THE DEVELOPMENT OF DIGITAL BANKING: ASIA EXPERIENCE AND LESSONS LEARNED FOR VIETNAM

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MINISTRY OF EDUCATION AND TRAINING
FOREIGN TRADE UNIVERSITY
……….***……….
MASTER THESIS
THE DEVELOPMENT OF DIGITAL BANKING:
ASIA EXPERIENCE AND LESSONS LEARNED
FOR VIETNAM
Specialization: International Trade Policy and Law
TRAN THI THUY HUONG
Hanoi – 2023

MINISTRY OF EDUCATION AND TRAINING
FOREIGN TRADE UNIVERSITY
MASTER THESIS
THE DEVELOPMENT OF DIGITAL BANKING:
ASIA EXPERIENCE AND LESSONS LEARNED
FOR VIETNAM
Major: International Economics
Specialization: Master of International Trade Law and Policy
Code: 8310106
Student Name: Tran Thi Thuy Huong
Supervisor: Dr. Pham Huong Giang
Hanoi – 2023

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DECLARATION OF ORIGINALITY
By signing this document, I, Tran Thi Thuy Huong, certify that this Master's
Thesis was written entirely by me. This thesis is entirely truthful in both its content
and its findings. Both the main body of this master's thesis as well as the references
list contain complete citations for the information, data, and documents that were
gathered from various sources for analysis and evaluation.
I further declare that the aforementioned Master's Thesis has not been
submitted elsewhere in order to satisfy any other requirements.
I declare this knowing full well that should it be proven to be untrue, I will
lose points and may be subject to disciplinary action.
Student
Tran Thi Thuy Huong

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ACKNOWLEDGMENT
To complete this master’s thesis, I have received enthusiastic guidance and
support from my lecturers, family, friends, and experts in the field. From the
bottom of my heart, I would like to express my thanks to them.
Firstly, I would like to express my sincerest thanks to my supervisor, Dr.
Pham Huong Giang who has supported, guided, and encouraged me throughout the
process of completing this master's thesis, from selecting the topic, outlining the
main ideas, turning those ideas into this thesis to editing this paper. Without her
enthusiastic guidance and support, I would not have been able to complete this
master's thesis.
Also, I would like to give special thanks to all lecturers of the Master
of International Policy and Law Program as well as Foreign Trade University who
have given me the chance to expand my humble horizons in the field of trade policy
and law, especially Professor Wolfgang Wurmnest, who holds the Chair for Private
Law and Commercial Law at the University of Hamburg, for the valuable
knowledge and experiences that he’s shared with me.
Last but not least, I would like to express my sincere gratitude to my dear
friends, colleagues, and family, who never cease to support and encourage me as I
pursue my master's degree.

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TABLE OF CONTENT
DECLARATION OF ORIGINALITY ................................................................... i
ACKNOWLEDGMENT.......................................................................................... ii
ABBREVIATIONS ...................................................................................................v
LIST OF FIGURES ................................................................................................ vi
LIST OF TABLES ................................................................................................. vii
ABSTRACT........................................................................................................... viii
INTRODUCTION.....................................................................................................1
1. The rationale of the research...........................................................................1
2. Aims and objectives of the research................................................................3
3. Scope of the research........................................................................................3
4. Research methods .............................................................................................4
5. Research structure............................................................................................4
CHAPTER 1: THEORETICAL BASIS OF DIGITAL BANKING ....................5
1.1. Overview of digital banking..........................................................................5
1.1.1. Definition of digital banking...................................................................5
1.1.2. Evolution of digital banking service.......................................................7
1.1.3. The key technological advancements and innovations........................10
1.2. Factors affecting development of digital banking ....................................12
1.2.1. The advancement of technology ...........................................................12
1.2.2. Regulatory environment........................................................................12
1.2.3. Customer adoption and trust.................................................................14
1.2.4. Collaboration and partnerships ............................................................15
1.3. Security and regulatory issues....................................................................16
CONCLUSION OF CHAPTER 1 .........................................................................20
CHAPTER 2: ANALYSIS OF THE DIGITAL BANKING DEVELOPMENT
IN ASIA....................................................................................................................21
2.1. Introduction to digital banking in Asia .....................................................21
2.1.1. Overview of the digital banking landscape in Asia..............................21
2.1.2. Digital banking trends and adoption in Asia .......................................24

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2.1.3. Fintech disruption and innovation .......................................................28
2.2. Experience of digital banking development in some Asian countries ....31
2.2.1. National strategies for digital banking development ...........................31
2.2.2. Regulatory Environment for digital banking in different Asia ...........35
2.3. Experience in breaking down barriers to digital banking development
from international banks ...................................................................................46
2.4. The digital banking development process from banks.............................47
CHAPTER 3: LESSONS LEARNED FOR THE DEVELOPMENT OF
DIGITAL BANKING IN VIETNAM ...................................................................51
3.1. Technological Infrastructure and digital transformation .......................51
3.1.1. Overview of digital banking in Vietnam...............................................51
3.1.2. Development environment for digital banking services.......................52
3.2. Limitations in Vietnam's progress towards digital banking................55
3.2.1. Technology............................................................................................55
3.2.2. Human resources participating in digital transformation...................57
3.2.3. Customer information security .............................................................57
3.3. Lessons learned for Vietnam in the digital banking .............................59
3.4. Solutions to improve the digital banking in Vietnam ...........................62
3.4.1. Technology solutions ...........................................................................62
3.4.2. Human resource solutions ..................................................................64
3.4.3. Solution for data security ....................................................................66
3.5. Some recommendations for policy makers.............................................67
3.6. Future of digital banking............................................................................69
CONCLUSION........................................................................................................73
REFERENCES........................................................................................................75

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ABBREVIATIONS
ADB Asian Development Bank
AI Artificial Intelligence
API Application Programming Interfaces
ATM Automated Teller Machine
CGAP Consultative Group to Assist the Poorest
DFB Digital full bank
e-KYC electronic Know Your Customer
GSO General Statistics Office of Vietnam
IBM International Business Machines
ID Identity Document
IMF The International Monetary Fund
IT Information Technology
KYC Know Your Customer
MAS Monetary Authority of Singapore
MOF Ministry of Finance
POS Point Of Sale
QR Code Quick Response Code
ROE Return On Equity
SBV State Bank of Vietnam

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LIST OF FIGURES
Figure 2.1: Mobile cellular subscriptions worldwide from 2005 to 2022 (in
millions) ....................................................................................................................23
Figure 2.2: Asia–Pacific emerging markets are at par on digital banking and lead in
the use of fintech apps and e-wallets ........................................................................26
Figure 2.3: Countries with the highest percentage of mobile payment users in the
world and average annual spending per user (in USD) ............................................27
Figure 2.4: Digital bank capital requirements are not always lower than those for
traditional ones (US million).....................................................................................38
Figure 2.5: Minimum capital requirements (jurisdictions without dedicated digital
banking licenses) - US million..................................................................................38
Figure 3.1: Statistics on active users of digital banking and the penetration of
fintech and e-wallets in Vietnam...............................................................................51

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LIST OF TABLES
Table 2.1: Global internet user count from 2009 to 2022, by region (in millions)..22
Table 2.2: Banking licensing regulations in some countries ....................................39
Table 2.3: Summarize policy on building information infrastructure to support
development in some countries.................................................................................42
Table 2.4: Policies to support the development of digital banking in some countries
...................................................................................................................................44

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ABSTRACT
The thesis examines the development and significance of digital banking in
Asia and offers analysis and suggestions for Vietnam's digital banking growth. In
order to learn the lessons that can be applied to Vietnam's digital banking journey,
the thesis focuses on comprehending the elements that have contributed to the
success of digital banking in nations like China, Korea, and Singapore.
The theoretical foundation and historical context of digital banking are
introduced at the outset of the thesis. The research then delvelops into a thorough
examination of the Asian digital banking landscape, looking at the tactics,
legislative frameworks, technological developments, consumer acceptance and
trust, as well as cooperation and partnerships that have shaped the ecosystem. It
investigates how national policies, legislative frameworks, technological
developments, consumer acceptance, and cooperative efforts influence the
expansion and uptake of digital banking.
The thesis also provides a detailed analysis of the lessons learned from the
Asian experience and makes specific suggestions for Vietnam's development of
digital banking. In order to create an environment that is supportive of digital
banking, it emphasizes the significance of coordinating national strategies and
regulatory frameworks. The thesis also emphasizes how important customer
adoption, technological advancements, and trust-building initiatives are to the
development of digital banking in Vietnam.
Overall, the thesis provides a comprehensive understanding of the
development of digital banking in Asia and offers valuable insights and
recommendations for Vietnam to navigate its digital banking journey. It serves as a
valuable resource for policymakers, regulators, financial institutions, and
stakeholders in Vietnam's banking sector as they strive to leverage digital
technologies and innovations to enhance financial services and drive economic
growth.

