The development of internet banking in vietnam,graduation thesis

STATE BANK OF VIETNAM BANKING ACADEMY FACULTY OF FOREIGN LANGUAGES GRADUATION THESIS THE DEVELOPMENT OF INTERNET BANKING IN VIETNAM Supervisor Student Student code Class Can Thuy Lien Tran Thi Ngoc Hoa 16A7510055 K16 – ATCC Hanoi, May 2017 STATE BANK OF VIETNAM BANKING ACADEMY FACULTY OF FOREIGN LANGUAGES GRADUATION THESIS THE DEVELOPMENT OF INTERNET BANKING IN VIETNAM Supervisor Student Student code Class Can Thuy Lien Tran Thi Ngoc Hoa 16A7510055 K16 – ATCC Hanoi, May 2017 DECLARATION I declare that this graduation thesis entitled “The development of Internet banking in Vietnam” is original piece of work of my own The thesis has not been submitted previously for any degree in any other university All the sources used have been indicated and acknowledged Signature: Tran Thi Ngoc Hoa Date: 23/05/2017 ACKNOWLEDGEMENTS It is impossible for me to complete this graduation thesis without the instruction and support of individuals whom I cannot thank enough for their great contributions to my study Firstly, I would like to express my sincere gratitude to my supervisor, Mrs Can Thuy Lien, M.A of the Faculty of Foreign Languages at Banking Academy She is a supportive advisor who offered me helpful guidance and suggestions during my preparation for the thesis Secondly, I would like to thank all lecturers at Banking Academy, especially lecturers of the Faculty of Foreign Languages for providing me useful experience and precious knowledge during the past four years Finally, I wish to express my deep appreciation towards my family and friends for their understanding and encouragement Tran Thi Ngoc Hoa ABSTRACT Internet banking was firstly introduced in Vietnam in 2004 and since then, it has become one of the favorite banking services of customers and brought considerable income for Vietnamese commercial banks However, in order to make this service develop sustainably and effectively, banking and finance industry in general, banks in particular should have the suitable solutions towards the goal of technologizing customer service Having realized the necessity of this issue, this study presented the reality of Internet banking in Vietnam during the period from 2011 to 2015 and considered challenges against its sustainable development to recommend solutions to develop sustainably this service TABLE OF CONTENTS DECLARATION ACKNOWLEDGEMENTS ABSTRACT TABLE OF CONTENTS LIST OF ABBREVIATIONS LIST OF FIGURES AND TABLES INTRODUCTION Study rationale Objectives and questions of the study Scope and subject of the study Study methodology Significance of the study The structure of the study LITERATURE REVIEW 10 Chapter 12 Theoretical framework 12 1.1 Overview of e-banking and its services 12 1.1.1 E-banking definition 12 1.1.2 E-banking services 13 1.2 Internet banking 15 1.2.1 Definition 15 1.2.2 History 16 1.2.3 Advantages and disadvantages 18 1.3 Summary 21 Chapter 22 The development of Internet banking in Vietnam 22 2.1 Favorable conditions for developing Internet banking in Vietnam 22 2.1.1 Legal framework and regulations 22 2.1.2 Technology infrastructure 27 2.2 Internet banking at Vietnamese commercial banks 30 2.2.1 General view 30 2.2.2 Internet banking at some typical banks 34 2.3 Challenges in the development of Internet banking 37 2.3.1 The perceived attitude of the public 37 2.3.2 The habit of using cash in payments 41 2.3.3 Security 42 2.4 Summary 45 Chapter 46 Recommendations for a sustainable development 46 3.1 Recommendations at the macro-management level 46 3.1.1 Raise the public’s awareness about cybersecurity 46 3.1.2 Improve the legal framework 47 3.1.3 Strengthen the government’s management 48 3.1.4 Enhance technology infrastructure 49 3.1.5 Increase international cooperation in cybersecurity 49 3.2 Recommendations to Vietnamese commercial banks 50 3.2.1 Invest in the infrastructure of technology and security 50 3.2.2 Improve the quality of human resources 51 3.2.3 Enhance the quality of Internet banking services 51 3.2.4 Reinforce the effectiveness in marketing and advertising 52 3.3 Recommendations to customers 52 3.4 Summary 54 CONCLUSION 55 REFERENCES 56 LIST OF ABBREVIATIONS Abbreviations Meaning ABA American Bankers Association ATM Automated Teller Machine CBS Core-banking System COD Cash on Delivery e – banking Electronic banking e – commerce Electronic commerce e – transaction Electronic transaction EFTPOS Electronic Fund Transfer at Point of Sale FFIEC Federal Financial Institutions Examination Mbps Megabit per second PIN Personal Identification Number SBV State Bank of Vietnam SFNP Security First Network Bank Techcombank Vietnam Technological and Commercial Joint Stock Bank VIB Vietnam International Bank Vietcombank Joint Stock Commercial Bank for Foreign Trade of Vietnam VietinBank Vietnam Joint Stock Commercial Bank for Industry and Trade LIST OF FIGURES AND TABLES Figure 1.1: Electronic banking – Definition and relationships …………………… 13 Figure 1.2: Some channels of e-banking ……………………….………………… 15 Figure 2.1: Illustration of CBS ………………………………………………… 28 Figure 2.2: Top 20 countries with highest number of Internet users (June 30, 2015) ………………………………………………………….…………………………… 30 Figure 2.3: The number of transactions on VietinBank Ebanking channels over years …………………………………………… ……………………………………… 35 Figure 2.4: Customers’ concerns when using online banking services ………… 40 Figure 2.5: Payment methods ……………………………………….…………… 41 Table 2.1: Update on Vietnam legal framework for developing Internet banking in 2015 ………………………………………………………………………………… 23 Table 2.2: Internet users in Vietnam (2011 – June 30, 2015) ……………………… 29 Table 2.3: The number of banks providing Internet banking over the years ……… 31 Table 2.4: F@st i-bank – Internet banking service of Techcombank ………… … 32 Table 2.5: Techcombank’s Internet banking fees (F@st i-bank) ………………… 38 Table 2.6: The average Internet connection speed of countries in the Asia Pacific … …………………………………………………………………………………….