Development of electronic banking in vietnam,graduation thesis

1 STATE BANK OF VIETNAM BANKING ACADEMY FACULTY OF FOREIGN LANGUAGES  GRADUATION THESIS Title: DEVELOPMENT OF ELECTRONIC BANKING IN VIETNAM Co – Supervisor Student Class Faculty : Nguyen Thi Hoai Thu (MA) Nguyen Phuong Lan (MA) : Nguyen Thanh Binh : ATCB – K11 : Foreign Language -000 Hanoi, June 2012 ABSTRACT As Vietnam is booming and the society is opening up, E – commerce has put its first footstep in this rising economy However, to really give the economy an upsurge, it is essential that the banking sector be reformed toward an E – age Like other commercial banks in emerging economies, banking institutions in Vietnam have kept implementing E – banking service and achieved initial outcomes This study examines the current situation of E – banking development in Vietnam by analysing three most potential services – Bank card, Internet banking and Mobile banking services in the period of 2009 - 2011 In the study, the researcher uses the quantitive research method and qualitive research method The study reveals that much need to be done to improve the quality of E – banking services to attract customers’ interests The research finding also shows that the main limitations in implementing E - banking are low efficiency in the risk management policy and marketing strategies ACKNOWLEDGEMENTS First, I would like to express the deepest appreciation to my supervisors, MA Nguyen Thi Hoai Thu of the International Training Program and MA Nguyen Phuong Lan of the Foreign Language Faculty – Banking Academy They have provided great support and wholeheatedly guided me during the studying process I also thank them for their encouragement and precious comments on the draft research, which was of critical importance for this study I am heartily thankful to the Commercial Banking Department of the ANZ Bank (Vietnam) Limited and Relationship Managers who assisted me during the internship time I would like to highlight that my experience with ANZ Bank Hanoi was very memorable and full of learning, where I found a lot of positive changes in my attitude, learning and behavior The internship time provided me with opportunites to work and learn in the best working environment Finally, I am deeply thankful to my family, my friends for their love and continuous support during the writing of this report My family always believed in me, always were there whenever I need them I am also greatful to my friends for their valuable advice that help me a lot Nguyen Thanh Binh LIST OF TABLES AND FIGURES Tables/ Title Page Figures Table Benefits of E – banking Table Legal framework for E – banking activities 19 Table The number of cards, commercial banks and card brands in the 22 period of 2009 – 2011 Table The growth of ATM and POS system in the period of 2009 – 23 2011 Table The return of Bank card service in the period of 2009 – 2011 24 (millions USD) Table The number of internet banking users in Vietnam from 2009 – 26 2011 Table The return of Internet banking service in the period of 2009 – 27 2011(millions USD) Table The accomplishments of diverse facililites of Internet banking 28 service from 2009 – 2011 Table The number of Mobile banking users in Vietnam from 2009 – 31 2011 Table The return of Mobile banking service in Vietnam from 2009 - 31 10 2011(millions USD) Table The accomplishments of diverse facililites of Mobile banking 32 11 service Figure The facililites of Bank card service used by customers 25 Figure The facililites of Internet banking service used by customers 29 Figure The facililites of Mobile banking service used by customers 33 Figure Reasons barring customers from using Mobile banking service 34 LIST OF ABBREVIATIONS Abbreviation Meaning E – banking Electronic banking E – commerce Electronic commerce ATM Automated Teller Machine EFTPOS Electronic Fund Transfer at Point of Sale ACB Asia Commercial Bank VCB Bank for Foreign Trade of Vietnam HSBC The Hongkong Shanghai Banking Coporation ANZ Australia and New Zealand Banking Group Limited SBV State Bank of Vietnam EAB Eastern Asia Commercial Bank Vietinbank Vietnam Join Stock Commercial Bank for Industry and Trade MB Military Bank Sacombank SaiGon Commercial Joint Stock Bank Techcombank Technical and Commercial bank Agribank Vietnam Bank for Agriculture and Rural development BIDV Bank for Investment and Development of Vietnam VNBCA Vietnam Bank Card Association ABSTRACT I ACKNOWLEDGEMENT II LIST OF TABLES AND FIGURES III LIST OF ABBREVIATIONS IV TABLE OF CONTENT .V I INTRODUCTION 1.1 Rationales 1.2 The Aim and Scope of the Study 1.3 Research methodology 1.4 Organization of the Study II THEORETICAL BACKGROUND OF THE STUDY 2.1 Context for the development of Electronic banking 2.2 Background of E – banking development .6 2.2.1 Definition of E-banking 2.2.1 Benefits of E – banking 2.2.2.Types of E – banking 2.3 Criteria to evaluate the development of E – banking 13 2.3.1 The number of services and products 13 2.3.2 The return of E – banking services 13 2.3.3 The number of E – banking transactions 14 2.3.4 The number of E – banking customers .15 2.3.5 The facilities of products 16 2.3.6 The quality of services .17 III EMPIRICAL RESULTS 18 3.1 Early stage of penetration of E – banking 18 3.2 Legal framework for E – banking in Vietnam 19 3.3 Current situation of development of E – banking services in Vietnam 21 3.2.1 Bank card service 21 3.2.2 Internet banking service 26 3.2.3 Mobile banking service 30 IV DISCUSSIONS 36 4.1 Achievements 36 4.2 Limitations and causes 36 4.2.1 Marketing strategies 36 4.2.2 Quality of E – banking services 37 4.2.3 Risk management activity 38 4.3 Summary and Findings 38 V SOLUTIONS AND RECOMMENDATIONS 40 5.1 Solutions to develop E – banking services in the period 2012 – 2015 40 5.1.1 Improving management capacity and human resource 40 5.1.2 Modernizing banking technology 39 5.1.3 Improving the efficiency of marketing strategies and population propaganda 41 5.1.4 Strengthening risk management in E – banking activities 42 5.1.5 Diversifying E – banking products and services 43 5.2 Recommendations 44 5.2.1 Recommendations for Improvement 44 5.2.2 Recommendations for Further Study 45 REFERENCES APPENDIX 1: STATEMENT OF ORGINIALITY AND AUTHENTICITY APPENDIX 2: INTERNSHIP STATEMENT OF BANK I INTRODUCTION 1.1 Rationales With the powerful development of the information technology system, the financial services industry has recently been open to a historic transformation So – called E – developments are emerging and advancing rapidly in all areas of the financial market such as E – finance, E – banking, E – commerce, E – brokerage of which Electronic banking (E – banking) is the newest delivery channel for banking services E – banking is not an alien concept in Vietnam In the past two decades, a series of commercial banks and other financial institutions have kept investing in informatics technology The introduction of E – banking in Vietnam, therefore, has received positive responses Ever since the SBV initiated the Inter – Bank Electronic Payment, the speed of electronic payment has been remarkably improved In 2005, the total number of E – banking transactions was 3.5 million, and in 2006, this number increased to 6.3 million More and more banks have been involved in the competition of providing E – banking services In 2005, only banks adopted Core Banking, whereas in 2008 the figure grew to 44 banks (Saigontimes, 2008) A number of new products and facilities have been introduced to public, bringing great benefits to customers, banks as well as the economy Though regarded as a potential market, E – banking in Vietnam has not been mature Banking institutions in Vietnam are facing with many challenges in implementing and improving E – banking services It is of necessity to assess the development of E – banking in Vietnam, research limitations and overcome challenges Therefore, in order to contribute to improving the quality of banking services in Vietnam in the period of integration, the researcher selected the topic “Development of Electronic banking in Vietnam” for graduation paper Hopefully the topic will contribute to help banks have orientation and measures to develop electronic banking services in the new period 1.2 The Aim and Scope of the Study The overall aim of the research is to assess the current situation of the E – banking’s development in Vietnam It also suggests solutions to developing Vietnam’s E – banking services in the period of 2012 to 2015 This study, therefore, is a useful source for banks in the activities of implementing their E – banking services The research focuses on the current situation of E – banking development in Vietnam over the period from 31st December 2009 to 31st December 2011 To achieve the target of the reseach, the reseacher tries to find answers to the following questions: RQ1 What is the current state of E- banking ‘s development in Vietnam? RQ2 What are the achievements and limitations of E – banking in Vietnam? RQ3 How could commercial banks improve E – banking services? 1.3 Research methodology The study is conducted with secondary data Some relevant studies will be reviewed to see what other Vietnamese and foreign researchers have reported about the development of E – banking in Vietnam Some theories have been gathered from external sources such as libraries, text books and other documents on Internet In the study, the researcher uses the quantitive research method and qualitive research method The author uses the quantitive research method through multivariate and diagrams analysis Qualitive research method is used through analysis on basic criteria The analysis result largely depends on the quality or accuracy of such data and information 1.4 Organization of the Study The structure of the study is as follows II presents theoretical background of E – banking III describes the current situation of E – banking’s development in Vietnam in recent years IV dicusses the achievements, limitations and figures out 10 causes of limitations to create a firm base for suggestions in the next section The last section proposes solutions and recommendations 42 Figure 4: Reasons barring customer from using Mobile banking (Business Time) As shown in the survey of Neilsen, in 2011, most people did not use Mobile banking on the grounds that they lacked information on the service 65% of customers were concerned about its security, 42% did not satisfy with the quality of service, 25 % did not choose Mobile banking by reasons of traditional habit Besides, complex procedures of Mobile banking also affected the choice of customers For instance, customers had to remember the template messages of the