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INTRODUCTION
1. The rationale of the research
One of the Government of Vietnam's top priorities is the digital transformation
of the banking and financial industries. Many commercial banks today are focused
on creating digital banks and rising to the top of the digital banking industry.
Many consumers have never set foot inside a physical bank thanks to the
power of digital banking. It would seem that digital banking is not just the future,
with the ability to access daily banking functions via a computer or mobile device
and enable cashless transactions at a variety of retailers. While it may be used in
many different ways online and elsewhere, the term digital banking, essentially
combines online and mobile banking services under one umbrella (Forbes, 2021).
Digital banking has gained significant prominence in recent years, driven by
rapid technological advancements and changing consumer behavior. Asia, as a
region, has witnessed remarkable progress in digital banking, with several countries
leading the way in adopting innovative financial technologies. Understanding the
experiences and lessons learned from these countries can provide valuable insights
for Vietnam as it seeks to develop its digital banking sector.
Vietnam is experiencing sustained economic growth, and digital banking has
the potential to further accelerate this growth by enhancing financial inclusion. By
leveraging digital technologies, financial services can reach previously underserved
populations, particularly in rural areas, and provide them with access to banking
services, credit, and other financial products. Studying successful digital banking
models in Asia can help Vietnam identify effective strategies for expanding
financial inclusion and supporting economic development.
Assessing the experiences of Asian countries in developing digital banking
can shed light on the necessary technological infrastructure required for successful
implementation. Factors such as internet penetration rates, mobile device usage, and
the availability of digital payment systems play a crucial role in enabling digital
banking services. Vietnam can learn from the experiences of countries in Asia that

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have successfully built the necessary technology infrastructure to support digital
banking.
However, the digital transformation of Vietnamese banks also faces many
difficulties and challenges. The development of digital banking is closely tied to the
regulatory environment and policy framework governing the financial sector. Asian
countries have implemented various regulatory approaches to facilitate digital
banking while ensuring consumer protection, cybersecurity, and financial stability.
Vietnam can benefit from understanding the regulatory frameworks and policies
that have been effective in fostering the growth of digital banking in Asia, enabling
it to create a favorable environment for digital banking development while
addressing potential risks.
Asia offers a diverse range of digital banking models, with different players
such as traditional banks, fintech startups, and tech giants actively participating in
the market (Basdekis, C., Christopoulos, A.&Katsampoxakis, 2022). It is essential
that banks create electronic banking services given the financial sector's rapid
technological development, particularly in Fintech companies, to make management
and operation simpler. Using digital banking services also gives customers more
flexibility and access to value-added services, which lowers the likelihood of
technical difficulties when conducting other types of traditional transactions.
Examining the experiences and lessons learned from these various players can help
Vietnam understand the dynamics of the digital banking ecosystem, including
strategies for collaboration and competition. This knowledge can assist Vietnamese
financial institutions and policymakers in formulating effective strategies to thrive
in the evolving digital banking landscape.
Researching the development of digital banking in Asia and its lessons for
Vietnam is crucial due to the growing importance of digital banking, the potential
for economic growth and financial inclusion, the need for robust technology
infrastructure, the importance of regulatory frameworks and policies, and the
dynamics of the competitive landscape. By understanding these factors, Vietnam

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can leverage the experiences of Asian countries to formulate strategies and policies
that will foster the successful development of its digital banking sector.
2. Aims and objectives of the research
The research aims to analyze the current landscape of digital banking in Asia
countries, including technological advancements, adoption rates, and regulatory
frameworks, which helps providing a foundation for understanding the context and
identifying trends and practices for Vietnam.
To achieve this aim, the research includes some objectives, specifically:
- Investigate the theoretical framework of digital banking, including exploring
the key concepts, factors affecting development of digital banking, and examining
the implications of these theoretical frameworks for understanding customer
behavior and technology adoption in digital banking.
- Analyze the regulatory frameworks and policy considerations that have
facilitated the development of digital banking in Asia countries
- Identify valuable lessons for Vietnam's digital banking journey and
recommendations for policymakers, banks, and fintech players to foster the growth
and adoption of digital banking in Vietnam.
By addressing these aims and objectives, the research can contribute to a
comprehensive understanding of the development of digital banking in Asia and
provide valuable insights and recommendations for Vietnam to shape its digital
banking sector effectively.
3. Scope of the research
The research focuses on the recent past and present developments in digital
banking in Asia. It analyzes trends, innovations, and regulatory changes within the
last decade. The research covers various aspects related to the development of
digital banking in Asia. This includes, but is not limited to, technological
infrastructure, regulatory frameworks, market dynamics, adoption rates, success
factors, challenges, and the impact on financial inclusion and economic growth.

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Additionally, the research will focus on digital banking developments in the
Asia region. It includes multiple countries within Asia, considering their
experiences, trends, and practices related to digital banking. China, South Korea,
and Singapore are known for their significant advancements and influence in the
field of digital banking. These countries have been at the forefront of adopting and
implementing innovative digital banking technologies and practices, making them
important case studies for understanding the development of digital banking in the
region.
4. Research methods
This study uses the meta-analysis method to analyze the results of multiple
studies on the topic. It involves systematically collecting and evaluating data from
different studies and then synthesizing the findings to draw conclusions and identify
trends. It also involves gathering and summarizing the most recent studies, reports,
articles, etc. that are related to this topic. The desk research for the literature review
and policy review plays a dominant role in this study. In order to locate, evaluate,
and compare pertinent laws and regulations across different jurisdictions,
comparative legal analysis and socio-legal research methods are also used. All the
data and figures are collected based on secondary data provided by some public
institutions, like some commercial banks, the World Bank, McKinsey, IMF, Forbes,
etc.
5. Research structure
This research is divided into four separate parts in the corresponding chapters.
Chapter 1 summarizes the theoretical basis of digital banking. Chapter 2 analyzes
the development digital banking in Asia. Finally, Chapter 3 summarizes lessons
learned for the development of digital banking in Vietnam and proposes some
suggestions.

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CHAPTER 1: THEORETICAL BASIS OF DIGITAL BANKING
1.1. Overview of digital banking
1.1.1. Definition of digital banking
The term digital banking is no longer strange to the Vietnamese market in
recent times. There are many different views on digital banking on the basis that it
is understood as a banking model based on a digital platform that integrates all
traditional banking activities and services.
Alex L., David S. & Alex P. of the Massachusetts Institute of Technology
(2016) in “Digital Banking Manifesto: The End of Banking” describes the future of
digital banking as follows: Dissatisfaction with current banks opens up
opportunities for unique ways to build a digital bank from scratch. Such a bank will
fulfill its mission by using the most advanced technologies, including cryptography
and distributed ledger techniques, artificial intelligence, big data, and deep learning,
a function of artificial intelligence. The bank will freely apply artificial intelligence
and big data analytics to create excellent customer experiences, automate personal
and small and medium-sized enterprise lending, and improve risk management.
Other scholars have also provided definitions of digital banking. According to
Chris (2014) defines digital banking as a banking model in which activities
primarily rely on platforms with electronic data and digital technology as the core
value. Sharma (2016) approaches the concept of digital banking as the application
of the latest technology platforms for all functions and services at all levels of
banking operations. In 2015 International Business Machines (IBM) defined a true
digital bank as one built on a value proposition where most products and services
are delivered digitally, with an optimized infrastructure for real-time digital
interactions, and a bank culture that embraces rapid digital change. The
Consultative Group to Assist the Poorest (CGAP) in 2021 defines a digital bank as
an organization licensed as a bank that applies new technologies in all its operations
primarily through digital channels. Therefore, these definitions agree that a digital

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bank operates on a digital technology platform at all levels, with products and
services delivered digitally.
According to McKinsey (2021), digital banks have characteristics such as: (i)
User interface and activities on digital platforms (reduced or no reliance on paper
documentation, physical transactions such as branches, Automated Teller Machines
(ATMs), agent outlets, or manual processing), providing high-quality user
experience and interfaces; (ii) Core business support operations based on digital
technology, with small core services that can be reshaped with Application
Programming Interfaces (APIs) enabling rapid delivery and innovation; (iii)
Operating and functioning as a technology company: Horizontal operating model,
minimizing hierarchy, empowering employees at a high level, a culture of testing
and learning enabling continuous development of systems, products, and
distribution channels.
Based on the principles and operational goals of digital banking, IBM (2015)
classifies digital banking into four forms, including: (i) Establishing a new digital
bank brand on the existing infrastructure of the parent bank to reach the younger
customer segment; (ii) Developing a digital banking distribution channel focused on
providing new online and mobile applications to enhance user experience, delivered
by technology and banking organizations; (iii) Establishing a new standalone digital
bank operating as an independent subsidiary with a flexible operating model to meet
customer-centric product and service delivery (common in cases where the parent
bank has a large-scale legacy system that is difficult to transform into a digital
bank); (iv) Establishing a purely digital-native bank creating the entire banking
value proposition on a core digital technology platform, with or without branches,
where customers interact with the bank through digital channels.
Based on the analysis using the four pillars: Accounting balance sheet,
products, customer relationships, and distribution channels, CGAP (2020) presents
three digital banking business models. These include the fully digital bank model,
which can originate from digital-native banks (NuBank, Monzo) or establish a new
digital bank brand (Marcus by Goldman Sachs, Buddy Bank by UniCredit), or

