VPBank’s ATM card services current situations and solutions

Vietnam Joint-Stock Commercial Bank for Private Enterprises VPBank is in that race, and its abilities has unexplored, its market share is not strong enough.. Apart from introduction and

Introduction

The years 2006 and 2007 marked new steps in the process of world and regional integration with great opportunities and challenges in place for Vietnam’s reform and development In this trend, the financial and banking also obtained impressive results, banks have been expanding continuously

Vietnam’s ATM market has begun booming with 15 commercial banks moving aggressively to identify promising services providers, provide perfect services and diversify their ATM cardholders Therefore, in coming time, this market will certainly become more competitive and active all cardholders will enjoy unprecedented services Vietnam Joint-Stock Commercial Bank for Private Enterprises (VPBank) is in that race, and its abilities has unexplored, its market share is not strong enough So after learning and researching about this issue, I have decided to choose the following topic as the subject of my

report “VPBank’s ATM card services: Current situations and solutions”

Apart from introduction and conclusion sector, the report is divided into three chapters as following:

Chapter 1: General understanding of ATM card service Chapter 2: Situation of Vietnam Joint-Stock Commercial Bank for Private Enterprise’s ATM card services

Chapter 3: External environment evaluations and solutions to improve VPBank’s ATM card services

Chapter 1: General understanding of ATM card service

1.1 Introduction to the ATM card service

Card definition: The ATM card is a non-cash based means of payment issued

to customers by commercial banks or other financial institutions It is also known as cash card or plastic money At certain points where cards are accepted, cardholders can withdraw cash or pay for bills, goods, services

The first real ATM card with a magnetic strip and a personal ID number was developed by Wetzet, Barnes and Chastain in 1973 It is issued in form of a debit card, and it can be used only when the cardholder has money in his account Convenience is the key property of an ATM card because ATMs are self-service machines and available 24 hours a day, 7 day a week Essentially,

an ATM card allows the customer to “go banking” anytime

An ATM card made by plastic ABS or PC with the following uniform contents:

 Rectangle shaped with two slides and round corners

 Card name, symbol, and the logo of the card issuer

 Card number: 16 digits,

the card can be accepted as long as its cardholder’s account balance is positive or the cardholder spends only what remain in his pocket

As for a customer, obtaining an ATM card is easy A key condition that

he has to meet is to open an account with sufficient money After having an ATM card, the cardholder can go banking anytime at his convenience, conduct many transactions such as checking their account balance, transferring money, withdrawing cash, paying bills, etc and also enjoy some interest on his savings, account at the same time

As for the bank, issuing an ATM card is safe because it doesn’t worry about bad credit and unpaid transactions Besides, it can acquire more capital

to invest and reinvest Furthermore, the issuing bank can expand its business scope without the cost of opening new branches, but only by installing more ATM’s nationwide

1.3 The role of an ATM card in the economy

As a matter of fact, cash, either in the form of note or coin, is not always the best means of payment, especially in business because using cash poses some risks for customers such as money losses, fake note, and physical damage Thus, the application of non-cash payment is essential Up to now, ATM cards has still been considered an effective tool that deals with the inconvenience of cash payment and allows more transactions with the higher value to be made in the economy They take an important role because of some reasons:

 Reducing cash in circulation: ATM cards have been developed in the form of a non-cash instrument of payment and clearly, it is used to replace cash In an economy using huge volume of cards, the circulation of cash is certainly limited

 More transactions, less time: Conducting a card transaction is much more quickly than making cash transaction The reduced time allows more transactions with higher value to be made

 Higher transparency: Every ATM card transaction is recorded by the bank data centre for later reference

 Improving business environment, drawing international investment and international interests A mature and modern environment will also attract more foreigners, both businessmen and tourists

1.4 Card-related factors

1.4.1 Card transactions equipment: Automatic teller machines (ATMs)

Card transactions are safe, simple and quick Thus modern and hi-tech equipment are required The ATM is an inseparable equipment of an ATM card By this combination, services are provided

The ATM allows a bank customer to conduct their banking card transactions

It is first introduced in the 1960s and was considered a breakthrough in the banking business Don Wetzel was the co-patentee and chief conceptualist of the ATM an idea he thought of while waiting a line at a Dallas bank

Thanks to its many advantages, the ATM has been quickly adopted by many banks around the world Nowadays, the ATM can be seen not only in front of banks but in numerous public locations for the convenience of its customers

In general, instead of being constrained by the limited working hours of banks, the cardholders could “go banking” outside by using the 24- hour services of an ATM at their convenience

1.4.2 Card transaction participants

There are three main participants involved in a card transaction: cardholder, Card issuer and Merchants

