Risk management of card system operation in card centermilitary commercial joint stock bank

VIETNAM NATIONAL UNIVERSITY, HANOI VNU INTERNATIONAL SCHOOL Nguyen Duy Quang RISK MANAGEMENT OF CARD SYSTEM OPERATION IN CARD CENTER MILITARY COMMERCIAL JOINT STOCK BANK MBBANK Major Financial Managam[.]

VIETNAM NATIONAL UNIVERSITY, HANOI

VNU INTERNATIONAL SCHOOL

Nguyen Duy Quang

RISK MANAGEMENT OF CARD SYSTEM OPERATION IN CARD CENTER- MILITARY COMMERCIAL JOINT STOCK BANK -MBBANK

Major: Financial Managament Code: 8340202.01QTD

MASTER IN FINANCIAL MANAGAMENT

HANOI, 2021

ABSTRACT

In the context of deeper and deeper integration into the global economy, in order to successfully achieve the goal of maintaining business operations in the direction of stability, sustainability and competitiveness in the market, most banks must pay attention to the risk management activities of the bank Bank cards bring many benefits such as reducing the habit of using cash, shortening payment transaction time, minimizing management costs and other inconveniences brought

by the cash economy Along with the benefits that a bank card brings, it is impossible not to mention the potential risks associated with this type of service The more the card service develops, the more modern the technology applied to the card, the higher the security and convenience of the card, is also the continuous development of card criminals, especially criminals international card, has created fake cards with new tricks that are extremely sophisticated and difficult to recognize Card risks can cause huge losses to the bank, affecting business performance Therefore, it is required that banks pay due attention to their card risk management activities

This study focuses on a specific case study of MB's card business and risk management The research results show that the card risk management activities of

MB bank have achieved good results in the period of 2018 - 2020 such as the low ratio of overdue debt/total credit card outstanding balance, the number of card issuance, However, card risk management activities still have some limitations Therefore, after carefully reviewing card risk management activities of MBBANK, the author proposes some solutions to improve the effectiveness of this activity with stakeholders

ACKNOWLEDGEMENT

I would like to thank the Board of Directors, the training department of the International Faculty, Hanoi National University for creating all conditions for me

in the process of studying and completing this thesis

I would like to express my gratitude to the teachers and ladies who have dedicatedly taught MFM1 master class

I would like to express my deep gratitude to my teacher, Dr Tran Tat Thanh

who wholeheartedly helped and guided me during the process of writing this thesis

I would like to thank all my friends, colleagues and family who have always supported, encouraged and created the best conditions for me to complete this thesis

Thank you!

Author

2 Statement of the problem 8

3 Research objective and tasks 9

4 Subjects and scope of the study 9

6.2 Methods of data collection and processing 10

7 Structure of the study 11

CHAPTER I: THEORETICAL BASIS ON CARD OPERATION AND CARD

1.1 Overview of card operation activities of commercial banks 12 1.1.1 The formation and development of the payment card 12 1.1.2 Concept, structural features and classification of bank cards 13 1.1.3 The role of card services in the economy 18 1.1.4 Participants in the process of card issuance and payment 19 1.1.5 Contents of card operation activities 22 1.1.6 Card management system 24 1.2 Risk in card operation 25 1.2.1 Risks in card operation 25 1.2.2 Risk management in card operation 27 1.3 Risk measurement in card operation 29

1.3.3 Card credit risk 30 1.3.3 Risk of card management system 30

CHAPTER II: REALITY OF RISK MANAGEMENT IN CARD OPERATION ACTIVITIES AT MILITARY COMMERCIAL JOINT 32

2.1 Overview of MB Bank and structure of MB card system operation 32 2.1.1 Overview of Military Commercial Joint Stock Bank 32 2.1.2 Organizational structure of card divisions at MB Bank 39 2.1.3 Results of MB's card operation in the period 2017 - 2020 43 2.2 Risk situation and risk management for card operation at MB 50 2.2.1 Card risk situation at MB 50 2.2.2 Situation of risk management in card operation at MB 53 2.2.3 Assessing the current status of card risk management at MB 56

CHAPTER III: SOLUTIONS TO COMPLETE RISK MANAGEMENT IN

3.1 Orientation and development goals of card services at MB Bank 60 3.1.1 Forecasting the risks of the card market in the coming time 60 3.1.2 Orientation and development goals of MB card services 62 3.2 Solutions to improve risk management in card operation at MB 64 3.2.1 Solutions within the bank 64 3.2.2 Customer-related solution group 67 3.3 Recommendations to relevant authority 68 3.3.1 Proposal to the State 68 3.3.2 Recommendations to the State Bank of Vietnam 68 3.3.3 Recommendations to Vietnam Bank Card Association 71