banks when using Mobile banking service 43 IV DISCUSSION This section shows assessment on the development of E – banking activities in Vietnam in the past three years 4.1 Achievements First of all, E – banking martket has become more dynamic than ever before with the extensive development In the last few years, more and more banking institutions have offered E – banking services The number of products and customers have also seen a considerable increase; thus, the return of E – banking services have achieved improvement in the past three years Secondly, E – banking in Vietnam has been implemented more and more comprehensively with a wide range of facilities Table and Table 11 show that banks have pushed themselves in searching and providing new facilities of Internet banking and Mobile banking service In comparison with basic facilities, such as checking account balance and account statement, a range of new facilities has inferred the E – banking strategies toward bringing best service to customers Improvement of E – banking has made a substantial contribution to the development of the country’s economy In the past few years, on account of the rapid growth of bank card market, cash – use ratio has experienced a gradually downward trend, which has revealed a positive signal for a cash – based economy like Vietnam In 2011, the figure was 13.5 %, dropping by 3.7% in comparison with five years ago 4.2 Limitations and Causes Though gaining remarkable achievements, the implementation of E – banking has not come up to banks’ expectation 4.2.1 Marketing strategies As far as marketing policy is concerned, banking institutions have not focused on advertising new facilities and services to public The efficiency of the 44 marketing strategies of banks has also not come up to their expectation In fact, just a few conferences, exhibitions and propaganda on E – banking have been held in the past few years Furthermore, the content of advertisements has not received appreciation As a consequence, a number of customers have not been updated with new services, new facilities offered by banks According to the surveys in 2011, 52% and 78.1% of customers did not use Internet banking and Mobile banking because of lacking information On the other hand, as shown in figure and figure 3, ordinary facilities such as checking account balance and account statement seemed to be still more popular than newly developed facilities The main reason for this pending problem is human resource in banking institutions Bank staff have many restrictions in terms of expert level, operational skills, as well as managerial experience As a result, working capacity of human resource has not improved to ensure the effectiveness and efficiency of marketing strategies in particular and the implementation of E – banking in general 4.2.2 Quality of E – banking services In recent years, E – banking services have been improved in quantity, but not achieved a reasonable outcome in quality Transactions via ATM and POS channel has remained restricted In 2011, the ratio of unsucessful transactions via POS has been relativley high (29% with Banknet, 20% with Smartlink and 19% with VNBC) Moreover, the unsystematic implementation of E – banking services in Vietnam banking system has also led to low quality of the service Interbank transactions have not been provided The level of efficiency and reliability have not been improved The problem is partly explained by the inconsistence in implementing E – banking service in commercial banks Though the number of banks implementing E – banking services has increased considerably in the past few year, there has been no cooperation between banks Banks have searched and developed E – 45 banking services independently, leading to the discrete E – banking system The quality of service, therefore, has not improved as much as expected 4.2.3 Risk Management Activities Though the E – banking market has kept growing in terms of the number of participating banks, various products and useful facilities, E – banking services have not attracted the huge Internet and mobilephone population due to the common concern of security In 2011, 65% of customers did not use Mobile banking because of the issue of security, and in the case of Internet banking, the figure was about 28% Actually, banking institutions in Vietnam have adopted unsystematically the standard of Internet security, making leaks in Internet network Furthermore, banks have been weak at the independent procedure on security assessment A number of banks have not paid enough attention to enhance security policies Security, therefore, has remained to be a big challenge for the development of E – banking services in the future The pending issue has resulted from the unprofessional risk management policies of banking institutions in Vietnam As far as modern technology is concerned, the last few years have seen a lack of backup system for critical data and alternative means of processing information In addition, necessary tools for security management have not been modernized In terms of human training, in the past few years, a number of bank staff have not updated with new informatics technologies Moreover, bank staff have also revealed their weakness both in experiences and skills in risk management which need improving so as to set up a