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develop digital banking distribution channels of traditional banks (BBVA Compass,
DBS); the marketplace bank model belongs to digital-native banks (Starling Bank,
WeBank); the service bank model originates from the development of digital
banking distribution channels of traditional banks (BBVA); or digital-native banks
built by financial technology (Fidor Bank, Solaris Bank, Green Dot Bank).
This thesis uses the following concept of digital banking as described above
in the definition of CGAP and adds that banking is done through the digital
platform, doing away with all the paperwork like cheques, pay-in slips, demand
drafts, and so on. It means the availability of all banking activities online. Digital
banking gives you the luxury of freely accessing and performing all traditional
banking activities 24/7 without having to personally go to a bank branch to get your
work done. Digital banking can be done either through a laptop, tablet, or mobile
phone. Some of its advantages are funding transfers, getting statements, paying the
bills, and investing, etc.
Digital banking is the best thing that could have happened to mankind. In fact,
not only has it provided a means of convenience for today’s banking times, but it
has also helped individuals go paperless. Through digital banking, individuals can
now easily make transactions, check their account balance, or even make transfers
with just a single click of a button on their smartphone, desktop, or any other digital
device. No more requesting or looking over paper statements or withdrawal slips.
1.1.2. Evolution of digital banking service
1.1.2.1. Historical overview of banking
Banking dates back to ancient times, when individuals would deposit their
valuables with trusted members of their community for safekeeping. However, the
modern banking system as we know it today began to take shape in the 14th century
in Italy, where wealthy merchants began to lend money to governments and
individuals in need of capital (Dr. Babasaheb Sangale, Dr. T. N. Salve, & Dr. M. U.
Mulan, 2013).

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In the 17th century, the concept of fractional reserve banking was introduced,
which allowed banks to lend out more money than they held in reserves. This
practice led to the creation of paper money and the birth of central banks, which
were established to regulate the money supply and ensure the stability of the
banking system (IMF, 2023). In the 19th and early 20th centuries, banks became
increasingly important in financing industrialization and economic growth.
However, this period was also marked by a series of banking crises and failures,
leading to the establishment of deposit insurance and other regulatory measures.
The post-World War II era saw the rise of multinational banking as banks
began to expand their operations across borders and engage in international lending
and investment. The 1980s and 1990s brought deregulation and increased
competition, leading to the consolidation of the banking industry and the emergence
of new financial products and services.
The 21st century has been marked by a series of financial crises, including the
subprime mortgage crisis of 2008 and the COVID-19 pandemic, highlighting the
ongoing challenges of ensuring the stability of the banking system in an
increasingly complex and interconnected global economy (Ross P. B., Emilios A.,
& Douglas W. A, 2022).
1.1.2.2. Evolution of digital banking services
Over the past few decades, the banking industry has gone through three major
stages of digital change. The initial revolution involved the transition from paper-
based processes to electronic ones, creating an efficient and automation-driven
model that made the bank more transaction and technology focused. Through the
use of ATMs, call centers, and telephone banking, banks began concentrating on
enhancing client convenience. Several Social, Mobile, Analytics, and Cloud
(SMAC) technologies that are currently clearly influencing banking products and
services served as the gasoline for the subsequent wave. Through the use of these
technologies, financial institutions have been able to transform from effective
facilitators into more specialized providers of banking services. Newer technologies

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including artificial intelligence, robotic process automation, blockchain, API
banking, and the Internet of Things, are propelling the current wave of digital
transformation and have the potential to dramatically change the financial sector.
When these technologies are combined, they will be able to offer a considerably
higher level of customer personalization, improve the customer experience,
transform banking processes, and fundamentally alter how the banking business
functions today. There are some key milestones in the evolution of digital banking
services:
The first ATM appeared at a branch of Barclays Bank in London in 1967
(Barclays, 2017). They allowed bank customers to withdraw cash and perform basic
transactions outside of bank hours.
Online Banking: The first online banking system was launched by Citibank in
the 1980s, allowing users to access account information and conduct simple
transactions over a dial-up connection. As the number of people using the internet
grew in the 1990s and 2000s, online banking portals were created. Banks began
developing online portals so that customers could view account balances, make
money transfers, and pay bills from their personal computers. Due to its
convenience, online banking quickly became a popular choice for many people
(Alice Ivey, 2023).
Mobile Banking: The introduction of smartphones and mobile apps in the
2000s brought banking services to people's fingertips. Mobile banking apps allow
customers to access their accounts, transfer money, and pay bills from their mobile
devices (Alice Ivey, 2023).
Contactless Payments: In recent years, contactless payment methods such as
Apple Pay, Google Pay, and Samsung Pay have become increasingly popular.
These payment methods allow customers to make purchases using their
smartphones or other mobile devices (Adam Uzialko, 2023).
Chatbots and AI: Banks are now using chatbots and Artificial Intelligence (AI)
to provide personalized customer service. Chatbots can answer frequently asked

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questions and help customers with basic banking tasks, while AI can analyze
customer data to provide personalized recommendations and financial advice (IBM,
2023).
Open Banking: Open banking is a newer concept that allows customers to
share their financial data with third-party providers. This enables customers to
access a wider range of financial services and products from different providers, all
through a single platform.
Overall, the evolution of digital banking services has made banking more
convenient, accessible, and personalized for customers. As technology continues to
advance, we can expect digital banking services to become even more sophisticated
and integrated into our daily lives.
1.1.3. The key technological advancements and innovations
The emergence and evolution of digital banking have been driven by several
key technological advancements and innovations. These advancements have
transformed the traditional banking landscape, enabling banks to offer enhanced
services, improve operational efficiency, and provide greater convenience to
customers. Here are some of the key technological advancements that have played a
significant role:
Internet and Connectivity: The widespread availability of the Internet and
increased connectivity have been fundamental to the growth of digital banking.
Internet access allows customers to access their accounts, perform transactions, and
engage with banking services remotely, eliminating the need for physical visits to
brick-and-mortar branches (World Bank, 2022).
Mobile Technology: The proliferation of smartphones and mobile devices has
revolutionized the way people interact with banking services. Mobile banking
applications enable customers to manage their accounts, make payments, transfer
funds, and access a range of banking services from their mobile devices. Mobile
technology has brought banking services directly into the hands of customers,
providing anytime, anywhere access (Ruchira, 2021).

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Electronic Payment Systems: The development of electronic payment systems,
such as online payment gateways, mobile wallets, and peer-to-peer payment
platforms, has transformed the way financial transactions are conducted. These
systems facilitate quick, secure, and convenient payments, reducing the reliance on
cash and traditional payment methods.
Data Analytics and Artificial Intelligence (AI): The availability of big data
analytics and AI technologies has empowered banks to gain valuable insights from
vast amounts of customer data. Banks can analyze customer behavior, preferences,
and patterns to offer personalized recommendations, targeted marketing campaigns,
and improved customer experiences. AI-powered chatbots and virtual assistants also
provide automated and personalized customer support.
Blockchain technology has the potential to revolutionize the security and
transparency of financial transactions. It offers decentralized and immutable ledger
systems that enhance the security and efficiency of digital banking operations, such
as cross-border payments, identity verification, and smart contracts (DBS, 2023).
Biometric Authentication methods, including fingerprint scans, facial
recognition, and voice recognition, have enhanced the security of digital banking.
These technologies provide a more secure and convenient way for customers to
authenticate their identities and access banking services.
Cloud Computing has enabled banks to store and process vast amounts of
data, scale their operations, and offer flexible and scalable services. It has also
facilitated collaboration and integration with other digital platforms and fintech
companies (IMF, 2018).
These technological advancements have paved the way for the emergence and
evolution of digital banking, enabling banks to offer innovative services, streamline
operations, and improve customer experiences. It is important to note that
technology continues to advance rapidly, and innovations such as the Internet of
Things (IoT), machine learning, and virtual reality have the potential to further
transform the digital banking landscape in the future.