… 39 Table 2.7: popular risks of security …………………………………………….… 43 INTRODUCTION Study rationale In the 1990s, with the non-stop evolvement of technology and computer science, Internet and World Wide Web were created The appearance of Internet plays an important part in opening a new era, the era of information technology and digital world Because of the Internet, the geographical distance between nations and regions have been narrowed down Today, millions of people from all over the world can connect to each other to share information and knowledge of economics, politics and culture in an easier and more flexible way Once again, the importance of the Internet in everyday life has been re-emphasized by Bill Gates, one of the leaders of the computer industry He said: “The Internet is becoming the town square for the global village of tomorrow.” In the past decades, we have witnessed the rapid advances in telecommunication and computer technology development This has led to the Internet becoming the fastest growing marketplace in the world It has emerged as the leading medium, and innovative distribution channel for business (Hua, 2009) The Internet has transformed traditional face-to-face banking into Internet banking where everything is done by just a click It is one of the useful e-commerce tools that is applied in the banking industry and its value has been clearly proved by improvements and achievements in banking services recent years The advantages it has been bringing to both customers and banks are huge and this has led to the increase in customers’ demand for using this service Thus, the trend in the utilization of Internet banking has shown a rapid growth in developed countries At the same time, in developing countries, there is also a trend toward the adoption of Internet banking Following the worldwide trend, Vietnam officially welcomed the appearance of the Internet in 1997 After that, e-commerce and Internet banking have been gradually developed Especially in recent years, commercial banks in Vietnam have made big progress in enhancing the quality of e-banking in general and Internet banking in particular These improvements have been clearly expressed in the upgrade of The causes for this increasing number of high-tech crimes in online banking are the lax security system of Vietnamese commercial banks and the lack of cooperation between banks and customers in information security and data protection Firstly, the security system of Vietnamese banks is incomplete and vulnerable to attacks by hackers A survey of 40 banks conducted by the Bach Khoa Inter-network Security Centre (BKIS) found that 20 of them were unsecured The investigation revealed vulnerabilities in money transfers and discovered that the password recovery function to user accounts could also be used to change the customer's password In addition, according to a research by Vietinbank, there are risks of security that commercial banks usually encounter as the table below: Table 2.7: popular risks of security Risk Problem solution Hacker could steal SQL Injection customers’ information only by normal request Hackers could run a Input data Cross Site poisonous code on Scripting user’s computer by (CSS) taking advantage of - Control input data well - Choose to use Store procedure - Control input data well - Use more encodes HTML entities… website money transfer management Malicious File Uploading Hackers could attack - Check customers’ directly to hosting attached expanding files system by taking carefully advantage of the function of “Feedback/Suggestions /Complain” on website 43 - Decentralize closely on hosting Hackers take advantage - Deliver sensitive of information information through confirmation procedure session instead of Authentication to steal data of system parameters - Check session and correlative account Logical management Cross Site Hackers treat users to - Sensitive tasks have to transfer money to them use CAPTCHA Request by clicking Forgery accidentally on the link (CSRF) having code of transfer - Use more hard token, PKI order Software companies - Update frequently often open holes and patch hackers could exploit Software Patch them - Catch up with network security frequently to Environment prevent Zero Day’s & Operating holes System Due to progress un- - Check and checklist Not good synchronization, some frequently about system excessive functions are information security and configuration Process, Operation still activated and being reject unnecessary taken advantage functions Reveal account Implement standards of number, personal ATTT ISO 27001 information and disable account (Source: vietinbank.vn) 44 Secondly, many online banking users in Vietnam not pay much attention to information security and data protection For example, personal computers are not installed with genuine software from reliable companies, anti-virus software products are not good enough and customers’ passwords are too simple Plus, customers not regularly update new versions of computer software, which creates opportunities for attacks by hackers Last but not least, due to lack of sufficient information, customers carry out transactions via unknown websites, leading to the leak of information and money loss In conclusion, it is important for both banks and customers to realize the seriousness of security risks Also, both parties should have active cooperation to reduce these risks in online banking transactions 2.4 Summary Internet banking is becoming an effective tool in the competition of banks around the world Being aware of Internet banking’s benefits, commercial banks in Vietnam have been racing to develop this service in order to fortify their prestige and competitiveness In the period from 2011 to 2015, banks achieved great success in online banking and attracted a significant number of users, contributing to the development of e-commerce in Vietnam Nevertheless, there are still many challenges that online