reasonable security policy for E – banking 4.3 Summary and Findings In summary, this part gives a brief view on the current situation of electronic banking services in Vietnam By analyzing the situation of three most potential E 46 – banking services, we have learnt that the current situation of electronic banking services can be summed up in a word “INFANCY” E – banking services in Vietnam are infancy for reason of restriction in the range of facilities In recent years, a lot of new facilities have been introduced to public, for instance, accessing useful information for investments, making online payment or e – bills payment However, interbank transactions and sophisticated facilities including mortgage related services, insurance management, financial auctions, share trading have not been provided E – banking services of Vietnam are also in their infancy on account of the question of information security Hackers and viruses represent potential dangers to banks and customers when both network security and law enforcement are not effective enough As a matter of fact, commercial banks have not paid much attention to network security A number of banks has failed to set up a standard procedure to limit the risks In practice, 100 % banks has faced the problem of Internet security including personel, process ICT network, tranmission, central management, platform and environment, and E – banking technology applications On the other hand, legal documents have not become the key to direct the implementation of risk management activities In the past few years, some legal documents have been issued to protect the privacy and security of customers such as Government’s Decree No 26/2007/ND – CP detailing the implementation of the Law on e – transactions regarding digital signatures and digital signature certification services However, the document have not come to life and taken effect Furthermore, there has been no document regulating the sanctioning of violations in privacy and security of informatics technology It is a must to say that the current situation of legal framework has given rise to the slow growth in information security of E – banking services 47 V SOLUTIONS AND RECOMMENDATIONS Through this section, the author wants to present some solutions and recommendations pertaining to the development of E – banking services in Vietnam 5.1 Solutions to developing E – banking services in the period of 2012 – 2015 5.1.1 Improving management capacity and human resource The development of E – banking activities is remarked to be associated with banking management capacity, operation and human resource quality Therefore, in order to develop sustainable banking services, commercial banks need to seek for specific solutions with an eye to improving the quality of human resources In fact, one of the most critical solutions is to set up an effective training program close to the practice For potential managers, it is necessary to have plans for training and practising on the basis of friendly exchange and cooperation with local banks or foreign banks operating in Vietnam Training certification is regarded as one of the criteria to select managers for banking institutions It is required that senior officials have adequate capacity to conduct banking activities in general and E – banking activities in particular In terms of employees, it is essential to have plans for improving the quality of training programs Banks should open regular classes, short courses on business, soft skills and invite the specialists in the field More specifically, it is required to train banking staff on the purpose to enhance the ability of operating and managing E – banking services If the process of training staff does not keep pace with the process of banking modernization, the ability to absorb technology will be limited and those risks will certainly be elsewhere in the banking system 5.1.2 Modernizing banking technology In the process of global economic integration and development, it is vital to modernize banking technology which has made a great influence on the 48 development of E – banking As a matter of fact, developing technology and infrastructure is an important solution to enhancing E – banking The author presents three steps in modernizing technology and infrastructure Firstly, much need to be done to improve the quality of data transmission Commercial banks in Vietnam should upgrade modern equipment to improve the capacity of Server Besides, banks should cooperate with the telecommunication agencies with the aim of improving access speed of computer network between the branches, transaction departments and head offices of banking institutions Banks should select technical system allowing communication in many interchangeable ways to ensure quick a transaction process and avoid obstruction in peak hours Secondly, banking institutions should prepare suitable secure softwares which can be designed by Informatics Technology Team of commercial banks or bought from prestigious companies Banks can also seek for pieces of advice from specialists on the purpose to assess the suitable ones In addition, banks should participate in conferences on Informatics Technology in Banking sector, for instance, Banking Vietnam Finally, developing a centralized database system also plays an important role in the