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1.2. Factors affecting development of digital banking
1.2.1. The advancement of technology
The advancement of technology, particularly in areas such as mobile devices,
internet connectivity, and data analytics, is a significant driver of digital banking.
The availability of advanced technologies enables the development of innovative
digital banking solutions and enhances the customer experience. Digital banking has
undergone a revolution thanks to the widespread use of smartphones and other
portable electronics (Catherine M., Rens S. & Virpi K., 2017). Customers can
access banking services whenever and wherever they want thanks to mobile
banking apps and responsive websites, which offer convenience and accessibility.
The banking industry has changed as a result of the internet. Customers can use
online platforms for a variety of transactions with internet banking, including
checking account balances, transferring money, paying bills, and applying for loans.
Digital banking could be improved in a number of ways by AI and machine
learning (ML) technologies. With the aid of chatbots and virtual assistants, fraud
detection, credit scoring, and risk assessment can all be done with a high level of
personalization. The accessibility of enormous amounts of data has created new
opportunities for banks to examine client behavior, tastes, and patterns. Banks can
use big data analytics to collect insightful information for customer segmentation,
risk analysis, and targeted marketing (Mudunuri A. V., Anaparthi S. A., Kokku S.
A., & Prithvi S. M., 2022).
These technological advancements have not only transformed the way banking
services are delivered but have also opened up opportunities for innovation,
improved customer experiences, and increased efficiency in banking operations.
However, it is important for banks to ensure the security and privacy of customer
data and address any potential risks associated with these technologies.
1.2.2. Regulatory environment
The regulatory framework governing digital banking has a significant impact
on its development. Regulations related to data protection, cybersecurity, customer

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authentication, and electronic signatures shape the operating environment for digital
banks. Clear and supportive regulations foster innovation and provide consumer
protection, while excessive or restrictive regulations can hinder digital banking
growth.
A key element influencing the growth of digital banking is the regulatory
environment. So how does the regulatory environment affect business?
Regulatory authorities are essential in granting licenses to digital banks and
ensuring their compliance with pertinent laws and regulations. This is known as
licensing and compliance. Different countries may have different licensing
procedures, such as separate licenses for digital banks, phased licensing, or no
specific licensing at all (CGAP, 2020). A level playing field and a favorable
environment for digital banking require clear and well-defined regulatory
frameworks.
Consumer Protection: Regulations work to safeguard consumers' interests and
uphold ethical standards in online banking. Guidelines for data security, dispute
resolution, and privacy protection may be among them.
Anti - Money Laundering (AML) and Know Your Customer (KYC): Digital
banks are subject to AML and KYC regulations to prevent money laundering,
terrorist financing, and other illicit activities. These regulations require digital banks
to establish robust customer identification and verification processes and implement
risk-based monitoring systems to detect and report suspicious transactions.
Data Privacy and Security: Regulations related to data privacy and security are
crucial in digital banking. Digital banks need to comply with data protection laws
and implement measures to safeguard customer data, such as encryption, access
controls, and regular security assessments. Compliance with data privacy
regulations is essential to maintaining customer trust and protecting sensitive
information.
The regulatory environment needs to strike a balance between promoting
innovation and ensuring consumer protection, data security, and financial stability.

14
Clear and adaptable regulations that keep pace with technological advancements are
essential for the sustainable growth and development of digital banking.
1.2.3. Customer adoption and trust
The acceptance and confidence of the customer are essential for the success of
digital banking. Customer adoption is influenced by elements like convenience,
security, usability, and faith in digital platforms. For customers to embrace digital
banking services, it is crucial to establish trust through strong security measures,
open business practices, and efficient customer support (Chandio, 2011).
Convenience and Accessibility: Customers who use digital banking have
access to a variety of banking services anytime, anywhere, and through a variety of
digital channels. The adoption of digital banking services is facilitated by the
availability of user-friendly mobile applications, online banking platforms, and self-
service options (Mitch S., Cassidy H. & Elizabeth A., 2023).
Perceived Value and Benefits: Consumers are more likely to adopt digital
banking if they see the value and advantages of doing so. Time savings, cost
effectiveness, transaction ease, real-time account information, individualized
services, and access to a wide range of financial products and services are just a few
of these advantages.
User Experience and Design: For customers to use digital banking platforms,
they must have a positive user experience and an intuitive design. A positive
customer experience is facilitated by user-friendly interfaces, intuitive navigation,
and attentive customer service. A user-friendly, well-designed digital banking
platform can boost consumer confidence and promote adoption (KMS, 2022).
Security and Privacy: The security and privacy measures put in place by banks
are what customers' trust in digital banking is based on. Strong security protocols,
encryption, two-factor authentication, and routine security audits all aid in
safeguarding customer data and avoiding fraud. Building customer trust requires
clear privacy policies and strong data protection measures.
Consumer Protection and Regulatory Compliance: Establishing customer trust
requires effective regulatory frameworks that safeguard consumer rights and

15
guarantee adherence to financial, security, and data privacy laws. When customers
are confident that their interests are safeguarded and that banks operate within a
regulated framework, they are more likely to use digital banking services (OECD,
2010).
Delivering dependable, secure, and user-friendly digital banking
experiences requires constant effort from banks if they want to increase customer
adoption and trust. Customers are more likely to adopt digital banking as their
preferred banking channel when there is effective communication, personalized
services, and ongoing customer support.
1.2.4. Collaboration and partnerships
Collaboration between traditional banks, fintech companies, and other
stakeholders is vital for the development of digital banking. Partnerships can
leverage the strengths and expertise of different entities to create innovative and
comprehensive digital banking solutions. Collaboration also facilitates the
integration of digital banking services with other sectors, such as e-commerce
and payments (Jeroen V. & Daphne S., 2021).
Partnerships with Fintech Firms: To take advantage of these firms'
technological know-how and innovation, banks frequently work with fintech
firms. Startups in the fintech industry bring new perspectives and quick fixes that
can improve the online banking experience. Collaborations with fintech
companies can help banks introduce new services, speed up their digital
transformation, and increase customer engagement (Jan Bellens, 2020).
Collaboration with technology vendors and providers can help banks
implement cutting-edge infrastructure and platforms for digital banking.
Technology companies provide specialized programs, platforms, and equipment
that let banks offer seamless digital services and boost operational effectiveness.
Partnerships within the Ecosystem: Working together with other
participants in the digital ecosystem, such as e-commerce platforms, payment
processors, insurance companies, and retail companies, can produce synergies

16
and broaden the scope of services provided to clients (Gerardo U., Alok V.,
Majid B., & Naomi N, IMF, 2023). Cross-selling opportunities, integrated
financial solutions, and improved customer experiences are all made possible by
these partnerships.
Initiatives for Open Banking: Open banking encourages communication
and information exchange between banks and outside service providers. Banks
can collaborate with fintech startups, financial aggregators, and other service
providers through open APIs to offer customers a wider range of financial
services. Open banking encourages creativity, rivalry, and the creation of new
services and products for online banking.
Through partnerships and collaboration, banks can access new
technologies, expand their service offerings, and improve customer experiences
in the world of digital banking. Banks can hasten their digital transformation and
maintain their competitiveness in the rapidly changing digital landscape by
cooperating with various stakeholders.
1.3. Security and regulatory issues
CGAP (2021) identifies three regulatory approaches to digital banks
globally: (1) Separate specialized licenses for digital banks alongside traditional
banks; (2) Phased licensing for digital banks (or for all banks), where new digital
banks undergo a restricted operational phase before obtaining full licenses; (3)
No separate licensing or phased licensing for digital banks.
Most countries worldwide are adopting the third approach, which does not
involve separate licensing or phased licensing for digital banks. Examples
include Brazil (Banco Inter, Banco Dico, Banco Original, B3), Germany (DKB,
ING Bank, Norisbank, Comdirect), and South Africa (Discovery Bank, Tyme
Bank) (Bloomberg, 2018). This approach is based on the belief that separate
licensing for digital banks is unnecessary as the inherent risks of digital banks do
not differ significantly from those of traditional banks when their products and
services are similar. Separate licensing regimes can create discrimination and

17
potentially lead to price differentials in business operations. The second
approach of phased licensing may be suitable for Fintech, traditional banks,
digital-native banks, and other financial service providers to encourage
participation in the financial sector. The first and second approaches can be
combined and applied to digital-native banks, which is a common practice in
rapidly developing digital banking markets in Asia.
Risks related to information security: An ominous risk in digital banking is
the risk of the system being compromised or fraudulent (Pennathur, 2001). Some
of the common risks to digital banking are: (i) Identity Theft: Theft becomes
easier online because there are fewer obstacles to this type of crime. (ii) Account
takeover: Account takeover occurs when criminals gain unauthorized access to
someone else's bank account and change the account information, such as the
address or email linked to the account. The true owner of the account does not
receive updates about the account because the communication is rerouted to the
criminals. (iii) Automated threats from malicious software: Malicious code can
be introduced into the system through automated tools like internet programs.
Hackers can carry out repetitive tasks without incurring significant costs. This is
particularly attractive to cybercriminals as they can reap substantial financial
benefits with minimal associated expenses.
Security and regulatory issues are critical considerations in the realm of
digital banking. As technology evolves and more financial transactions are
conducted online, ensuring the security and compliance of digital banking
systems becomes increasingly important.
 Data Privacy: Digital banking involves the collection, storage, and
processing of sensitive customer information. Protecting customer data
privacy is crucial to maintaining trust and complying with data
protection regulations, such as the General Data Protection Regulation
(GDPR) in the European Union.
 Cybersecurity: Digital banking platforms are vulnerable to cyber
threats, including hacking, phishing, malware, and data breaches.