LIST OF TABLE AND FIGURES

Table 1: Major shareholders of MBbank at 31/12/2020 33

Table 2: Income statement of MBbank in period 2017 - 2020 35

Table 3: Balance sheet of MBbank in period 2017 - 2020 37

Table 4: Growth rate in card issuance of MB in period 2017 - 2020 44

Table 5: MB’s number of card issuance as of 31/12/2020 45

Table 6: Payment activities of MB’s Card 48

Table 7: Operation status of ATM system at MB in period 2018 - 2020 49

Table 8: Fraudulent card situation issued by MB Bank 50

Table 9: Risk ratio of several banks in Viet Nam 51

Table 10: Ratio of card overdue loan of MB in period 2018 - 2020 52

Figure 1: Growth in bank payment instruments 8

Figure 2: Physical features of a credit card 15

Figure 3: Structure of a bank card 16

Figure 4: Types of MB bank cards 17

Figure 5: Organizational structure of MBBank 34

Figure 6: Member companies of MBBANK 35

Figure 7: Percentage of MB’ Card 46

INTRODUCTION

1 Research motivation

Banking is one of the important parts of the economy, especially in the context of international economic integration and the development of science and technology 4.0 Together with other sectors of the economy, the bank is responsible for participating in stabilizing the money market, controlling and repelling inflation, helping to develop production, creating jobs for workers, helping people employment development help investors, develop capital market, foreign exchange market, participate in payment and support payment

Bank card is a modern means of payment widely used in daily transactions Its ubiquitous presence in advanced economies has proven it to be the mainstream cashless means of transaction Credit card officially appeared in Vietnam in 2002 and is still quite young compared to the history of card payment and development in the world We do not have much experience in card business development, especially in dealing with risks in the field of card business and card services The issue of limiting risks in card payments becomes even more important as we participate more and more strongly in the world economy with more open reforms

Currently, card business is recognized by joint stock commercial banks as a very important advantage in the race for technological advancement, contributing to bringing a new position and new look to commercial banks share

Along with the development of card services, in the past few years, card fraud

in Vietnam has tended to increase at an alarming rate Card criminals have begun to organize, collude with outsiders to carry out fraudulent acts to earn profits with increasingly sophisticated tricks, difficult to control This has pushed Vietnamese banks in general and military joint stock commercial banks in particular to face more risks in the entire card business process Forgery in card issuance and payment not only causes financial loss but also directly affects the reputation and efficiency

of the bank's card business

Therefore, the research to find synchronous, effective and feasible solutions

to prevent and limit risks in card business has become a hot issue in both theory and practice In parallel with the development of the credit card service business along with the development of the economy, the issue of risk management in the card service business becomes more urgent than ever for business credit cards in commercial banks of Vietnam

In recent times, there have been a number of articles, studies, research topics

on the card market in Vietnam, of which are typically by the authors Nguyen Vu Cuong (2019) "Card activities and some solutions to promote card payment at Joint Stock Commercial Bank for Foreign Trade of Vietnam", Master thesis in economics; Huynh Thi Minh Duyen (2018) “Developing card payment services at Agribank”, Master thesis in economics; …

Previously researched topics mainly researched on the payment card market,

on international business operations of Vietnamese commercial banks or on solutions to develop card payment forms… As the names of these banks suggest The above-mentioned dissertations and dissertations have shown that these studies have not fully analyzed and generalized about the risks arising in the process of using the card as well as the management of these risks to increase the risk of loss further strengthen the efficiency of card business activities at commercial banks

Joining the card business since 2004, MB Bank always focuses on product development, research and application of new technologies, improve service quality and card usage convenience for customers Mb's card issuance, payment and usage has always achieved high growth rates However, MB also faces risks in the process

of card business, the attack of international card crime organizations when they move to the Vietnamese market, bad debt status, card overdue debt credit causing losses to the bank, affecting the business performance and reputation of the Bank Therefore, MB Bank should pay due attention to risk management activities in its card business

To meet the above urgent requirement, the author has chosen the topic:

