless banking, mobile wallet, video banking and Apple banking.