18
Financial institutions must implement robust cybersecurity measures,
such as encryption, multi-factor authentication, intrusion detection
systems, and regular security audits, to safeguard customer data and
prevent unauthorized access.
 Fraud Prevention: Digital banking introduces new avenues for fraud,
including identity theft, account takeovers, and unauthorized
transactions. Banks need to implement fraud detection and prevention
mechanisms, such as transaction monitoring, fraud analytics, and real-
time alerts, to identify and mitigate fraudulent activities promptly.
 Regulatory Compliance: Digital banking is subject to various
regulatory frameworks and compliance requirements, which vary
across jurisdictions. Banks must adhere to regulations related to anti-
money laundering (AML), KYC requirements, consumer protection,
electronic signatures, data localization, and more. Compliance with
these regulations is essential to avoid penalties, legal issues, and
reputational damage.
 Customer Authentication: Ensuring strong customer authentication is
crucial to preventing unauthorized access to digital banking accounts.
Banks often employ methods such as passwords, biometrics, security
tokens, and one-time passwords (OTPs) to verify the identity of
customers and authorize transactions securely.
 Cross-border Transactions: Digital banking enables cross-border
transactions, which may involve compliance with international
regulations, foreign exchange controls, and anti-terrorism financing
measures. Banks need to navigate the complexities of cross-border
transactions while ensuring compliance with relevant laws and
regulations.
Addressing these security and regulatory issues requires a
comprehensive approach that combines robust technology infrastructure,
ongoing monitoring and risk assessment, staff training, and collaboration

19
with regulatory bodies. Financial institutions must prioritize security and
compliance to protect customer interests, maintain trust, and ensure the
stability and integrity of digital banking systems.

20
CONCLUSION OF CHAPTER 1
Chapter 1 of the thesis gives an overview of banking services. In developing
digital banking services, this chapter summarizes the theoretical basis of digital
banking by discussing its definition, technological basis, benefits, customer
expectations, regulatory landscape, and future outlook. These are the theoretical
underpinnings to help analyze the digital banking development in Asia in Chapter 2.

21
CHAPTER 2: ANALYSIS OF THE DIGITAL BANKING DEVELOPMENT
IN ASIA
2.1. Introduction to digital banking in Asia
2.1.1. Overview of the digital banking landscape in Asia
Digital technologies are at the forefront of development and provide
opportunities for countries to accelerate economic growth and connect citizens to
services and jobs. In times of crisis from natural disasters to pandemics such as the
one the world experienced with COVID-19 digital technologies keep people,
governments, and businesses connected. They enable innovative solutions to
complex development challenges and help deliver digital banking and telemedicine
services.
The digital banking landscape in Asia is at the forefront of the global digital
banking trend. Consumers in the region are open to using one-stop applications like
Grab, Go-Jek, and Alipay, which has propelled the growth of digital banking.
Technology companies are venturing into the financial sector, making digital
banking more readily accepted in Asia despite uncertainties regarding security and
regulatory environments. Digital banks are expected to become formidable
competitors to traditional banks.
Asia is known for its high mobile penetration rates, and digital banking has
primarily been driven by mobile platforms. Mobile banking applications have
gained widespread adoption, allowing users to access banking services conveniently
through their smartphones.
With nearly 2.9 billion internet users as of June 2022, Asia was the region
with the most internet users worldwide. With more than 750 million internet users,
Europe came in second. There were 5.47 billion internet users worldwide at the time
(Table 2.1).

22
Table 2.1: Global internet user count from 2009 to 2022, by region
(in millions)
Characteristic Asia Europe Africa
Latin
America /
Caribbean
Middle
East
North
America
Oceania /
Australia
Dec-09 764.40 425.8 86.2 186.9 58.3 259.6 21.1
Jun-10 825.10 475.1 110.9 204.7 63.24 266.2 21.3
Dec-11 1,016.80 500.72 139.88 235.82 77.02 273.07 23.93
Jun-12 1,076.68 518.51 167.34 254.92 90 273.79 24.29
Dec-13 1,265.14 566.26 240.15 302.01 103.83 300.29 24.8
Jun-15 1,563.21 604.12 313.26 333.12 115.82 313.86 27.1
Jun-16 1,792.16 614.98 339.28 384.75 132.59 320.07 27.54
Jun-17 1,938.08 659.63 388.38 404.27 146.97 320.06 28.18
Jun-18 2,062.14 704.83 455.84 438.25 164.04 345.66 28.44
Jun-19 2,300.47 727.56 522.81 453.7 175.5 327.57 28.64
Jun-20 2,525.03 727.85 566.14 467.82 184.86 332.91 28.92
Dec-21 2,790.15 743.6 601.32 533.17 205.02 347.91 30.55
Jun-22 2,934.18 750.04 652.86 543.39 349.57 211.79 31.19
Source: World Bank Report, 2022
The Asia-Pacific region had the most mobile subscriptions in 2022, with over
4.8 billion, the highest number of any region globally and an increase of roughly 1.4
percent from the year before. With roughly 1.1 billion subscriptions, the Americas
came in second to Europe, which had about 832 million. The only region where the
number of subscriptions remained stable at about 362 million was the
Commonwealth of Independent States (Figure 2.1).

23
Figure 2.1: Mobile cellular subscriptions worldwide from 2005 to 2022
(in millions)
Source: The International Monetary Fund (IMF), 2023
Asia is the region with the largest number of Internet users in the world, with a
rapid growth rate of mobile cellular subscriptions from 2005 to the present. In the
past decade, the banking sector in Asia has not only led the world in terms of
profits, assets, and market capitalism but has also focused on building new business
models centered around digital innovation. The future of Asian banks looks
promising, especially after the COVID-19 pandemic, as customers increasingly turn
to online services for their banking needs, encouraging the expansion of digital
services beyond their limitations.
So digital banking was previously a convenient option, but it has now become
a crucial lifeline. As the demand for digital access and financial control rises among
customers, the future of digital banking will witness strong development and market
penetration across Asia.
According to a report by software provider Backbase and global market
research firm International Data Corporation in 2021, digital banking in Asia is
expected to grow rapidly in the next five years, with over three-fifths

24
(approximately 63 percent) of customers willing to switch to neobanks, the new
banking model. It means the type of bank that does not establish any branches or
physical offices. Instead, Neo Banking provides all services through digital
channels such as smartphone or Web interfaces. Neobanks are primarily online-only
banking platforms without any physical locations, but they are not the same as
online banks. Online banks offer a wider range of services to their customers and
have a bank charter, including loans (Forbes, 2021).
The report suggests that the region is projected to have over 100 new financial
organizations by 2025, driven by liberalization in certain markets and the issuance
of new banking licenses. The convenience of digital banking has been highlighted
by the COVID-19 pandemic, with 70 percent of customers finding banking
transactions mundane and only 30 percent engaging in digital banking channels
provided by traditional banks.
On the other hand, over 35 neobanks across the region have built their
operations based on innovative and agile activities, outpacing traditional banks in
terms of flexibility, self-service capabilities, and customer-centric and personalized
services. Consequently, with the emergence of neobanks and further digital
disruptions in the industry, 38 percent of traditional banks' revenue will face the risk
of competition from digital banks by 2025. The report suggests that digitization and
the implementation of AI will be the focal points, with 44 percent of the top 250
banks completing the transition to a "connected core" by 2025.
From the above numbers, it can be seen that digital banking is thriving and is
an indispensable trend in Asia.
2.1.2. Digital banking trends and adoption in Asia
Asia has experienced a boom in digital banking since 2011. According to a
McKinsey study, consumers of financial services are increasingly using computers,
smartphones, and tablets to interact with their banks rather than going into physical
locations or calling customer service lines. About 16,000 financial consumers in 13
Asian markets were polled by McKinsey in 2014 about their banking practices. The

25
study, which involved online and in-person interviews, is a component of an
ongoing project to monitor personal finance trends in Asia beginning in 1998.
Similar to other developing Asian markets, a quarter of consumers use computers
and smartphones for banking. The rise of digital banking in Asia has been predicted
for many years, but recently several factors have combined to drive the trend.
Among the most important changes is the presence of a much stronger ecosystem to
enable digital banking, including a rapid increase in Internet and smartphone usage
as well as growth in e-commerce, leading to demand for digital banking shifting
from early adopters to a broad range of customers. For incumbent banks, the stakes
are particularly high for the consumers In a McKinsey & Company survey of
developed Asian markets, more than 80 percent said they were willing to move
some of their holdings to a bank offering a digital proposition. In emerging Asia,
more than 50 percent of consumers indicate such a willingness. Multiple account
types are in use, with respondents generally saying they can transfer 35 to 45
percent of saving account deposits, 40 to 50 percent of credit card balances, and 40
to 45 percent of investment balances such as those held in mutual funds, etc.
The difference between emerging and developed markets has significantly
shrunk as digital banking penetration approaches 90 percent throughout the region.
The percentage of consumers in emerging markets in Asia-Pacific actively using
digital banking increased by 33 percentage points between 2017 and 2021, from 54
percent to 88 percent. Consumers in developed Asia-Pacific markets have been
adopting digital technology at a steady rate of about 90 percent.