"RISK MANAGEMENT OF CARD SYSTEM OPERATION IN CARD

CENTER- MILITARY COMMERCIAL JOINT STOCK BANK "

2 Statement of the problem

In Vietnam, cash transactions still account for the majority of transactions; However, card transactions and the number of newly opened cards are constantly increasing According to the Payment Department - SBV (2021); the total number of domestic cards in circulation as of mid-2021 is 98 million cards while the total number of international cards in circulation is 20 million cards That is, on average, each Vietnamese person owns at least one transaction card at a bank This ratio is still relatively low when Vietnam has many commercial banks operating; Therefore, the potential for growth in the number of cards and the value of card transactions is still enormous

Figure 1: Growth in bank payment instruments

(Source: SBV)

The rapid development of infrastructure and technology has promoted banking services to become more complete The main problem in card system operation is card system risk management and developing useful innovation policies

e-to improve the efficiency of the bank card system The card system brings great benefits to both banks and consumers; However, this activity also contains risks and

financial institutions need to balance risks and benefits Therefore, this study was developed and evaluated the effectiveness of the MB Card Center in the process of managing, monitoring, evaluating and controlling the risks related to the card system

3 Research objective and tasks

Research objective

The results of this study aim to evaluate and develop the card system risk management process of MB Card Center Then, based on the analysis results, some recommendations will be made to help Military Bank and MB Card Center improve the effectiveness of card system risk management; thereby can attract and improve the efficiency of use and reputation for customers in the future

Third, Proposing some solutions to improve risk management for card activities at Military Commercial Joint Stock Bank

4 Subjects and scope of the study

4.1 Research subjects

Card risk management activities at Military Commercial Joint Stock Bank 4.2 Research scope

Content: Research on card risk management activities

Scope of space: Military Joint Stock Commercial Bank

Time range: period 2017-2020

5 Research questions

The main issues studied in this study are presented in an overview through research questions Research questions are formulated and developed according to a

basic process: identifying relevant factors and issues to be researched, building an in-depth analysis and evaluation framework, making development judgments suitable for research situations There are 3 main questions in this study:

- What is the status of system operation at MB Card Center?

- What are the potential risks of the card system and card transaction methods?

- What is the role and risk management process of the Card Center in the process for the card system?

6 Research method

6.1 Methodology

The thesis uses a synthesis of research methods, mainly dialectical and historical materialism methods Focusing on methods of systematization, analysis, synthesis, comparison and statistics to analyze and evaluate strengths and weaknesses in credit card risk management at Military Commercial Joint Stock Bank The thesis inherits reasonable factors of researched scientific works, conducts analysis, selects knowledge to realize the purpose and research tasks of the thesis

6.2 Methods of data collection and processing

Data collection: Secondary data is collected from annual reports, summaries

of credit card business activities of Military Commercial Joint Stock Bank in the period of 2017 - 2020 Summary of information Information and data related to research issues from reference books, journals, electronic newspapers, regulations related to card risk management of Military Commercial Joint Stock Bank

Data analysis: The information related to the research topic will be used the

following methods: Statistical method; Methods of analysis and comparison; Methods of synthesis, evaluation to draw conclusions and proposals to achieve the purpose of research on credit card risk management of Military Commercial Joint

Stock Bank

7 Structure of the study

This section describes the developmental structure of this study The content includes the list of chapters and the contents of the displayed chapters

In detail, there are three main chapters in this study:

CHAPTER I: THEORETICAL BASIS ON CARD OPERATION AND CARD OPERATION RISK MANAGEMENT ACTIVITIES

This section provides an overview of the research area and the important issues analyzed Specific factors include research overview, research scope and target analysis audience and significance of the study; and then finally give contributions and conclusions for the purpose of this study The basic contents of the object and the research content in a brief; and focus on the research problem Research methods are approached to be used in the most effective way to solve research problems

CHAPTER II: REALITY OF RISK MANAGEMENT IN CARD OPERATION ACTIVITIES AT MILITARY COMMERCIAL JOINT STOCK BANK

This chapter evaluates the results of analysis and research, the author will present some results and discuss the results in this chapter First, the author will confirm the results with the actual situation and implementation in the operational structure of MB Card Center After that, all research questions will be answered and some risk assessment is given during the operation of MB Card Center

CHAPTER III: SOLUTIONS TO COMPLETE RISK MANAGEMENT IN CARD OPERATION AT MB BANK

As a result of the research, some recommended or suggested actions for companies to perform better will be provided Main purpose of this chapter is to summarize all research processes, sum up what was archived by this research Besides, this chapter indicates main contributions of the study as well as points out some limitations that can be improved in future research