banking services are facing such as the perceived attitude of customers, the low rate of non-cash payment, and security issues These challenges are responsible for slowing down the growth of Internet banking services in Vietnam 45 CHAPTER RECOMMENDATIONS FOR A SUSTAINABLE DEVELOPMENT Although security issues and the habit of using cash in payment have raised concerns among banks and customers, no one can deny the appeal of Internet banking and its role in contributing to promote the competitiveness of Vietnamese commercial banks Therefore, in order to overcome the challenges mentioned above, a long-term process with a great deal of efforts and time is required All solutions and recommendations need to be multilaterally unified with the active participation of authorities, customers, and commercial banks From personal point of view after doing research, there are some recommendations for a sustainable development of Internet banking in Vietnam 3.1 Recommendations at the macro-management level 3.1.1 Raise the public’s awareness about cybersecurity At present, the public's awareness of cyber risks and consequences is not high Many still consider violations of cybersecurity are just some jokes while in fact these behaviors must be condemned and legally dealt The more developed Internet banking services are, the more problems related to information security and data protection they have to face Ensuring the security for services via the Internet in general and Internet banking services in particular is a difficult and long-term process This process will hardly come into success without the efforts of the whole society Each individual, each organization, and bank must understand the risks they may face and have preventive measures to protect both themselves and the community when using online services The government should strengthen the training and education of information technology and Internet banking as well as raise public's awareness of cybersecurity through mass media such as television, radio and newspapers Besides, there is also a need for the publication 46 of documents related to information security and data protection The government should regularly check and evaluate the reliability of e-commerce websites Raising public's awareness is a major issue that cannot be implemented overnight In fact, we have to divide the process into stages In the first stage, we should focus on the group of customers who are well-educated and have high income These people are also the ones who regularly carry out transactions with banks and use Internet banking services Therefore, concentrating on this group of customers not only will save time but also create the efficiency in spreading information After that, we will continue to raise awareness among other groups of customers having lower income and lower levels of education Additionally, the State Bank of Vietnam (SBV) should regularly organize training courses as well as seminars on Internet banking services and security issues related to the provision of these services with the participation of foreign experts This will help Vietnamese commercial banks to complete and develop online banking services in a modern, scientific way and reduce risks in online banking transactions 3.1.2 Improve the legal framework Firstly, the legal system in the banking sector is now quite adequate; however, for ebanking transactions in general and Internet banking transactions in particular, the government should issue more specific regulations on the handling of disputes in electronic transactions Moreover, the government needs to promulgate regulations on the responsibilities of organizations providing electronic services, as well as those of the adopters of e-banking services Secondly, it is necessary for the government to improve legal documents in order to promote non-cash payment in Vietnam Specifically, the following solutions should be synchronously implemented: 47 • Review, supplement and amend legal documents guiding the implementation of the Law on the State Bank of Vietnam 2010 and the Law on Credit Institutions 2010 related to payment activities • Promulgate regulations on the assurance of security, safety, confidentiality as well as prevention and handling of violations in non-cash payment activities • Promulgate tax incentive policies or similar measures such as tax preferences for card-paid goods and services so as to encourage businesses to accept payment by cards as well as stimulate people to use cards when shopping instead of using cash • Promulgate appropriate policies on the charges of payment service to encourage organizations and individuals to make non-cash payment At the same time, adjusting the fee of inter-bank payment service to influence the fee of payment service suppliers, which will help create a reasonable fee for service users • Regulate that payments for transactions of real estate and valuable assets (cars, motorbikes, boats, ) need to be made via banks Finally, in order to make the adjustments of legal framework go into effect and create an effective environment for managing and supporting e-banking services, the authorities should make further efforts in implementing the promulgated legal documents During the implementation, it is necessary to pay attention to guiding and disseminating the contents of legal documents to ensure that published regulations are understood and carried out in a right way Moreover, specific requirements for the growth of Internet banking services keep changing from time to time Thus, the legal framework also needs to be regularly reviewed and adjusted to meet the new requirements 3.1.3 Strengthen the government’s management Administrating agencies should have specific orientations for the development of information technology in the banking sector This will help banks to establish their own technology systems as well as develop banking services and products to satisfy 48 customers' demands Besides, the SBV