26
Figure 2.2: Asia–Pacific emerging markets are at par on digital banking and
lead in the use of fintech apps and e-wallets
Source: (McKinsey, 2021)
Consumer enthusiasm for these new solutions has pushed the penetration of
fintech tools and e-wallets in emerging markets above market acceptance in the
region's developed markets. Fintech innovators across the region's emerging
markets have developed compelling value propositions. Fintech applications and e-
wallets were used 54 percent of the time in emerging Asia-Pacific in 2021
compared to 43 percent in developed Asia-Pacific.
In general, digital wallets and payment services have gained immense
popularity in Asia. Companies like Alipay, WeChat Pay, Paytm, and GrabPay have
revolutionized the way people make payments, allowing users to pay for goods and
services using their smartphones.
According to a report by financial technology service provider FIS (USA) in
2022, Asia - Pacific is the region with the highest percentage of mobile payments in
the world, using 69 percent of mobile payment users, of which 44 percent used
mobile payment directly at the point of sale (via Banking applications or scanning
QR code - Quick Response), and the rest paid through e-commerce applications or
e-wallets.

27
Compare with North America and Europe, which account for 29 percent and
27 percent of mobile users, respectively. South America accounts for 19 percent of
users making transactions by phone, and the Africa-Middle East region has the
lowest, with only about 17 percent of smartphone users making mobile payments.
According to market research firm McKinsey in 2022, Asia has long led the
trend of mobile payments, of which Southeast Asia is the region with the strongest
growth in mobile payment trends in the world. E-wallets and mobile payment apps
have become an integral part of Southeast Asian lives, especially as the pandemic
breaks out in the region. The use of mobile payments is overtaking credit card
payments in Southeast Asia. More and more e-wallet ecosystems are appearing in
this region.
Figure 2.3: Countries with the highest percentage of mobile payment users in
the world and average annual spending per user (in USD)
Source: Statista, 2022
Asian countries account for the majority of the top nine countries with the
largest percentage of mobile payments in the world, with four names. Europe has
three countries; America and Africa have only one country in the top nine.
According to the report published by market research firm Statista in 2022, out of
44 countries surveyed, China has the largest percentage of mobile payments in the

28
world, with 40.4 percent of smartphone users using mobile payment services
equivalent to more than 500 million people. Currently, China is stepping up policies
to encourage users to make payments via mobile phones and e-wallets instead of
using cash.
Vietnam is the second - ranked country, with 33.2 percent of smartphone
users. The following countries are: Korea (27.5 percent), the United Kingdom (26.7
percent), India (26.6 percent), and the US (25.6 percent).
Despite having a large percentage of mobile transactions, the average
spending through mobile in developing countries such as Vietnam and India is still
extremely low. On average, in 2022, each Vietnamese user will only make a
transaction of 134 USD (equivalent to 3.2 million VND) via smartphone. This
figure for users in India is 102 USD.
Digital banking has played a significant role in promoting financial inclusion
in Asia. By leveraging digital technology, financial institutions have been able to
reach previously unbanked populations, providing them with access to basic
banking services and fostering economic empowerment.
2.1.3. Fintech disruption and innovation
Financial Technology (Fintech) is present in a wide range of financial
products, from those aimed at end-users, such as e-wallets, digital currencies, and
crowdfunding platforms, to products that support the operations of financial
institutions, such as smart technology services, blockchain, and more. These
systems help reduce the costs of financial services, eliminate intermediaries, and
make financial services more efficient. Furthermore, fintech significantly enhances
data control, ensuring security, safety, and confidentiality for customers and
financial organizations.
According to a joint study by Google, Temasek, and Bain & Company in The
Future of Asia’s Digital Financial Services (2019), digital payments are projected to
exceed $1 trillion, and e-wallets are expected to reach $114 billion by 2025.

29
The collaboration between fintech and banks can bring benefits to both sides
and propel both fintech and the financial system to new heights. In the face of this
trend, Reet Chaudhuri, a senior expert in payments and transactions at McKinsey &
Company, also believes that the banking industry should partner with fintech
companies to foster mutual development.
By leveraging the strengths and expertise of both fintech and traditional
banking, they can create innovative financial solutions, enhance customer
experiences, and drive digital transformation in the financial sector. This
collaboration allows banks to tap into the agility, technological advancements, and
customer-centric approaches of fintech companies, while fintech companies can
benefit from the regulatory knowledge, customer base, and resources of established
banks.
The fintech ecosystem in Asia has been rapidly growing and evolving in
recent years. Asia is home to some of the largest and most dynamic economies in
the world, providing fertile ground for fintech innovation. Countries like China,
India, Singapore, and South Korea have emerged as major fintech hubs in the
region. The fintech ecosystem in Asia is characterized by a diverse range of players,
including startups, technology companies, traditional financial institutions,
regulators, and consumers. These players collaborate and compete to drive
innovation and transform the financial services landscape. If there were no fintech,
Mobile Banking for banks would not be able to develop today. The collaboration
between banks and fintech, Mobile Banking, and Internet Banking have become
significantly different. With fintech, banks have an entire digital ecosystem.
Fintech has introduced disruptive technologies that are reshaping the
traditional banking industry. These technologies include mobile payments, peer-to-
peer lending, blockchain, artificial intelligence, robo-advisors, and cloud
computing, among others.
Mobile payments have gained significant traction in Asia, driven by the
widespread adoption of smartphones and digital wallets. Peer-to-peer lending

30
platforms have provided alternative sources of financing, challenging traditional
lending models. Blockchain technology is being explored for its potential to
enhance security, transparency, and efficiency in financial transactions.
Artificial Intelligence (AI) is being used to automate processes, personalize
customer experiences, and improve risk assessment and fraud detection. Robo-
advisors are offering automated investment advice and portfolio management
services. Cloud computing is enabling scalable and cost-effective infrastructure for
fintech companies (Ahmad Ghandour, 2021). These disruptive technologies have
the potential to streamline processes, reduce costs, increase financial inclusion, and
improve the customer experience. However, they also present challenges in terms of
regulatory frameworks, data privacy, cybersecurity, and consumer protection (IMF,
2021).
Case studies of successful fintech startups in Asia such as Ant Group (China),
formerly known as Ant Financial, which is a subsidiary of Alibaba Group and
operates popular platforms like Alipay. It offers a wide range of financial services,
including digital payments, wealth management, lending, and insurance. Ant Group
has achieved massive scale and has become a dominant player in the Chinese
fintech market. In another case, Paytm (India) is an Indian fintech company that
started as a mobile payments platform and has expanded to offer a range of
financial services, including digital wallets, digital banking, merchant services, and
investment options. Paytm has experienced rapid growth and has become one of the
leading fintech players in India. In the other case, Grab Financial Group (Singapore)
is the fintech arm of Grab, a Southeast Asian ride-hailing and super app platform.
Grab Financial offers services such as mobile payments, lending, insurance, and
wealth management. Leveraging its extensive user base and ecosystem, Grab
Financial has become a key player in the fintech space in Southeast Asia (David &
Jannik, 2018).
These case studies highlight the success of fintech startups in Asia,
showcasing their ability to leverage technology, address consumer needs, and
disrupt traditional financial services. They also demonstrate the importance of

