"Fast Fish" by speed and flexibility: crucial factors for banks to prevail in the new frontier.

Facing challenges in the new frontier?

Data from the State Bank of Vietnam shows that, by the end of April 2021, transactions through the Internet, mobile phones and QR codes have all achieved a growth rate of over 65% in quantity and over 31% in value year on year.?

These numbers show that the rise of technology and smartphones during the Covid-19 pandemic have drastically changed consumer behavior, especially within Millennials and Gen Z (MillennialZ) generations. Digitalization is dominating the way consumers live, work, and shop. Adapting to these changes quickly has become imperative, and the banking industry is no exception.?

Cashing in on this trend, a number of large banks and new digital banks in Vietnam have quickly introduced online identification (eKYC) to open accounts for customers. Within 5 minutes of validating documents and using facial recognition technology, customers have their bank accounts. In the near future, this new method is expected to grow exponentially when Circular 16/2020/TT-NHNN is amended, officially allowing all banks to use technology to open accounts for customers remotely.

Not limited to only opening accounts, credit cards, loans, saving, shopping in the ecosystem... are also rapidly moving online. The banks that have pioneered these services include Timo digital bank which offers Visa cards with a credit limit of up to 500 million VND to their customers completely online. Or VP bank has launched an online disbursement service for small and medium business in just a few hours, without going to the physical banks.

Digitalization helps banks reach new customers easily, quickly and conveniently anytime, anywhere and allows banks to participate in new non-bank businesses, competing with Fintechs and Big Tech. Digital bank Cake is an example. Launched earlier this year, Cake is a combined product of VP bank and Be Group. This combination helps Cake take advantage of Be's technological capabilities including a large digital ecosystem and data analysis and applying artificial intelligence in analyzing customer behaviors to provide bespoke financial services. This handshake also makes Cake's services more Be-like. Typically, when opening an account at Cake, customers will receive a gift from the "sister" transportation company Be with a gift of 50% discount (Max VND 50,000) for ten trips.

Also taking advantage of the ecosystem, TNEX digital bank, born before, has also launched the product "Discover Street Vendors", which embeds the merchant ecosystem in the bank. This product kills two birds with one stone. First, it reaches both young customers and small merchants, helping them to use banking services while creating business opportunities, payment, and consumption within the TNEX ecosystem.

MillennialZ customers that love new experiences account for 47% of Vietnam's population. If the experience is positive, they will not hesitate to recommend friends to join. Understanding this mentality, digital banks have also launched insight-driven promotions. Timo digital bank has launched an initiative "Adding friends adding love", whereby customers can invite friends to join Timo to receive VND 20,000 together; Or Cake digital bank deposits VND 50,000 in the accounts of both the referrer and the referred person as part of a program called "a good golden friend".

These recent movements of banks to gradually adapt to the changing behavior of customers are bringing a new definition to banking in the new era.

The solution to be the "fast fish"

To not be "the slow fish," which will certainly be "eaten" by Big Tech or Fintech, banks should be ready to change quickly.

The Government has issued new policies promptly to facilitate the digitalization of banks. The National Digital Transformation Program to 2025, with a vision towards 2030, has identified banking as one of the areas with great societal impact that must be prioritized for transformation.

On the regulatory side, in May this year, the State Bank issued Decision No. 810/QD-NHNN approving the "Plan for the digital transformation of the banking industry to 2025 with a vision to 2030". Accordingly, the ultimate target is to have at least 50% of disbursements and loans be offered and made to customers digitally and automatically by 2025 and at least 70% by 2030. These regulatory developments have paved the way for digitalization in the banking sector to accelerate in the coming years.

Banks should change their traditional monolithic and modular architecture or face obstacles in this digitization process. These architectures are inflexible, slow, expensive to maintain and upgrade. Therefore, it usually takes years to bring a new product to market; personalizing customer experience is virtually "mission impossible"; scaling up physical branch networks also requires enormous resources.?

Instead, banks need to digitalize and adopt a composable banking approach which can combine different independent components such as core engines and connectors to "compose" any product or service. Composable banking approach using artificial intelligence, big data, machine learning and cloud computing technology will help banks create customer-centric products and services, shorten the time to launch products to market within a few weeks instead of months or years as before.

Super Saver is a special product for payment accounts, only available at Cake, with an interest rate of 3.6%/year, which means 18 times the interest rate of a regular current account (0.2%/year). It demonstrates the customer-centric product and helps to maximize the profit of the money in the account. This customized product meets the needs of those customers who have a constant cash flow but do not want to save all the money because they need to maintain the cash flow.??

Digitization also helps banks reach new customers at a much lower cost than the conventional method. TNEX digital bank has created and provided products and services at nearly 97% lower cost than traditional banks. The flexibility in the combined structure - composable banking approach - also helps the bank to scale up quickly, reaching areas where banking services are not available, helping to achieve financial inclusion.

The cost savings from digitalization will help the bank to have more resources to waive 100% of fees such as account opening fees, account management fees, service fees, etc. for its customers. In fact, TNEX, Timo, Cake... already waive these fees for customers for life. This is also an advantage of digital banks compared to traditional banks, attracting customers and ensuring their ability to use digital banking services.??

The lyrics of the famous song "Stay the same" by Joey McIntyre in the 90s are no longer true for banks today. Staying the same in the digital age would be suicidal because Digital banking is the future. And the future bank must be the digital bank. Banks need to apply 4.0 technology with the composable banking approach to become flexible and to accelerate the speed of digitalization. Only then can they survive and prosper, contributing to the development of the digital economy in Vietnam.