development of E – banking services Only when the system completes, will all of banking data be concentrated in centered data and all changes be updated immediately Integrating data between E – banking system and the Core banking system not only allows commercial banks to have a thorough grasp of customers’ accounts but it also enables the transaction to be done at any branches in the system 5.1.3 Improving the efficiency of the marketing strategies and popularization propaganda Commercial banks need to make thorough researches into the market and customer segments to determine appropriate market strategies and target customers Quarterly or semi - annually, business department of commercial banks should have a plan to access and expand services to all customers of all economic 49 classes It is essential to assess the outcomes and good experiences achieved in E – banking activities Marketing deparments of commercial banks should enhance appropriate marketing strategies to each district, province and city by making the extensive propagandas and advertising about the facilities of products and services delivered by banks It is a good advice to sponsor for cultural programs and sport programs of the provinces and cities Banks should organize promotion programs regularly with a view to attracting organizations and individuals 5.1.4 Strengthening risk management in E – banking activities E – banking services are directly threatened by international hackers, organizations specializing in computer attacks via the Internet As a result, the risk management in electronic banking activities is the priority task that should be paid attention to The author suggests three packs of solutions to deal with the critical issue  Administration solutions - Setting up effective policies for risk management and provision - Paying attention to the process of assessing and approving the basic contents of security management procedure - Focusing on setting up the management procedure in cooperation with related parties  Technical solutions - Implementing authentication and decentralization in the process of making transactions via Internet - Authenticating transactions to restrict the repudiation and set up statements for E – banking transactions - Specializing obligations in systems, data base and E – banking applications - Monitoring obligations and decentralizations in systems, data base and E – banking applications - Ensuring the integrity of transactions, statements and E – banking information 50 - Setting up backup files for E – banking transactions  Legal and prestigious solutions - Publishing sufficient information on banks’ websites so that potential customers can assess the level of security and banks’ regulations before they make E – banking transactions - Improving E – banking services to meet the need of customers in accordance with the legal framework - Preparing secondary plans to ensure the availability of E – banking services under any circumstances - Developing alternative plans to manage, prevent and limit E – banking risks 5.1.5 Diversifying E – banking products and services In the past few years, though a number of facilities have been in use, the implementation of these facilities has not gained comprehensive outcomes Therefore, commercial banks need keep developing new products and services of electronic banking so as to meet the need of customers The diversifying of E – banking services can be conducted as follows: In terms of extensive development, new E – banking services need developing to meet the increasing demand of customers There are three steps in the process of developing new services and products In the first step, banks set up ideas on the new services Then, banks classify these ideas to choose the best one that is suitable for the need of customers as well as banks’ capacity, and after that banks offer new facilities to a group of customers and receive their feedbacks As far as intensive development is concerned, banks should complete and improve the quality of the existing facilities in terms of the level of privacy and security, convenience and automatization in transaction so as to satisfy customers It is necessary that annual surveys be conducted by banks with the purpose of seeking out the current situation of the quality of facilities delivered The intensive development can only be ensured by the full pack of solutions to developing E – banking 51 5.2 Recommendations 5.2.1 Recommendations for Improvement Basing on the above analysis on the real situation of the development of E banking services in Vietnam, the author proposes some recommendations for developing E-banking services in Vietnam in the period of 2012 – 2015  Recommendations to the Government and State Bank of Vietnam Firstly, so as to improve E – banking implementation, the government and SBV should complete the legal framework and enhance E – commerce law as well as policy enforcement The measures taken to protect online customers should be intensifed in order to encourage people to participate in online payment The government should also issue law on limitation of cash usage to create the habit of making non – cash payment for the Vietnamese On the other hand, it is indispensable to promote the popularization and propanganda on E – banking E – banking is not a alien concept in Vietnam; however, the