Business research methods individual proposal topic assessing the impact of financial technology (fintech) on traditional banking in vietnam

ABSTRACT The rapid evolution of Financial Technology Fintech has fundamentally transformed the financial services landscape, posing significant challenges and opportunities for tradition

VIETNAM NATIONAL UNIVERSITY — HO CHI MINH CITY

Student’s name: Pham Tra My Student’s ID: BAFNIU21495 Class: Business Research Methods Lecturer: Dinh Thi Le Trinh

Ho Chi Minh City, VietNam

Table of contents

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ABSTRACT

The rapid evolution of Financial Technology (Fintech) has fundamentally transformed the financial services landscape, posing significant challenges and opportunities for traditional banking institutions In Vietnam, a market characterized by its youthful demographic and accelerating digital adoption, the emergence of Fintech presents a critical inflection point for the banking sector This study aims to systematically assess the impact of Fintech on traditional banking in Vietnam, focusing on key areas such as operational efficiency, customer engagement, and financial performance

The research employs a mixed-methods approach, combining quantitative analysis of financial data from traditional banks with qualitative insights from industry experts, banking professionals, and customer experience through surveys By examiming the influence of Fintech innovations—including mobile payments, peer-to-peer lending, digital wallets, and blockchain technology—on the traditional banking sector, this study seeks to delineate the extent to which these technologies disrupt conventional banking practices

Findings from this research are expected to reveal that while Fintech offers enhanced convenience and lower transaction costs, it also pressures traditional banks to rethink their business models and operational strategies The study anticipates identifying a significant shift in consumer behavior toward Fintech services, necessitating a strategic response from traditional banks to remain competitive Moreover, the research will explore the potential for collaboration between traditional banks and Fintech companies

as a means to hamess innovation while mitigating the risks of disintermediation

I INTRODUCTION

1.1 Background Information

Vietnam has experienced an increase, in the adoption of technology (Fintech) in recent times This shift to platforms is reshaping the sector bringing both opportunities and challenges for traditional banks The growing Fintech industry in Vietnam driven by a tech-savvy population along with increasing mtermet usage has led to the introduction of financial services Mobile payments, digital lending, and wealth management stand out as segments within the Fintech realm The supportive regulatory environment in the country has also played a role in fostering the growth of Fintech Traditional banks are facing heightened competition from Fintech companies that offer convenient and cost-effective services Appealing especially to younger customers Nevertheless, banks are recognizing the benefits of partnering with Fintech firms strategically Collaborations between banks and Fintech entities are emerging to capitalize on their strengths and expand their market

presence

This study seeks to examine the interplay between Fintech and traditional banking in Vietnam It will delve into how Fintech impacts facets of banking such, as customer outreach, service provision, msk management, and profitability By grasping the dynamics of this evolving landscape, policymakers, banks, and Fintech organizations can devise strategies to navigate changes effectively and seize opportunities

1.2 Problem Statement

The rapid adoption of Fintech has created significant challenges for traditional banks in Vietnam, which risk being left behind if they do not adapt as Fintech firms leverage technology to provide faster, cheaper, and more user-friendly financial services This problem is particularly acute in Vietnam, where the banking industry still relies heavily

on traditional business models that may not be as agile or innovative as Fintech startups

Although some banks have begun to embrace digital transformation, the extent to which Fintech has impacted the operational and financial performance of traditional banks in Vietnam is unclear Without a clear understanding of these impacts, it may be difficult for traditional banks to develop effective strategies to compete with Fintech firms This study attempts to fill this gap by systematically examining how Fintech has impacted Vietnam's traditional banking industry and identifying the associated challenges., Fintech firms can develop strategies to navigate the changing landscape and maximize opportunities 1.3 Significance of the Research

This research is significant for several reasons First, it will provide insights into the dynamics between Fintech and traditional banking in Vietnam and contribute to a broader understanding of how new technologies are reshaping financial services in developing markets Second, the findings of this study will be critical for bank managers and policymakers to address the challenges and opportunities presented by Fintech

For traditional banks, the study will focus on areas where they may need to innovate or transform their operations to remain competitive For policymakers and regulators, the study will provide valuable information on how to create a regulatory framework that supports innovation while ensuring stability and consumer protection Finally, the study will provide practical recommendations to help Vietnamese banks better integrate Fintech into their operations, ultimately improving their services and increasing customer satisfaction

® To explore the strategic responses of traditional banks to the rise of Fintech, including digital transformation initiatives, partnerships, and innovation strategies

¢ To provide recommendations for traditional banks in Vietnam on how to effectively adapt to and leverage Fintech innovations to enhance their competitive position

1.5 Research Questions

The study seeks to answer the following research questions:

¢ What are the main components of Fintech that are impacting traditional banking in Vietnam?