CHAPTER I: THEORETICAL BASIS ON CARD OPERATION AND CARD

OPERATION RISK MANAGEMENT ACTIVITIES

1.1 Overview of card operation activities of commercial banks

1.1.1 The formation and development of the payment card

According to Li, Yingying & Li, Ying, (2020), the payment card has become

an important part of our everyday lives From the first use of debit cards in the United States to the introduction of credit cards, these products have changed how

we spend money and transfer funds With all of this being said, it's hard to imagine just how much technological development has gone into creating these products

over time (1) The first credit card was created back in 1958 by Diners Club The

company used a pin system similar to what is still used today on many debit cards

today to create its product for consumers (2) The modern day signature credit card

was created by Frank McNamara in New York City, although he didn't know it at the time According to McNamara, he never realized that his dinner bill was paid for until it was too late, prompting him to want another way to pay for things that didn't involve cash This led him and some partners to create a company known as Diners'

Club that would help facilitate this idea (3) An early version of our modern day

debit card came from Bank of America in 1969 The company started off as BankAmericard before it eventually became the Visa we know and love today The first issue of this card had a $5,000 line of credit provided by First National Bank in California and the card itself didn't even include a signature feature, as it was

thought that most people knew how to write their name (4) In 1970, a company

known as Electronic Funds Transfer at the time created the PIN system that is used today on debit vehicles At first, these cards were only available to large companies

as a means of processing automatic payments In 1976, they were approved for retail

use and became widely popular in the banking arena (5) TD Banknorth was among

one of the first major banks to adopt electronic checking in 1997 At this time,

customers could make use of their debit card at many stores across the country and also make purchases by using their signature instead of a pin The bank didn't end

up adopting this new technology until five years later

Harper, Ian & Simes, Ric & Malam, Craig, (2006) shows that the development of credit card technology has been ongoing since the 1960s Before credit cards were invented, people used to use checks or cash in order to pay for their purchases The debit card was introduced in the 1970s through American Express, Visa and MasterCard These cards are now accepted almost everywhere Credit cards can be used when funds are not available in a checking account because they allow you to borrow up-to-the-limit amounts from your bank without having to wait for it to clear funds in restricted account days The credit card company then charges a fee for the use of the card Credit cards can also be used to make large purchases such as cars and vacations Credit cards are generally designed to provide credit and not cash or payment in full, and sometimes they will give you a discount

on the purchases if you pay off your balance in full

Credit cards can be purchased through banks and other financial institutions, and they can also be purchased from third parties such as travel agencies, restaurants, gas stations and department stores They work in much the same way that checks do by authorizing access to an account that holds funds when you sign up for a credit card with a specified limit A credit card number is needed in order to use the card

1.1.2 Concept, structural features and classification of bank cards

The use of bank cards is on the rise It is not easy to give an exact number of bank cards in a country, but it is estimated that they are used by more than 90% of adults in many European Union countries They can be used to make payments in real time, which has long been a dream for both consumers and merchants alike Bank card transactions represent 60% of total transaction value worldwide and their numbers continue to grow due to the lower interchange fees for credit, debit and

prepaid cards under the SEPA scheme This research will introduce the concept,

structural features and classification of bank cards

1.1.2.1 Bank card concept

Bojinov, Bojidar (2005) presents that a bank card is an identifier of value, applicable to electronic payment methods The card data provide the name of both the card holder and the bank which issues it The card number is also known as the AAD (Account Number) The issuer's name is called the CVV (Currency Value Verification Code) if it is used for credit transactions Most cards feature a magnetic stripe with embedded chip to be read at a point of sale machine that verifies that no one other than the authorised user can use them, but that doesn't prevent people from recording them

1.1.2.2 Features and structure of bank card

The bank card is a plastic card that you use to access your account, pay for items, and transfer funds Here are some of the features that come with your bank card:

- PIN Protection

- 24/7 Bank Customer Support

- Online Banking Features

- Lost & Stolen Card Replacement

- Cardholder Service Charges

Figure 2: Physical features of a credit card

(Sources: Ronan Mullan, 2013)