should establish standards for the provision of Internet banking based on international standards and encourage commercial banks to follow them Also, there is a need to create a project for the inspection and supervision of online banking activities at banks and provide certificates to banks which meet the established standards These measures will help customers to assess the reliability of each bank in implementing Internet banking activities and reinforce their trust in using the service 3.1.4 Enhance technology infrastructure The application of innovative and new technology can boost the growth of Internet banking services in Vietnam Therefore, improving technology infrastructure is one of the urgent goals that need to be fulfilled Firstly, the SBV should prioritize the expansion and improvement of infrastructure for Internet banking services on the basis of exploring, acquiring, and applying up-todate technology in accordance with current situations in Vietnam Secondly, it is important to have solutions for the investment in establishing a strong communication infrastructure, improving the quality and the average speed of Internet to avoid network congestions and ensure high cybersecurity Finally, the SBV is expected to instruct commercial banks to continuously apply advanced technology to increase the accessibility to banks' websites and to speed up the information transfer This will allow customers to easily use banking services through the Internet and mobile phones 3.1.5 Increase international cooperation in cybersecurity Today, the scale and spread of information security risks are not limited to one country Thus, there is a need for international cooperation in cybersecurity as follows: • Organize and participate in global cybersecurity conferences so as to learn more about cybersecurity 49 • Coordinate with administrating agencies in regional and non-regional countries to build a common framework to ensure network security and protect the infrastructure of information • Cooperate with international organizations in setting up technical standards and warning system to deal with network security incidents • Develop cybersecurity strategies at national level based on established legal framework and standards • The government should actively cooperate with security organizations to handle cybercrimes and prevent threats from spam, malwares, computer viruses and more • Maintain relationship with banks and international organizations to take advantages of capital, technology, and knowledge of information security and data protection In addition, provide technical training courses and knowledge to both SBV's staff and commercial banks' staff 3.2 Recommendations to Vietnamese commercial banks 3.2.1 Invest in the infrastructure of technology and security In order to ensure the stability of the system, commercial banks should invest more in developing network infrastructure and building a modern system of information technology This will help to minimize network congestions and improve the quality of online banking services Besides, commercial banks also need to have a comprehensive system of solutions for the adoption of online banking in Vietnam in which the issues of information security and data protection must be the first priority because these factors will determine the development of Internet banking services Therefore, banks should seek for the advice from experts and professional consultants to make effective investment decisions 50 3.2.2 Improve the quality of human resources The quality of bank staff plays an important part in representing the image of each bank and its services Customers would prefer making transactions with a bank whose staff are energetic, enthusiastic and qualified because they feel assured and respected Polite attitude and professionalism of bank staff in communication can help to attract a lot of customers and increase their trust in using banking services Therefore, banks should focus on improving working attitude and professional qualification of bank staff as well as rewarding individuals who demonstrate good attitude and good performance Also, banks need to criticize those who have inappropriate behaviors towards customers In addition to improving bank staff’s working attitude, Vietnamese commercial banks need to develop high-qualified human resources to meet the need of modernizing banking services Banks can set up a group of staff who are specialized in technology security instead of hiring experts from other organizations To this, banks should have appropriate policies to attract talents Moreover, commercial banks should regularly open training courses for employees or send them abroad to learn more about new technologies applied in banking services 3.2.3 Enhance the quality of Internet banking services Vietnamese commercial banks need to improve the quality of existing online banking services by providing full features of banking products and services and allowing customers to complete the registration process online instead of requiring them to go to the banks Additionally, raising the limit on money transfer via the Internet or bank cards will also help to attract customers Besides the recommendations mentioned above, banks also need to be more proactive in receiving feedbacks and requests from customers To this, banks need to set up a customer service center which will operate 24/7 to support customers by providing sufficient information when they show interests in using Internet banking services This center will also assist customers during the registration process and help 51 them if they encounter any problems Accordingly, this center should be equipped with modern switchboard system together with a group of dynamic, enthusiastic and qualified staff in order to bring individuals and corporates the following benefits: • Customers are supported 24 hours a day and days a week • Customers can actively contact commercial banks via the customer