Developing Open banking in Vietnam: Opportunities and challenges

In recent years, the fourth industrial revolution has been progressing strongly, resulting in numerous accomplishments that have profound implications for various industries and sectors of the economy, including the banking sector. In the context of the digital transformation boom, traditional banking models have undergone modifications and advancements with the aim of boosting competitiveness and efficiency, leading to the emergence of the Open banking . The open banking concept represents a relatively optimal business model in line with the trends and demands of the digital era, allowing banks to expand their operations by offering digital products and services conveniently, comprehensively, cost-effectively, and reaching a more diverse customer base, both domestically and internationally.
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Developing Open banking in Vietnam: Opportunities and challengesTAØI CHÍNH DOANH NGHIEÄP Taäp 02/2024 Developing Open banking in Vietnam: Opportunities and challenges Nguyễn Ngọc Mai; Trịnh Như Hồng Nhật - CQ59/11.12CLCI n recent years, the fourth industrial revolution has been progressing strongly, resulting in numerous accomplishments that have profound implications for various industries and sectors of the economy, including the banking sector. In the context ofthe digital transformation boom, traditional banking models have undergone modificationsand advancements with the aim of boosting competitiveness and efficiency, leading to theemergence of the Open banking . The open banking concept represents a relativelyoptimal business model in line with the trends and demands of the digital era, allowingbanks to expand their operations by offering digital products and services conveniently,comprehensively, cost-effectively, and reaching a more diverse customer base, bothdomestically and internationally. What is open banking? In the traditional business model, banks typically manage and safeguard informationby storing all transaction data and customer account details. In contrast, open bankingallows banks to utilize and share their customers’ financial data, including transactionalhistories and account details, with third parties such as other financial institutions, Fintechcompanies or electronic payment services through Application Programming Interface(API). This sharing is carried out with the customer’s agreement. The main objective of open banking is to promote competition, encourage thedevelopment of financial services, and improve the customer experience. It enables thirdparties to use the shared data to create solutions that assist individuals in more convenientlymanaging their finances, conducting transactions and accessing financial information. Open banking operates under government regulations to ensure privacy and datasecurity. This model must strictly adhere to data protection laws and security standards tosafeguard customer information. How does open banking operate? Open banking utilizes API (Application Programming Interface) technology for itsdevelopment. In the context of APIs, the term application refers to any software that featuresdistinct functionalities. An interface serves as a service contract between two softwareapplications. Consequently, it can be understood that an API functions as a mechanism forlinking two software components to facilitate the exchange of information and data. Open API not only eliminates the limitations on interactions between involved partiesbut also promotes the evolution of business models. This technology enables third parties to Sinh viªn 23Taäp 02/2024 TAØI CHÍNH DOANH NGHIEÄPaccess open data or securely access an organization’s closed data with the owner’s consentand compliance with relevant legal regulations. In this particular context, third entities oftenrefer to technology startups and online financial service providers. It is due to thisconvenience of APIs that they are incorporated into the functioning of open banking. In this model, banks will provide their services via open APIs and collaborate withpartners to construct an ecosystem that satisfies the needs and demands of users. Theutilization of open APIs facilitates collaborations between banks and third parties, therebyimproving the financial experience of customers. Specifically, by connecting with partnerapplications, banks can gain access to a diverse customer base at a reasonable cost throughopen banking. This reduces the time required to seek out and attract customers. In Vietnam, open banking has been widely and actively implemented. Bankingapplications, including mobile banking and internet banking, have improved userpayments via open banking by incorporating functionalities such as contactless paymentand QR codes. In addition to serving as an electronic banking application, open bankingalso offers various non-banking utility services, including online shopping, bill payments,and network service registration. Benefits of open banking Benefits for businesses First, open banking allows immediate payments and minimizes transaction expensesfor businesses. Instant transfers between accounts become feasible due to the rapidmovement of money. This also assists companies in increasing the rate of paymentacceptance, enabling them to expand their business operations. Moreover, by eliminatingcard payments, enterprises can reduce transaction costs, as card providers may chargevarious fees t ...