Truong et al (2020) discuss the structure of bank cards and make the

following observations: (1) The front of the card includes: Trademark of the card,

name and logo of the card issuing bank and card number, the cardholder's name is

embossed (2) The back of the card includes: A magnetic stripe containing

information that has been encrypted according to a uniform standard such as: card number, expiration date, other safety check factors and a signature box for the cardholder

The structure of bank cards is also different depending on whether they are credit or prepaid cards:

Credit cards: The card number and the CVV/AAD and expiry date are

present on the front Also the owner's name, address and telephone number are usually printed on the card The holder can activate a credit limit by phone to perform transactions online (Hu et al., 2019)

Prepaid cards: They don't have a number but usually have different logos,

brand name and logos such as Visa, Mastercard Other than that they mostly feature magnetic stripes or chips that can be used online to check balances, but not for making payments (Cheney et al., 2006)

The modern bank cards (credit and debit cards) can be used in real time and for more than one transaction at a time For instance, you can use the same card to purchase goods online and then, by pressing a button, top up funds from your account with a different transaction

Figure 3: Structure of a bank card

(Sources: Pawandeep, 2017) 1.1.2.3 Bank card classification

In today's digital economy, the use of bank cards is no doubt a thing Operating the technology-driven economy makes the flow faster and reduces costs for users The number of cards that a user opens depends on his or her intended use

A credit card is a card that allows you to "borrow money" from the Bank to

temporarily shop, when your bank account is not enough money to spend Your spending limit will be a certain limit according to the Bank's regulations Normally,

you must return the previously "temporarily borrowed" money by credit card to the Bank within about 45 days after that, otherwise your "temporary loan" money will begin to be charged interest according to regulations For about 45 days that's where that money doesn't earn any interest (Zinman, Jonathan, 2009)

A debit card allows you to withdraw cash from an ATM or use it at stores

where they accept Debit Cards for purchases You can also use your debit card to write checks The funds are taken straight from your bank account when you use your debit card A similar type of card, called a check card, has some of the security features of the debit card without the ability to write checks It's like a credit card, but it's tied directly to your checking account and you can only spend money that is available in that account (Zinman, Jonathan, 2009)

A pre - paid card is a credit card without a credit line That means you cannot

add money to the account when the balance gets low, so it's important to be diligent

in tracking your spending

A secured card is a card that requires a security deposit in order to open an

account The security deposit can be money or property You must pay off the total amount you have charged on the account before you can close it and get your deposit back This type of card works best for people with poor credit history who need to improve their credit rating without the risk of incurring large amounts of debt (Nassar, Nader & Miller, Grant, 2013)

Figure 4: Types of MB bank cards

(Sources: KeFinancer, 2020)

1.1.3 The role of card services in the economy

Bolt, Wilko & Chakravorti, Sujit, (2008) states that credit cards are becoming

an increasingly important part of the global economy, and there are many reasons for this Not only does their use help reduce cash-based transactions, but they also help to facilitate more efficient trade that can benefit all parties involved In this blog post, we explore how card services can be used to both boost monetary flows

in a country’s economy and provide increased convenience to consumers

The first benefit, brought up by The United Nations Conference on Trade and Development, is that credit cards can be used to boost monetary flows in a country’s economy This is because using them reduces the use of cash-based transactions, which are almost always less secure than those made with credit cards This allows more money to flow through the economy without being lost due to theft or misplacement

This has many profound implications for developing countries, as The United Nations Conference on Trade and Development points out: “As nearly one-third of transactions are still cash-based, this access to credit cards may have a large effect

on credit supply”

The second benefit provided by card services to consumers is that they provide increased convenience actions, which are almost always less secure than those made with credit cards This allows more money to flow through the economy without being lost due to theft or misplacement

Another benefit is that card payments help customers reduce cost and time needed for paying bills online This was highlighted in Credit Cards for the World’s Unbanked by the World Bank The report mentions that many people in developing countries do not have bank accounts, so they are unable to pay bills online However, because of the popularity of card payments, many businesses accept card payments as payment for bills This allows the unbanked to pay their bills using a convenient and secure method that may not require them to procure cash or visit a

bank (Carbo, Santiago & Scholnick, Barry & Massoud, Nadia & Saunders, Anthony

& Rodriguez-Fernandez, Francisco, 2008)

Debit cards are an easy way for consumers to pay for goods and services without having to carry cash The swiping of a card is easy and convenient as opposed to the tedious task of finding change or writing a check In addition, there are no transaction fees when making purchases with a debit card Debit cards provide an excellent way for parents to teach young people how to handle money responsibly, as well as instill good spending habits early on Prepaid cards can be used like a credit card or a debit card depending on how the user loads money onto the account Prepaid cards can be used in stores by swiping them at any register or entering PINs for ATM transactions

