Open banking being embraced in Vietnam

Pham Anh Tuan, director of the Payment Department at the State Bank of Vietnam (SBV), underscored the distinctions between traditional banking models and the new open banking frameworks at an event on the issue in Hanoi last week.

“Open banking is a model that connects and processes open application programming interfaces (open APIs), allowing third-party providers (TPPs) access to customer data at banks, contingent on customer consent,” Tuan said.

“Traditional banking models are typically closed systems, making data sharing and integration with external markets difficult, with interactions mainly limited to traditional banks. They are less flexible and offer limited connectivity among service providers for customers.”

Open banking or open API frameworks create a joint ecosystem where banks, fintech, and other third parties connect and share data through APIs. This shared data enables the development of innovative products and services tailored to meet customers’ personalised needs, Tuan added.

Globally, at least 87 per cent of countries have adopted various forms of open banking through open APIs. Furthermore, with 70,000 IT companies providing digital transformation services and 18,000 software companies in Vietnam collaborating with third parties, the potential for expanding banking services across digital channels is vast.

During the event, several banks also reported active development of API packages. A representative from MB revealed that the bank currently maintains over 800 APIs, encompassing most payment services, and collaborates with nearly 1,000 partners, including retailers, transport businesses, and e-commerce platforms.

A representative from BIDV also stated that since the official launch of its open API system in late 2023, the bank has recorded 90,000 API calls. The system integrates with 56 internal operational applications, facilitating the swift, automated, and seamless processing of banking services.

However, some experts noted that the open banking or open API model in Vietnam remains fragmented, primarily driven by the mutual needs of banks and their partners.

Nguyen Hoang Long, deputy CEO of the Vietnam National Payment Corporation, said, “Globally, the trend towards a common open banking infrastructure is on the rise. For example, in India, South Korea, and Switzerland, they are supported by the central bank and major banking/fintech associations, or the UK model is licensed by the FCA and supported by its central bank.”

Long noted, however, that the requirement for each bank to develop and manage its own standards and connections leads to increased operational costs and resource allocation.

“Banks managing the entire implementation process to allow TPPs access to customer banking data via open APIs - covering areas like onboarding and technical connectivity - face significant challenges. The diverse standards and connections used by TPPs complicate the model’s scalability,” he said. “Banks creating multiple connections to TPPs without consistent data security standards risk significant security vulnerabilities.”

Despite promising initial outcomes, Vu Anh Duc, deputy director of the Digital Platform and Identity Centre at FPT IS Information System stressed that the open models in Vietnam remain fragmented.

“These models are largely constructed by banks and their partners based on mutual needs,” he noted. “The implementation process faces three major challenges – data governance issues, security and safety concerns, and platform and technical data standards, given the absence of common regulations for practical implementation across organisations.”

Meanwhile, customer demand is substantial, and there is significant interest from credit institutions and enterprises.

“Alongside clarifying the legal framework, technology and data will be the key to seamlessly connecting systems between organisations, accurately authenticating information, and paving the way for an efficient transition to open banking,” Duc added.

Doan Thanh Hai, deputy director of the IT department at the SBV, announced that it has been tasked with leading the drafting of a circular on the implementation of open API in banking.

“The circular’s core contents will encompass a comprehensive list of technical standards, including architectural, data, and information security standards, a detailed list of API functions, customer data access with consent, payment and transfer order creation, and additional open functions as needed,” Hai said.

The circular will also cover regulations on data sharing and usage, the implementation roadmap, and the delineation of rights and responsibilities among involved parties.

“We aim to finalise and present this circular to the governor for issuance by July. We are committed to gathering extensive feedback on the circular’s content, and strongly encourage credit institutions and payment companies to actively participate in refining this draft soon,” Hai added.

The State Bank of Vietnam (SBV) announces a major regulatory overhaul for Open Banking, with comprehensive legal guidelines and circulars expected to come into effect by July 2024.