¢ How do these Fintech components affect the operational efficiency and financial performance of traditional banks in Vietnam?

¢ What are the key challenges faced by traditional banks in Vietnam due to the rise

Il LITERATURE REVIEW

2.1 Theoretical Background

2.1.1 Definition of Fintech and Traditional Banking

Fintech, also known as Financial Technology, is the use of innovative, high-tech digital solutions by financial technology companies to enhance financial transactions and services It covers different areas such as digital banking, financial management, remittances, and peer-to-peer transactions The main purpose of Fintech is to improve the efficiency of banking and investment, by using advanced technology to optimize and deliver cost-effective solutions quickly for individuals and businesses

Traditional banking is the banking of manual, mechanical processes, mostly connected to users directly through specific bank branches With the growing technological age, it is precisely because of this that the use of banking services has to reach the branch during office hours that many people find it difficult and difficult to access

However, fintech and traditional banking are not mutually exclusive; they often complement each other in today's financial landscape

2.1.2 Classification and Characteristics of Fintech

2.1.2.1 Classification

Fintech is divided into two groups that are categorized according to the purpose of use: Group One: Products that serve consumers, providing digital and other technology tools for individuals to borrow, fund capital, or manage personal and business money Group two: "Back-office” technology products to support its operations and financial institutions

2.1.2.2 Characteristics

Fintech will optimize financial resources in the future when just one employee can already support a lot of different customers on the same service

Fintech is the constant technological innovation, the development of artificial intelligence that encompasses all service operations including the identification, statistics, and establishment of the needs of each customer through algorithms

Fintech provides the convenience that users do not need to go to the headquarters to make transactions or services but can operate directly through online activities

In the modern era of technology, Fintech has come into existence and brought about many positive effects It saves time, optimizes services in a simple way, and uses utilities quickly Helping clients secure their rights In addition, Fintech knows how to identify each customer, and each service that makes the security and safety of customers more important

2.1.3 Definition of Financial Innovation

Financial mnovation is a term that collectively refers to specific service categories based

on updated tables in various areas of the financial system It will create products and services or processes that are changed and updated including risk management, risk transfer, credit generation, updated technology as well as other innovations Recent financial innovations include crowdfunding, mobile banking technology, and remittance technology Financial innovations are aimed at reforming and promoting the development and efficient functioning of financial systems This can lead to positive changes, towards

a positive business environment and efficiencies in the financial system

2.1.4 Some Other Related theories

a) Theories related to competition and innovation

¢ Theory of perfect competition

An economic model of market structure is called the perfect competition model This model is used by economists to analyze behavior and outcomes in highly competitive markets where there are no monopolistic sellers or buyers All market participants interact on a level playing field when there is perfect competition This implies that no individual or business can influence market prices; instead, prices are set only by supply

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and demand Furthermore, under conditions of perfect competition, businesses cannot be prevented from joining or leaving, allowing for unrestricted competition and efficient allocation of resources

¢ Theory of monopolistic competition

A monopolistically competitive market is a market structure in which there are a large number of firms producing similar products that are not perfect substitutes It combines elements of a monopoly market and a perfectly competitive market Companies in the market will generate economic profit in the short term However, one of its downsides is that it keeps competitors constantly entermg the market to prevent companies from generating high profits The main characteristics of a monopolistically competitive market are many sellers and buyers, product differentiation, low barriers to entry and exit, and finally short-term hyper-margin profit

¢ Theory of technological novation

The diffusion theory of innovation is a theory that outlines how new technologies and other advances are spread throughout societies and cultures, especially in popular adoption It describes the pattern and rate at which new ideas, activities, or products spread throughout the population Innovation is understood as reform, change that helps

to renew problems, but they also have certain risks However, in today's modem society, innovation and reform is very important and necessary, it helps people to move up and develop more outstandingly

b) The technology acceptance model (TAM)

The technology adoption model (TAM) is a theory of information systems that models how users adopt and use technology The model represents an overview of a new technology, the factors that will influence decisions, and how users can use it TAM is constantly being researched, improved, and expanded The model is expressed in two

parts:

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- Cognitive usefulness (PU): Bnagwf how to use the system to describe the degree to which a person believes performance at work can be improved

- Perceived ease of use (PEU): Indicates the degree to which a person has to make mental

or physical effort to use technology

Despite being subjected to various criticisms from users such as its complexity and lack

of features, TAM has been constantly improving More than that, it also demonstrates a high degree of predictability as well as the ability to look at external mfluences in society

so that it can easily take action and create concrete, successful directions

c) Disruptive Innovation Theory

Breakthrough innovation describes the process by which products and services originate from simple applications in the lowest segment of the market (by lowering costs to make them more accessible) and then continuously moving up to the higher segments, replacing competitors that already have a foothold The theory was put forth by Harvard Business School professor Clayton Christensen in the early 1990s Clayton Christensen popularized the idea of disruptive innovation in his book The Innovator's Solution, which

is the sequel to The Innovator's Dilemma published in 1997

The advantages of disruptive innovation are aimed at improving products and services for existing customers However, disruptive mnovation will require enabling technology, innovative business models, and unified value networks to innovate effectively and drive growth in the process

d) Financial Inclusion Theories

Financial inclusion is the ease of access and availability of basic financial services to all members of a population It is also understood that all mdividuals and businesses have access to useful and affordable financial products and services Financial inclusion plays

a very important role in reducing poverty and promoting economic growth by enabling individuals with different services such as savings, investment and risk management

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Whether it's individuals or small businesses, having access to financial services, raising housing prices and the overall market economy, is not just about providing access to traditional banking services but also promoting financial education and understanding Educating individuals and giving them the tools to make informed financial decisions is key to achieving true financial inclusion

2.2 Literature Review

2.2.1 Impact of Fintech on Operational Efficiency

Numerous studies have documented how Fintech has improved operational efficiency within the financial services sector For example, Zhu, Ongena, and Tan (2019) found that Fintech innovations reduce transaction costs and streamline operations by automating processes that were traditionally manual and labor-intensive In Vietnam, where banking infrastructure has historically been less developed, Fintech offers a pathway for banks to modernize their operations and reduce inefficiencies This section reviews empirical studies that quantify the impact of Fintech on operational performance metrics such as cost-to-income ratios and processing times in the banking industry

2.2.2 Customer Experience and Fintech

The rise of Fintech has fundamentally reshaped customer expectations in the financial services industry Studies such as those by Gomber, Koch, and Siering (2017) have highlighted how Fintech firms leverage user-friendly interfaces, personalized services, and 24/7 accessibility to enhance customer experience Traditional banks in Vietnam must respond to these heightened expectations by investing in digital platforms that offer similar levels of convenience and personalization This section examines the literature on the shifting landscape of customer experience in banking, focusing on how traditional banks can adapt to meet the demands of tech-savvy consumers

2.2.3 Fintech and Financial Performance

The financial performance of traditional banks is increasingly influenced by the competition from Fintech firms Research by Philtppon (2016) indicates that the entry of

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Fintech has led to increased competition, which can compress margins and challenge the profitability of traditional banks In Vietnam, where Fintech is rapidly gaining traction, traditional banks must navigate these competitive pressures while maintaining financial stability This section reviews studies that analyze the impact of Fintech on key financial performance indicators such as return on assets (ROA), return on equity (ROE), and net interest margins (NIM) within the banking sector

2.2.4 Strategic Responses of Traditional Banks to Fintech

Traditional banks worldwide have responded to the mse of Fintech in various ways, ranging from outright competition to strategic partnerships Studies by Hornuf and Schwienbacher (2017) suggest that collaboration between banks and Fintech firms can create synergistic benefits, allowing traditional banks to leverage technological innovations while Fintech firms gain access to established customer bases In Vietnam, such collaborations are increasingly common as banks seek to integrate digital capabilities without disrupting their core operations This section reviews the literature on the strategic responses of banks to Fintech, including digital transformation iitiatives, strategic alliances, and mergers and acquisitions

2.2.5 Regulatory Challenges and Opportunities

The regulatory environment plays a crucial role in shaping the development of both Fintech and traditional banking sectors In Vietnam, regulatory frameworks are evolving

to accommodate the rapid growth of Fintech while ensuring financial stability and consumer protection Studies by Zalan and Toufaily (2017) discuss the challenges regulators face in balancing innovation with risk management This section reviews the literature on the regulatory landscape in Vietnam, focusing on the opportunities and challenges it presents for both Fintech firms and traditional banks

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