awareness of people on this field is still limited In the coming time, popularization and propaganda activities on E – commerce as well as E – banking need to be intensifed Finally, the government and State bank of Vietnam should perfect the Project for the development of E – banking in Vietnam in the period of 2011 – 2015 The project will strengthen the cooperation between commercial banks and related parties working toward the common goal of delivering the best banking services to public Only by implementing systematically the project could Vietnam E – banking services be improved comprehensively  Recommendations to commercial banks E – banking is not a new stage, but it is vital for all banking institutions in the global intergration The following methods are of critical importance if commercial banks wish to grasp the future potential market: First of all, much need to be done in raising public awareness about the availability, operation and benefits of E – banking products and services Banks should organize public exhibitions and talkshows to make their products 52 accessible to all customers Marketing strategies need improving to keep pace with the integration period Secondly, banks should ensure information security by preparing backups files and alternative means of processing information It is necessary to focus on solving the issue of Internet privacy and security, updating new technology in security, using firewall, anti - virus softwares, backup systems They should ensure good connectivity and power base that will enable them to serve customers faster and more conveniently Thirdly, banks should strengthen the cooperation with other banks on the purpose to improve the quality of E – banking services, provide services with diversified facilities The expansion of E – banking network not only brings customers benefits but also contributes to a leap in the development of E – banking The cooperation also creates mutual benefits for both banks and their partners On the other hand, commercial banks should concentrate on modernizing banking technologies Banks need keep researching and applying new technologies, new products and services In fact, these products should be developed selectively in accordance with the capacity of banks and potential customers Last but not least, banks should keep training human resource in order to create a strong human resource Bank should pay attention to enhancing the quality of training program Bank staff should update modern technology and innovation in banking technology Furthermore, bank staff should also be trained to have good behaviors, creating professional images and providing customers with the best services 5.2.2 Recommendations for Further Research E – banking is not a new concept in banking system of Vietnam It includes a lot of issues that can be considered from various perspectives In the research, the author focuses on assessing the real situation of E – banking development in 53 Vietnam in terms of three most potential services – Bank card service, Internet banking service and Mobile banking service The author recommends further research pertaining to factors affecting the implementation of E – banking service in Vietnam so that we could figure out effective solutions to the question of E – banking implementation in commercial banks 54 REFERENCES Billing of OSS World, 2009, RFID could be interim solution to mobile banking Daniel, E., 1999, “Provision of electronic banking in the UK and Ireland,” International Journal of Bank Marketing Fred D Davis, Perceived Usefulness, MIS Quaterly, 1989, Perceived Ease of Use and User Acceptance of Information technology www.infotv.vn/english/news/38746-online-banking-growing-in-vietnam Ministry of Trade (2007, 2008, 2009, 2010), E-commerce report Ministry of Information and Communication, White Book 2011 Saigontimes, 2008, Ngan hang day manh toan dien tu Business Times, Banking and Finance, Total number of e – banking service user in Vietnam Grows Report of Vietnam Bank Card Association 2011 10 Ziqi, L and Michael, T.C (2003) ‘Challenges to internet e-banking’, Communications of the ACM Archive: Mobile Computing Opportunities and Challenges, Vol 46, No 12, pp.248–250 11 Hwang, H, Chen, R And Lee, J (2007) “ Measuring customer satisfication with internet banking: an exploratory study’, Int J Electronic Finance, Vol 13, No.3, pp.321 – 335 12 Liu, C.C (2008) “The relationship between digital capital of internet and business performance’, Int J Electronic Finance, Vol 2, No, 1, pp 18 – 30 13 Gao, P and Owolabi, O (2008) ‘Consumer adoption of internet banking in Nigeria’, Int J Electronic Finance, Vol 2, No 3, pp.284–299 14 Yang, J., Whitefield, M and Boehme, K (2007) ‘New issues and challenges facing e-banking in rural areas: an empirical study’, Int J Electronic Finance, Vol 1, No 3, pp.336–354 55 APPENDIX BANKING ACADEMY FACULTY OF FOREIGN LANGUAGE Graduation Paper Statement of Originality and Authenticity This thesis is an original and authentic piece of work of myself I have fully acknowledged and referenced all material from secondary sources It has not, in whole or part, been presented elsewhere for assessment I have read the Examination Regulations and I am aware of the potential consequences of any breach of them Signature: Binh Name: Nguyen Thanh Binh Date: 06/06/2012 56