Rising number of Internet users and mobile phone subscribers is smoothing the way for digital banking in Vietnam to thrive, but huge challenges keep lying ahead, according to insiders.

A subscriber uses digital banking services on her smart phone

As of December 2018, the inter-bank e-payment system has processed approximately 137,600 transanctions, worth a total of 73 quadrillion VND (3.14 trillion USD), equivalent to 13 times the country’s GDP, the State Bank of Vietnam said.

In 2018, Vietnam had about 55.2 million Internet and 45.8 million mobile phone users, accounting for 57 percent and 45 percent of the population, respectively, with rising number of people using smartphones over the past five years. In 2017, about 84 percent of the population in major cities had at least a smartphone.

The Viet Dragon Securities Corp has forecast that there will be about 60 million Internet users and 55.4 million mobile phone subscribers in the country by 2022.

Yet the penetration of banking services in Vietnam has been relatively low compared to other emerging and frontier markets. It is estimated that close to 43.2 million Vietnamese, or 45 percent of the population, hold a bank account. The number of commercial bank branches and automated teller machines (ATMs) per 100,000 adults is 24.3 and 3.4, respectively, lower than other peers.

A majority of Vietnamese still keep the habit of using cash daily. Since the master plan to develop cashless payment in Vietnam was approved by the Government in 2016, the cash/total money in circulation reduced slowly. A survey conducted by FT Confidential Research showed that more than 46 percent of urban consumers in Vietnam asked said they use cash exclusively when making transactions, much higher than that of other ASEAN countries, such as the Philippines (34 percent).

Cyber security is also challenging the growth of digital banking. According to EY Vietnam, there were nearly 8,320 cyber attacks in the banking industry last year with around 560,000 computers affected by malware probably created for banking information theft. Vietnam ranked 7th globally in the target list of Trojan attacks in 2018.

More importantly, insufficient legal regulations are another major problem to the sector. Over the past few years, the digital payment segment has grown rapidly driven by technology advances, but domestic legal regulations are lagging behind, making banks reluctant to apply new technologies and services.