 The cardholder: a cardholder is an individual who want to have an ATM card to go banking anytime at his convenience

When using ATM card services, he will enjoy some advantages such as convenience, safety, time-saving, responsiveness and accuracy, etc

 The card Issuer: A card issuer is a commercial bank, or a financial institution who wants to offer ATM card services to customers

While providing these services to a card user, it will gain the fooling benefits:

income from card issuance fees, capital from savings accounts, business expansion, etc

 The merchants (ATMs): they are located outside the bank, help card transactions occur promptly, easily and accurately

The introduction of these machines brings benefits for the economy because they reduce risk and lower costs Having an ATM on the premises can reduce

the number of bad cash and cut costs of setting up more banks’ branches

1.4.3 Card transactions process

Figure card transactions: Card transactions process

This card transactions process involves five steps:

Step1: the cardholder finds an ATM to conduct card transactions

Step 2+3: After the card and Pin code are presented, the ATM automatically checks its validity by asking the bank’s server installed at VPBank’s head Office If all information is correct, the cardholders are permitted to select his transaction

Step 4: After the transactions is selected, the ATM will automatically complete it, and provide what he asks for

2+3

Step 5: Data of the completed transaction will be transferred from the ATM to the issuing bank After checking the data, the issuing bank will balance the payment (e.g: debiting the cardholder’s account and crediting the bank’s account when the transaction is to withdraw cash)

1.5 The development of ATM system in Vietnam

1.5.1 ATM card market

According to the Vietnam Bank card Association, Vietnam’s ATM market became blooming two years ago Currently, the ATM card market is growing very quickly both in terms of quantity and quality The leader is Vietcombank (VCB) with 1,200,000 cards, accounting for 55% of the ATM card market Next to VCB is Vietnam Bank for Agricultural and Rural Development (VBARD) or Agribank (12%), BIDV (7%), it has been offering the ATM card service nationwide and has obtained good results The industrial and Commercial Bank of Vietnam (ICB or Vietinbank) make up for 6%, Eastern Asia Bank (EAB) becomes a runner with 5% Vietnam Joint-Stock Commercial Bank for Private Enterprises only accounts for nearly 4%

and other banks 11% (See the figure 2.2)However, some analysts state that Vietnam’s ATM potential market of ATM cards has not been fully exploited;

it is a “big cake” How to “eat” the rest of this “cake” in the most effective way is the matter for all bankers, it requires them to have specific strategy,

offer more services, bring more benefits for customers, so forth

1.5.2 ATM network

In recent years, Vietnam banks have promoted their investment in information technology (IT) applications to offer modern banking services The ATM system is one of these services It has operated effectively, making a major contribution to modernizing the local banking industry Besides, the ATM has been considered a leap in banking payment and has become a popular product

cards so far and have installed to total of 1,107 ATMs nationwide (2005) Up

to now, there are 5625 ATMs nationwide (2008)

Back to the year 2000, “ATM” was still a strange word to the majority of customers in Vietnam There were only six ATMs throughout Vietnam-three from Australia and New Zealand banking group (ANZ), the rest from Hongkong and Shanghai Banking Corporation (HSBC)

Alongside with the increase in the number of ATMs, the building of a switch centre for ATM connection and end equipment of banks is ongoing Thus, no one can deny that the ATM service market is beginning to take flight, as ATMs become increasingly prevalent and widespread throughout the country

Chapter 2: Situation of Vietnam Joint-Stock Commercial Bank for

Private Enterprise’s ATM card services

2.1 Overview of Vietnam Joint-Stock Commercial Bank for Private Enterprises

VPBank stands for Vietnam Joint-Stock Commercial Bank for Private

Enterprises Website: www.vpbank.com.vn

Founded in 1993, VPBank is present the seventh largest joint-stock commercial bank in Vietnam by assets Its Headquarter is in Hanoi and has a network of 130 branches and sub-branches across Vietnam Its business is focused on SMEs and private consumers Its initial chatter capital when first established was 20 billion VND Subsequently, due to the growth demands, VPBank has increased its chatter capital multiple times At present, the charter capital of VPBank has grown to 750 billion VND

The year 2006 witnessed many breakthroughs, with a series of activities building a foundation for the renovation and growth of VPBank in the future In February 2006, VPBank officially moved to a new headquarters

at No 8 Le Thai To, Hoankiem District – one of the most beautiful locations

in Hanoi In March, VPBank signed a strategic cooperation agreement with

OCBC Bank, one of Singapore’s leading banks

2.1.1 VPBank’s Capital

Its assets reached VND 12 trillion (USD 750 million) in June 2006 In the first quarter of the year, VPBank was listed by the Navigos Group and AC Nielsen of the US as one of the two Vietnamese banks among the top 50 businesses in the country in term of working environment and personnel management It was regarded by the State Bank of Vietnam to be one of the banks among all commercial joint stock banks in the northern Vietnam