31
collaboration with regulators, partnerships with traditional institutions, and a deep
understanding of local market dynamics for fintech companies to thrive in the
region.
2.2. Experience of digital banking development in some Asian countries
2.2.1. National strategies for digital banking development
The strategy for developing digital banking in these countries is not typically
represented by a separate strategy but is integrated within programs for digital
financial development, the digital economy (China, Indonesia), or smart nation
initiatives (Singapore). Countries such as Australia, Singapore, China, Indonesia,
South Korea, Malaysia, and Thailand tend to establish flexible policies and create a
conducive environment for the development of digital banking, fostering
technological innovation based on the belief that technology-driven innovation is a
key driver for enhancing the efficiency of the financial system and benefiting
consumers.
China has implemented various national strategies to promote the development of
digital banking in the country.
The issuance of the Digital Financial Framework in 2015 established the
framework for the development of digital finance. The Guidelines for Digital
Banking Services in 2015 emphasized the importance of digital banking for
comprehensive and decentralized financial management
- The People's Bank of China (PBOC) is responsible for general regulatory
activities and primarily oversees payment services, anti-money laundering
operations, and credit information.
- The China Banking Regulatory Commission (CBRC) is responsible for
consumer protection.
- The China Association of Electronic Financial Industry (ACIFI) is responsible
for promoting banking operations.
It provides an overview of the promotion of mobile payments in China as a
means to reduce cash usage and transition towards a cashless society. Furthermore,

32
China's thriving fintech ecosystem includes the establishment of innovation hubs,
support for fintech startups, and collaboration between traditional financial
institutions and fintech companies (McKinsey, 2021).
- Promotion of mobile payments: The Chinese government has actively supported
and promoted mobile payments as a means to reduce cash usage and transition
towards a cashless society. Companies like Alipay and WeChat Pay have gained
significant popularity by offering convenient and secure mobile payment
solutions.
- Digital currency: China has been at the forefront of exploring and developing
digital currencies. The People's Bank of China (PBOC) has been working on the
development of a central bank digital currency (CBDC) known as the Digital
Currency Electronic Payment (DCEP). The implementation of the DCEP aims to
enhance the efficiency, security, and transparency of digital transactions in
China.
- Fintech innovation: China has fostered a thriving fintech ecosystem by
encouraging innovation and entrepreneurship in the financial sector. The
government has established innovation hubs, such as the Shanghai Fintech
Innovation Center and the Beijing Fintech Innovation Pilot Zone, to support the
growth of fintech startups and promote collaboration between traditional
financial institutions and fintech companies.
- Open banking: China has introduced measures to promote open banking,
encouraging collaboration and data sharing between banks and third-party
service providers. This allows for the development of innovative financial
products and services, enhancing the overall customer experience.
- Financial inclusion: The Chinese government has made efforts to promote
financial inclusion, particularly in underserved rural areas. Digital banking
technologies have been leveraged to provide access to financial services, such as
digital wallets and microloans, to previously unbanked populations.
- Regulation and risk management: China has implemented regulations and risk
management frameworks to ensure the stability and security of digital banking

33
services. The government has established guidelines to protect consumers,
prevent fraud, and safeguard against cyber threats in the digital banking space.
- Collaboration between banks and tech giants: Collaboration between traditional
banks and technology giants, such as Alibaba and Tencent, has played a
significant role in driving digital banking innovation in China. These
collaborations have resulted in the development of integrated financial services
platforms that offer a wide range of digital banking and financial products.
Singapore has implemented several national strategies to foster the
development of digital banking in the country. The strategic vision of becoming a
smart country is based on the foundation of the Smart Financial Center built in 2015
by the Central Bank of Singapore.
- Digital banking licenses: The Monetary Authority of Singapore (MAS)
introduced a digital banking licensing framework in 2020, allowing non-bank
players to provide digital banking services. This initiative aimed to encourage
competition and innovation in the banking sector, promoting the development of
digital-first banks.
- Open banking and API framework: Singapore promotes open banking through
the development of an API framework. This framework enables secure data
sharing between banks and third-party service providers, encouraging
collaboration and the development of innovative financial services.
- Fintech innovation: The Singapore government actively supports fintech
innovation through various initiatives, including the establishment of regulatory
sandboxes, innovation labs, and funding schemes. These efforts aim to create a
conducive environment for fintech startups and encourage collaboration between
traditional financial institutions and technology companies.
- Smart nation initiative: Singapore's Smart Nation Initiative is a national strategy
that aims to harness technology and data to improve the quality of life for
citizens. Within this initiative, digital banking plays a vital role in providing
seamless and convenient financial services to individuals and businesses.

34
- Cybersecurity and data protection: Singapore places a strong emphasis on
cybersecurity and data protection in the digital banking sector. The government
has implemented robust regulations and guidelines to ensure the security and
privacy of customer data, protecting against cyber threats and promoting trust in
digital banking services.
- Financial inclusion: Singapore is committed to promoting financial inclusion
and providing access to financial services for all segments of society. Digital
banking initiatives, such as simplified account opening processes and digital
wallets, help to extend financial services to underserved communities and
enhance financial inclusion in the country.
These national strategies reflect Singapore's commitment to embracing digital
innovation, fostering competition, and creating a robust and secure digital banking
ecosystem. The continuous support and collaboration between the government,
regulators, financial institutions, and fintech companies contribute to the ongoing
development of digital banking in Singapore.
The dynamic experience of Korea’s generation of digital banks can serve as a
good reference for many banks, fintech firms, and policymakers around the world in
designing their own digital finance strategies. South Korea has implemented several
national strategies to promote the development of digital banking in the country,
including:
- Digital transformation of financial services: The South Korean government has
been actively promoting the digital transformation of financial services to
enhance efficiency, accessibility, and convenience. This includes encouraging
financial institutions to adopt digital technologies, such as online and mobile
banking, and providing support for the development of digital banking
platforms.
- Open banking: South Korea has implemented an open banking system that
promotes data sharing and collaboration between banks and third-party service
providers. This allows customers to access a wide range of financial services

35
through a single application or platform, enhancing competition and innovation
in the digital banking sector.
- Regulatory reforms: The government has implemented regulatory reforms to
facilitate the growth of digital banking. These reforms aim to remove barriers
and streamline processes, enabling fintech companies and non-bank players to
enter the digital banking market more easily and foster competition.
- Collaboration between banks and fintech companies: South Korea encourages
collaboration between traditional banks and fintech companies to drive
innovation in digital banking. Partnerships and alliances between banks and
fintech firms have resulted in the development of innovative digital banking
services and products (World Bank, 2021).
Overall, these three nations have put national strategies into place to promote
the growth of digital banking. They have concentrated on a number of issues, such
as regulatory frameworks, advancing mobile payments, encouraging fintech
innovation, putting into place open banking systems, and assisting with the digital
transformation of financial services. These tactics seek to improve the digital
banking industry's effectiveness, accessibility, and innovation, which will ultimately
benefit customers and promote economic growth.
2.2.2. Regulatory Environment for digital banking in different Asia
2.2.2.1. Overview of regulatory frameworks for digital banking in different
Asian countries
Asian digital banking is primarily driven by established companies and
corporations, in contrast to digital banks that are frequently startups in other
regions. Despite structural difficulties related to governance, corporations have a lot
going for them in terms of scaling up. Five years after its debut, WeBank, backed
by Tencent, serves about 200 million customers, while MYBank, backed by
Alibaba, has more than 20 million SME clients. In a short period of time, China's
digital banks now control more than 7percent of online loans for small and medium-
sized businesses and about 5percent of the country's RMB 5 trillion ($700 billion)

36
market for unsecured consumer loans. Launched in 2017, South Korea's KakaoBank
attracted more than 10 million customers in its first year and now represents about
5percent of the nation's unsecured consumer lending.
Asia’s digital licensing process began with Chinese regulators in 2015 and has
since expanded across the region, with central banks in Taiwan China, South Korea,
and Hong Kong SAR China issues a limited number of permits. In 2019, Singapore
established a digital banking license registration process, and Malaysia issued a
draft licensing framework. COVID-19 and related shutdowns have led to an
increase in the use of digital banking, even in segments that were previously less
likely to adopt it. On the investment front, investors, especially venture capital firms
have become more cautious, adding momentum to mergers and alliances as tech
bank funding approaches release number (McKinsey, 2021).
Legally, caution regarding economic uncertainty has led some regulators to
delay licensing deadlines; for example, Singapore’s licensing is about five months
behind, while Malaysia's is about six months behind. Overall, however, the
pandemic has not changed the path of digital banking in Asia. In 2020, all virtual
banks in Hong Kong and China were able to launch. Singapore’s regulator
shortlisted four candidates for new digital banking licenses, and Malaysia and the
Philippines finalized their digital banking frameworks at the same time digital
banking matures and regulation tightens. For example, China’s regulators have
introduced additional rules related to risk management (including systems, data, risk
model management, and IT risk management) as well as restrictions on online
microlending businesses. Prior to 2015, there were very few purely digital banks in
Asia, for reasons including infrastructure limitations, regulatory barriers (including
a lack of an e-customer framework), insufficient customer interest, and an
incumbent bank monopoly (McKinsey, 2021).
Hong Kong issued eight new online banking licenses in the first quarter of
2019 to groups, including affiliates of Alibaba Group Holding Ltd and a consortium
led by Standard Chartered. Singapore's central bank said in June 2019 it was
looking to issue up to five digital banking licenses. In 2019, the Monetary Authority

