Online lending, a strategic opportunity for Vietnamese commercial banks

In Vietnam, since the COVID-19 pandemic, people's consumption habits and financial behavior have changed dramatically. Cashless payments, online transactions and access to digital services are increasingly popular. In that context, online lending has emerged as a modern, fast and flexible solution, meeting the urgent needs of small businesses and consumers.

According to Associate Professor, Dr. Dang Ngoc Duc - Director of the Institute of Financial Technology, Dai Nam University, with advantages in approval time, operating costs and access capabilities, online lending is becoming a strategic tool to help commercial banks expand market share and improve efficiency. However, along with opportunities are many challenges in terms of legality, technology and risk management, requiring commercial banks to have clear and sustainable strategies.

In essence, online lending is the process of digitizing traditional lending processes, thanks to the application of eKYC, artificial intelligence (AI), Big Data and electronic contracts. If the traditional form depends heavily on paper documents and manual appraisal processes, with online lending, the entire process from registration, approval to disbursement is automated and implemented on a digital platform.

Therefore, while direct lending will still be suitable for large, complex loans such as project investment, real estate or production expansion, online lending will dominate with small consumer loans, unsecured loans or short-term capital needs of small and medium-sized enterprises (SMEs).

5 outstanding advantages

First of all, online lending expands the retail credit market share. It helps banks reach young customers, groups without credit history and even people in remote areas - those who have difficulty accessing traditional financial services.

Second, this form optimizes operating costs. McKinsey's report (2024) shows that online lending helps reduce transaction costs by up to 6070% compared to traditional methods. In Vietnam, VPBank or TPBank has implemented an automatic approval process in just a few minutes, disbursing within the day, thereby improving labor productivity and customer experience.

Third, thanks to AI, Big Data and IoT, risk management has become more efficient. Banks can analyze consumer behavior, transaction data and even information from social networks to assess real-time debt repayment capacity, forecast risks and personalize credit products.

Fourth, online lending promotes financial inclusion a sustainable development goal that many countries are pursuing. In Vietnam, this form is helping people easily access consumer loans, car loans, and online spending without mortgaging assets.

Finally, the popularity of online lending also contributes to the formation of a sense of personal responsibility and community spirit, reducing hot loans, black credit and moving towards a transparent and safe financial ecosystem.

inevitable trends and the current situation in Vietnam

globally, the size of the digital lending market is expected to reach nearly 890 billion USD by 2029, with an average growth rate of nearly 12%/year (Mordor Intelligence, 2024). In Vietnam, along with the development of smartphones and the internet, commercial banks are increasing cooperation with Fintech to expand services.

TPBank, VPBank, MB and Techcombank have pioneered the implementation of online consumer loans, making this activity a strategic channel instead of just an additional utility.

According to the State Bank, by March 2024, at least 28 credit institutions have implemented online lending, many of which have digitized the entire process from receipt to disbursement. However, compared to the target of having 50% of small loans done through the digital environment by 2025, the ability to complete it is still a big challenge.

Barriers and solutions

Mr. Dang Ngoc Duc emphasized four main groups of challenges. First is legality, when many regulations related to electronic contracts, digital signatures, dispute handling and personal data security are still not complete.

Second, there are limitations in data and customer behavior analysis technology, leading to high credit risks. Third is the fear of customers, especially in rural areas, due to concerns about legality and security.

Finally, there is competitive pressure from Fintech companies, which are more flexible and reach younger customers and freelancers.

To overcome existing barriers, Associate Professor, Dr. Dang Ngoc Duc emphasized that commercial banks need to synchronously deploy many solutions. First of all, it is necessary to perfect the legal framework, supplement detailed regulations related to electronic contracts, digital signatures, handle disputes and promote a controlled testing mechanism (sandbox) to ensure transparency and safety.

At the same time, banks must invest heavily in digital technology, applying modern tools such as artificial intelligence (AI), Big Data or Blockchain to automate and secure the entire lending process.

Another important direction is to strengthen strategic cooperation with Fintech companies to take advantage of technological strengths, thereby forming a comprehensive digital financial ecosystem, bringing seamless experiences to customers.

In addition, promoting communication to raise customer awareness of the benefits, rights and responsibilities of online borrowing is an indispensable factor to build trust and encourage the use of services.

Finally, developing banking human resources with digital thinking, technology awareness and modern risk management capacity will be the decisive foundation to help online lending activities develop sustainably.