Mr. Keith Pogson, Senior Partner, Financial Services, Asia Pacific at Ernst & Young shared his thoughts on retail banking in Vietnam with VET.
■ After many years of working with banks in Vietnam, what is your view of retail banking in the country?
Retail banking will become one of the best and most profitable components of banking in Vietnam. Vietnamese people are very accepting of new technology and technological change is driving the changes in retail banking. Customers are moving towards using banking apps on mobile phones to make payments and buy most services online or through a smartphone. To make those investments in technology there needs to be consolidation in the banking system. For mobile phone banking to realize its potential there needs to be bigger banks with more customers so that they can easily make payments among themselves inside the same bank. This is an exciting time for retail banking and I am hopeful we will see big advancements in Vietnam soon.
■ How much do you think banks in Vietnam should invest in technology to keep pace with the rapid technological change in retail banking?
Quite a lot; it depends on the banks. In profitability terms I expect it should be 50-60 per cent. Banks will do it or not do it. If they don’t they will miss out on the opportunity to be the winner in the competition. I think that big banks will be the retail banks of the future in Vietnam.
■ Technology is important in improving retail banking but it’s too expensive for small banks. Will these banks lose in the competition?
Small banks either need to merge to compete or focus on niche areas such as private banking / wealth management. This is a global trend; either become a big payment bank where you focus on high quality and safe and convenient technology or else don’t spend the money on these expensive costs and focus on serving a niche market segment.
■ Do you think that commercial banks in Vietnam face a lot of challenges in competing in retail banking?
As above, the biggest challenge they face is that they are too small and hence the large investment in technology is difficult to make. We have not seen big jumps forward yet in payments. Some of this is to do with regulation but most is to do with the spend and direction needed by the banks. Most spare capital has been invested in growing the banks’ balance sheets to date rather than investing in this sort of high technology development. Similarly, the large number of banks means it is difficult for large payment networks to develop unless they are driven by a cross-industry player (telecom companies, potentially). Banks have historically competed on price rather than service or convenience and this will need to change in order to develop better services in the market.
■ How does the SBV’s M&A strategy affect retail banking?
The SBV’s strategy towards M&As is a great step in the right direction for the development of retail banking. This allows for the formation of bigger banks with deeper pockets to invest in technology and more customers to both spread the cost and who will benefit. There are strong benefits to scale of network in retail payments as the more customers who are part of the banks’ network the more effective and lower the cost of execution.
■ Technology is changing retail banking. As foreign banks have advantages in capital and technology, do you think they will gain more market share in retail banking?
Foreign banks have an advantage because of their ability to invest in technology and their experience in designing and distributing products, but sometimes that experience is from a very different market and the localization of both technology and product may not be straightforward. Local banks have the advantage of knowing the local market place, often having a wider reach and a tighter fit of product to local demands as well as often having regulatory advantages. In many markets, even though on paper it looks like the foreigners may have a big advantage, often the local banks win out. China, Japan and South Korea are good examples of this.
- retail banking