37
of Singapore received 21 applications for up to five licenses, and in December
2020, it shortlisted four applicants. In the same year, the licensing framework was
completed by Bank Negara Malaysia, and the digital banking framework was
unveiled by BSP in the Philippines. China is currently working to complete its
digital banking regulations, which could pave the way for foreign banks to establish
their own digital banking platforms (Reuters, 2019).
Successful Asian digital banks frequently follow a corporate business model
as opposed to the vertical strategy used in Europe and the US. For instance, Tencent
and Ant Financial of Alibaba are the respective leaders of the consortiums WeBank
and MYBank in China.
Associations have their own set of difficulties and complications, particularly
in ensuring participant alignment, but they also provide a means of scaling fairly
quickly. Notably, corporations received the most licenses in recent licensing
processes in Taiwan, China, and South Korea, and five of the eight digital licenses
awarded in Hong Kong, China in 2019 are already owned by corporate groups.
Fusion Bank is run by Tencent and Industrial and Commercial Bank of China
(ICBC) in Hong Kong SAR, while Standard Chartered-led Mox is supported by
HKT, PCCW, and online lender CTrip Financial. Corporations made up the
majority of the well-known applicants in the Singapore licensing round, which was
completed in December 2019. Furthermore, a full banking license requires the
equivalent of about US$1 billion. It is worth mentioning that the capital
requirements for digital banks are usually, but not always match the requirements
for traditional physical banks (Reuters, 2019).

38
Figure 2.4: Digital bank capital requirements are not always lower than those
for traditional ones (US million)
Source: McKinsey, 2020
Figure 2.5: Minimum capital requirements (jurisdictions without dedicated
digital banking licenses) - US million
Source: McKinsey, 2020
2.2.2.2. Regulations on licensing digital banks
As mentioned above, CGAP (2021) identifies three approaches to regulation
for digital banks worldwide: (1) Separate special licenses for digital banks alongside
traditional banks; (2) Phased licensing for digital banks (or all banks), where new
digital banks undergo a restricted operating phase before obtaining full licenses; (3)

39
No separate or phased licensing for digital banks. The table provides an overview of
the approach to banking licensing regulations for digital banks in selected countries.
Table 2.2: Banking licensing regulations in some countries
Country Specified regulations Result
China In 2015, 10 ministries and the Central Government
Commission of China jointly issued "Guidelines to
promote the development of government financial
strength (DFS Guidelines 2015): Focus on lending
to individuals and small and Medium-Sized
Enterprises (SMEs) can only manage tier 2 and tier
3 accounts, limit account holder services, limit
transactions, and cannot transfer funds, minimum
capital requirements are lower than ordinary
commercial banks, rate shareholder ownership up
to 30 percent, capital and payment requirements are
the same as ordinary commercial banks, no
physical branches.
In 2019, 5
licensed digital
banks: We Bank,
MYBank,
XWBank, Suning
Bank, AiBank
South
Korea
In 2019, the Bank of Korea (BOK) issued
regulations for digital bank licensing. These
regulations include requirements such as a lower
minimum capital requirement compared to
commercial banks and higher restrictions on the
shareholding of non-financial sector shareholders.
Additionally, digital banks are not allowed to lend
to their major shareholders.
03 fully licensed
online banks:
Kakao Bank, K-
Bank, Toss Bank
Malaysia In December 2019, the National Bank of Malaysia
(BNM) issued a regulatory framework for digital
banks. The regulations were relaxed compared to
The plan is to
issue 5 digital
banking licenses.

40
traditional banks, allowing for only Tier-1 capital,
no capital conservation requirements, a minimum
liquidity ratio of 25 percent for repayment of the
debt, no stress testing requirements, and an
exemption from public disclosure requirements.
The acceptable scope of collateral assets was also
reduced.
Within a maximum of 5 years from the start of
operations, the total asset size of a digital bank
should not exceed 3 billion RM (727 million USD),
with a minimum required capital of 100 million
RM (24.2 million USD). After this phase, the
digital bank must comply with requirements similar
to those of traditional banks.
Singapore In June 2019, MAS announced a new digital
banking regulatory framework including (i) a
Digital full bank license (DFB) for accepting
personal deposits, (ii) a Wholesale digital banking
license for individuals allowed to serve Medium-
Sized Enterprises (SMEs) and other businesses but
not allowed to accept deposits from individuals
(except for fixed deposits of at least SGD 250,000).
A DFB will operate on a limited basis with a lower
capital before progressing to a fully operational
form.
Conditions to establish a DFB require: The
established individual/organization must have
experience in operating technology/e-commerce
02 fully digital
banks (Sea
Group, Grab
Singtel Digitalb
Bank) and 02
digital wholesale
banks (Ant
Group,
Greenland
Financial
Holdings,
Linkgolis Hong
Kong, Beijing
Co-operative

41
businesses, the DFB must be established in
Singapore, comply with safety rules such as
Regular banks, must participate in the deposit
insurance scheme offered by the Deposit Insurance
Corporation of Singapore.
In addition, digital banks do not have access to
ATM networks, do not have branches, and require
higher capital than conventional commercial banks.
Equity
Investment Fund
Management) are
licensed.
Source: BCG Report, 2020.
Research on licensing regulations for digital banks in different countries
worldwide shows that the capital requirements for digital banks are not necessarily
lower than those for traditional banks. In most cases, digital banks are not required
to have physical bank branches and must have at least one business location locally.
Having a separate license for digital banks can provide market access opportunities
for new entrants when licensing for traditional banks is restricted. Conversely, in
countries where licensing for traditional banks is readily available, technology
companies often acquire small traditional banks and convert them into digital banks
or simply add lending and payment products to the ecosystem of these banks. For
example, in 2019, Alibaba-backed Akulaku acquired Bank Yudha Bhakti and later
renamed it Bank Neo Commerce. In February 2021, Singapore-based Sea Group
acquired Bank Kesejahteraan Ekonomi (Bank BKE) and said it would turn the
incumbent lender into a digital bank (Forbes, 2021).
2.2.2.3. Policy on building information infrastructure to support development
A supportive information infrastructure, including centralized databases,
national electronic identity, and the establishment of electronic Know Your
Customer (e-KYC) platforms, is being actively built by nations like India, South
Korea, Singapore, Malaysia, Indonesia, and China. The establishment of personal
databases and national online payment systems are crucial elements for the

42
development of digital banks, according to practical implementation studies in these
nations (Table 2.3).
Table 2.3: Summarize policy on building information infrastructure to support
development in some countries
Country Specific Policy
Singapore Establishing the national personal database MyInfo, national online
payment systems, and the Smart Financial Centre since 2015.
Implementing the Financial Sector Technology and Innovation
(FSTI) scheme worth 225 million SGD to support innovation and
development in the financial sector (IMF, 2019).
South
Korea
Deployment of the national digital ID system using biometrics since
2015, implementation of the electronic payment system GIRO with
the participation of 18 banks and 54 Fintech companies, enabling the
use of Open APIs.
China Establishment of the China Electronic Finance Industry Association
(ACIFI) in 2014. The People's Bank of China (PBOC) has planned to
establish a payment clearing platform for online payment transactions
on the Internet, known as Wang'lian.
India The enactment of the Aadhaar Act 2016 on registering for personal
identification information.
Encouraging the establishment of the National Payments Corporation
of India to operate in coordination with various retail payment
systems in India (Deloitte, 2020).
Thailand The Bank of Thailand has issued Notification SorNorSor 7/2559
(8/2016) to promote the use of digital e-KYC onboarding for opening
deposit accounts and receiving funds from the public.
The government is currently in the process of developing a national

43
Country Specific Policy
online payment system.
Indonesia The implementation of electronic identity cards for citizens (e-KTP)
began in 2011, allowing online identity verification through a unique
identification number and direct fingerprint authentication. Prioritize
the creation, use, and governance of shared infrastructure for
payment processing, data exchange, operating model, and security in
the initial iterations of Quick Response (QR) Payment regulations
and standards (Deloitte, 2020).
Malaysia The MyKad system was implemented in 2001 with contact chip
authentication technology, integrating a digital signature platform
and offering 8 services, including 4 government services (national
identification, driver's license, domestic travel document, health
record) and 4 private services (e-wallet, automated teller machine
card, Touch'n Go card for transportation, digital signature card for
electronic transactions).
2.2.2.4. The other support policies
Countries with developed digital banking sectors have also implemented a
range of supportive policies to promote technology adoption in the financial sector
and provide guidance on related activities to minimize risks in digital banking
operations. Among these policies, regulations on e-KYC and legal sandbox
frameworks have been emphasized and implemented early in most countries with
thriving digital banking markets (Table 2.4).

THE DEVELOPMENT OF DIGITAL BANKING: ASIA EXPERIENCE AND LESSONS LEARNED FOR VIETNAM

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