At the beginning of quarter 3 in 2007 the charter capital of VPBank will increases to 1,500 billion VND VPBank is privately held by Vietnamese individuals and companies Approximately 30% of VPBank’s staff is shareholders of the bank It currently has one foreign shareholder, Dragon Capital Holdings- a British fund management company with focus on the Vietnam market, with a 10% stake

Table 1: Balance sheet summary (31st Dec 2007)

With a good Balance sheet, it’s no doubt that VPBank business result is rather high in next year

2.1.2 Network

In the entire process of formation and growth, VPBank has always focused on boarding its scale and strengthening its operating network in large cities In its first two years of operation, VPBank’s network had only 53 branches and

transaction points, with 28 branches and 27 transaction offices In 2006 alone,

VPBank brought 20 new transaction points in top operation VPBank is operating in many provinces and large cities throughout the country Up to

now, VPBank has 128 branches and transaction points

2.1.3 Business performance

Table 2: Business results

Unit: billion VND

Source: VPBank Annual Report

Mr Le Dac Son, VPBank General Director, revealed that his bank reached the goals that are set in early 2008 By the end of September, VPBank’s total raised capital had risen by 60%, expected to be 90% by the year’s end The bank’s overdue debt is also controlled at 0.86% At the end of fiscal year

2006, VPbank achieved result in pre-tax profit of 157 billion VND, an increase of 81 billion VND compared to it of 2005 After setting aside risk reserves of 11.36 billion VND, pre-tax profit after risk reserves was 157 billion VND, surpassing the plan by 36% In 2007, the pre-tax profit rose twice compared to that of 2006, which is impressive result

2.2 Situation of Vietnam Joint-Stock Commercial Bank for Private Enterprise ATM’s card services

2.2.1 Situation of VPBank’s ATM card services

In early 2006, VPBank launched ATM - Autolink which are popular now There are thousands people using Autolink However it is not enough because market share of VPBank is too small compared to its of Vietcombank

or Agribank VPBank try to increase market share and develop its image by taking the advantages of technology and cooperating with payment Center

 VPBank has taken advantages of booming technology

VPBank has become the first EMV chip card issuer in Vietnam It has introduced its own-branded Platinum EMV MasterCard credit and debit cards for customers throughout the country The EMV chip cards are issued and acquired on the bank’s in house system –built on WAY 4 CMS and Switch solutions, which has exceptional flexibility and the latest technologies And a new technology such as EMV allows VPBank to provide the high security levels which platinum products need With a high level of flexibility in product configuration and management VPBank can actively adapt its wide product ranges to fit the specific needs of their customers

With a clear ATM strategy, VPBank can obtain many benefits from the huge potential market About 12 million out of millions Vietnamese people afford to use payment cards Until now, the number of people in Vietnamese people afford using cards from 15 banks has not reached 2.5 million So it can

be seen clearly that ATM market is really a “big cake” The matter for the Bank is how to “eat” the “cake” in the most effective way Besides international credit cards like Visa, MasterCard, there have been recently several kinds of debit cards and the number of the later has outnumbered the former There have been as many as 960,000 debit cards while the number of credit cards has totaled only 185,000 And 80% of Visa card payments are by tourists That means 90% of the ATM market in Vietnam still remains

untapped To exploit this potential market, the bank needs to promote their POS systems, especially at supermarkets, restaurants and big payment centers

 Co-operation with payment Centers

Cooperating with Paynet, VPBank can enhance their ATM card service; the consumers will be able to pay their bills by their ATM card at any Paynet agents Paynet is currently the pioneer in connecting service providers with banks to implement e-payment services throughout thousands of points of sale devices to bring convenience and simplicity in payment for customers Only April 3, Paynet signed e-payment service contracts with the four first banks, including ABBank, NaviBank, Techcombank and VPBank Moreover, paynet targets bills of post-paid mobile, fixed phones and internet phone calls as well

as electricity, water and insurance Clients will be able to pay their bills at PayNet agents, located throughout the country

2.2.2 ATM system and ATM card services in Vietnam

As above mentioned, the ATM card market and ATM system in Vietnam have developed rapidly over the past five years However, as this payment method is in the introductory phase, its services compares to those of the developed countries are not diversified and perfect enough That puts all Vietnam’s commercial banks who are moving forward to be the first ahead in the race to make the ATM card services more multi-purpose, more convenient

to customers Although VPBank’s numbers of ATM cards increase day by day the market share is still small only 4% and the ATMs accounts for 7%