service center anywhere, at any time through a variety of methods such as telephone, email, online support, or auto service channels • If there is any incident, the customer service center can help clients to lock bank cards and freeze savings account temporarily This will help customers to protect their assets in time when encountering incidents even outside the working hours • All transactions via the customer service center will be protected according to regulations 3.2.4 Reinforce the effectiveness in marketing and advertising To increase the number of Internet banking users, banks should pay more attention to marketing and advertising their services Below are some recommendations: • Banks should promote Internet banking services through mass media such as television, newspapers, radio, banners, posters, direct emails and more • It is necessary to implement promotions and incentives for customers using online banking services • Commercial banks should regularly organize seminars to introduce new banking services and products as well as understand more about customers’ demands 3.3 Recommendations to customers The sustainable development of Internet banking does not only depend on the efforts of the government and commercial banks but also on the contribution of individuals and enterprises using online banking services Therefore, customers need to equip 52 themselves with sufficient knowledge of Internet banking services in order to avoid risks in online banking transactions Below are some recommendations: • Customers are advised to change passwords regularly They should use combinations that are difficult to guess, such as a mix of upper- and lowercase letters, numbers and symbols The more complex passwords are, the harder they will be to crack, and the more likely they will be able to protect customers from hackers • There is a need to use anti-virus software Customers should make sure the software is up to date on home computers and mobile devices • Customers must check that the network and website are secure Banking online from the security of private home network is ideal With public Wi-Fi, customers cannot be sure who sees what they send online, unless each page they visit is encrypted If customers have to log in while away from home, they should consider using the cellular data plan instead of Wi-Fi, or a virtual private network, known as a VPN When logging in, it is necessary to check for Web page encryption by making sure the address on the browser starts with “https.” The “s” signals that the page is secure • Customers should use two-factor authentication Instead of just a username and password, many banks and credit unions ask customers to provide a second piece of information to verify themselves It could be a unique passcode the bank sends to customers’ smartphone as a text message, or even their own fingerprints • Customers must be careful with unknown links or suspicious emails These links and emails may contain malwares or viruses which can easily steal customers’ information and use it to hack their accounts 53 3.4 Summary With an aim to support the sustainable growth of Internet banking in Vietnam, this chapter provided some recommendations to the authorities, commercial banks and customers For the government and administrating agencies, the recommendations focused on the completion of the legal framework, the improvement of information technology infrastructure, and the public’s awareness of cybersecurity For commercial banks, the improvement of technology infrastructure, the quality of human resources and Internet banking services as well as the investment in marketing and advertising were deeply discussed Also, this chapter provided useful instructions for customers to avoid security risks in online banking transactions In short, those recommendations are the key answers to the development of Internet banking in Vietnamese market 54 CONCLUSION In the process of international economic integration, developing online banking services in a sustainable way is one of the important goals that need to be fulfilled Facts have shown that thanks to Internet banking, huge benefits have been brought to customers, commercial banks and the whole economy As a result of the information technology’s development, Internet banking has played a significant role in improving the diversity and quality of e-banking services at Vietnamese commercial banks During the period from 2011 to 2015, online banking has gained many achievements regarding the number of banks providing this service and the number of active users In addition, banks have been investing in technology infrastructure, improving the efficiency of human resources, and focusing more on enhancing the security system so as to attract more customers and increase banks' competitiveness in the market However, the development of Internet banking in Vietnam is considered unsustainable because of the following reasons: customer's hesitation in using online banking services, the dominance of cash payment, and security issues Realizing those challenges, the study has proposed some recommendations to administrating agencies, commercial banks and customers The recommendations mainly focus on improving technology and legal framework, raising customers' awareness and investing more in security system and the quality of services Hopefully, the active cooperation between mentioned entities will help e-banking services in general and Internet banking services in particular to develop and contribute more to Vietnam economy in the future 55 REFERENCES Books and Newspaper articles Allen, F., McAndrews, J., & Strahan, P (2001) E-finance: An Introduction, Working Paper No 01-36 Financial Institutions Center, Wharton University, Philadelphia, PA, October Ho Tuan Vu (2015) Giải pháp hạn chế rủi ro giao dịch Internet banking ngân hàng thương mại Việt Nam Journal of Science Duy Tan University Keivani, F S., 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