Source: www.vpbank.com.vn

2.3 The benefits and limitations of VPBank’s ATM card services

2.3.1 The benefits of VPBank’s ATM card services

As the IT sector continues to develop and spread throughout various sectors of a modern-day society, many industries are adopting it as a new strategy in conducting business and this includes the banking industry as well

In the past, customers might have wasted precious time satisfying their banking needs by going to the bank However, nowadays they can easily make any bank services transaction by using ATM machines Recently, many banks have applied them to acquire more capital, squeeze out cost savings and

to enhance customers’ benefits and satisfaction Since their first introduction

to Vietnam over eight years ago, the ATM card services have promptly become part of everyday life for many The number of machines and cards are increasing, many local commercial banks have become runners in the race (from three banks the year 2000 to 18 ones in the middle year 2008), and people are using these services thousands of times each day Why has Vietnam’s ATM market begun booming? The reason is that many users realize using ATM card services not only gives them many benefits but also creates a chance for them to have more access to modern technologies in a new IT era Moreover, they believe that the future changes in self-service technologies (ATM machines) also allow them to use more familiar ATM card services in new ways that help them reshape the way they handle their money

 Convenience This is the clear advantage that all cardholders again:

 A straightforward procedure with a reasonable fee

Customers can sign up for this service simply by making a phone call and then asking VPBank’s merchants or employees to set it up, they won’t even have to go to a bank to fill out any form Customers are kindly requested to submit to VPBank’s employees card issuance documents such as: ID (identity document) card and to pay the fee for the card After 3-5 days, they will receive their cards at home or everywhere they ask for It is very convenient for all the users when time is gold because they do not have to spend much time to get a card

Furthermore, the issuing fee is at a reasonable price, VND 100,000/a card

The user only pays the initial fee for the registration procedure; there is no fee

to pay for next transactions In order to increase sales, VPBank markets its card by reducing the issuing fee by 50% even free for businesses Meanwhile,

it is signing up businesses to pay salaries directly into employee’s accounts at the bank VPBank also targets students as potential clients by free the issuing fee, even though they have a low income Because VPBank states that they will likely to continue using ATM card services after graduation What’s more, VPBank is willing to help students going away to study receive their money as safely and promptly as they do from their parents That is a reason why the majority of the population now has a chance to own ATM cards and the sales of VPBank’s ATM cards is sharply increasing

 Easy to conduct banking transactions Cardholders can just inset their cards to the machine’s card slots and do some simple actions, and then the machines will help them automatically complete their transactions Besides, as the entire machine have clear instructions to clients, they can easily to conduct their transactions by themselves instead of having someone instruct them It is a way of helping them keep their PIN secret

Furthermore, there are two languages (Vietnamese and English) installed in the machine’s software; therefore, foreigners (who have VPBank’s ATM cards) can use the machines professionally The disabled also have a chance

to access these machines because all the machines are located at an average height that is in their reach In short, VPBank’s ATMs meet some special demands of clients which some people think may be impossible

 “Go banking” anytime at customers’ convenience All VPBank’s card services are available 24 hours a day and 7 days a week,

365 days a years, so with an ATM card and PIN number – the cardholder can virtually set his own “braches hours” depositing and withdrawing money from

his account whenever he wishes at his bank His ATM card already gives him access to his money not only at all of his bank’s locations, but also in restaurants, supermarkets, airports, office buildings, commercial centers and street corners across cities and provinces in Vietnam Constantly, whenever a cardholder is at whatever time, he always has access to his account This is a big convenience for all consumers’ particularly for businessmen and tourists who often go traveling They can go for business or on holidays without carrying a huge amount of money The one thing they should do is to put an ATM card into their pocket before their trip VPBank has now the large ATM network with nearly 400 ATMs, so using VPBank’s card services, cardholders can easily find VPBank’s ATM compared to those of other banks

In 2010, VPBank is planning to increase the number of bank machines to 1,000 nationwide to better serve its clients This means that its network will

be widened and will ensure that VPBank’s cardholders can always go banking anytime at their convenience

 Responsiveness

Responsiveness is other important factor that ensures all cardholders can go banking promptly and easily All VPBank’s clients get this advantage because of the following reasons:

 All transactions are conducted automatically After sliding his ATM card through the card slot, and inputting the PIN code, the cardholder in minutes can deposit his cash; his withdraw cash, pay phone account and verify the balance in his saving account All these transactions are automatic For example, when someone deposits his cash, his saving amount is put directly into the machine, calculated by a register installed inside the ATM instead of by the staff and credited immediately to his account When a client withdraws money, the withdrawal cash is automatically deducted from their checking account Clearly, it is very