1.1.4 Participants in the process of card issuance and payment

1.1.4.1 International Card Organization

In a world where the Internet rules, the International Card Organization is a real gem What started as a small collective of card-making enthusiasts has grown to encompass groups from all over the world - all united by their love of letterpress printing and paper crafts The ICOC provides members with workshops, tutorials, and support for those who want to learn how to make their own cards (Devlin et al., 2007)

1.1.4.2 Card issuer

There are a number of different credit card providers which offer a variety of rewards for their customers One such provider is Santander, who has a number of cards on offer which require no annual fee, and some with excellent interest rates These cards will give you cash back bonuses, or can give you great rewards in the form of points which you can spend on goods and services They also have multiple offers for students looking to build up their credit rating, by giving them low limit

cards at first but increasing it as the customer pays off the debts Card issuers offer

an array of benefits to suit your situation best (Sander et al., 1999)

1.1.4.3 Cardholder

According to Wong, Norbert & Matthews, Claire, (2005), the word

“cardholder'' is a person who holds an account that is capable of executing any form

or type of financial transaction The term defines any individual that has access to the account, both authorized and unauthorized The term cardholder may also be used for an assignee who has been delegated to make certain transactions on behalf

of another individual

The primary cardholder is the person who has been issued a credit or debit card They are also known as the holder of the account, who is responsible for all purchases made with that particular account To make a purchase, one must first obtain permission from the primary cardholder If that doesn't happen, then it's deemed an unauthorized purchase and criminal charges can apply if applicable The other names for this individual are "the customer" and "the client"

Supplementary Cardholder is an individual authorized by the primary cardholder to use the Card and the primary cardholder undertakes in writing to fulfill all arising

obligations related to the card use in accordance with these terms and conditions

1.1.4.4 Card payment organization

Card payment organizations are payment providers for debit cards, credit cards, gift card, and other related products There are many different types of organizations which usually have their own set of fees that must be paid in order to proceed with the use of that organization's card Within each type are three different sizes that are referred to as the "small", "medium" and "large" levels where they fall

on a numeric scale For example, if you're looking for a Visa gift card provider then your options would be either Visa Gift Cards, Visa Small Gift Cards or Visa Large Gift Card depending on your needs (Verdier, Marianne, 2008)

Gift card holders are usually one of two types The first being private label cards which are usually issued by the merchant's company The second being the store branded card, these cards are usually issued without the permission of the merchant who in turn has no control over their continued use or fraud prevention Unfortunately there is also fraud in this area as merchants lose money if fraud goes undetected by various fraud prevention methods used in place

1.1.4.5 Card Acceptance Units

Card acceptance units (or cards), are card-shaped devices that allow people to process the payment through the use of a smartcard payment system These devices act almost like cash registers, but instead of giving change after transactions, they complete the process of storing money in an account for further use (Salman, Asma

& Munir, Nauman, 2015)

These devices usually work by detecting whether or not a card inserted into them is either visa or mastercard branded This information will then be used to calculate the amount of money available in an account, which can range from one dollar upwards

What makes these cards different from other methods is that they save on time and worries on both sides of the exchange with their unique electronic transactions The money put into these cards is usually from a bank account, or paid

to a seller from a credit card company

To make a withdrawal, these cards can be used in an ATM, which will provide the amount of money involved in the transaction This is also the point where they differ from debit card transactions – as they do not take funds directly from a bank account

The designer of the first accepted smartcard was Martin Hellman at Stanford University in 1975 In this patent, he proposed using cryptography to implement electronic purse functionality and methods for managing transfer of funds between

digital wallets In 1982 Blockstream was incorporated as a subsidiary of CRCA (Credit Card Review Association)

1.1.5 Contents of card operation activities

1.1.5.1 Card issuance

Cards are used to provide access in different places all over the world They are generally issued in accordance with the level of privileges granted by the issuing authority These include, for example, credit card, debit card or bank cards that can

be used when shopping at stores or withdrawing money from automatic teller machines (ATMs) When it comes to issuing cards all over the world there is no international set of principles that if followed would be alike in each country The issuer decides what kind of rights and privileges should be given on a case-by-case basis depending on its policies for this particular card operation

Rodrigo, G & Galdolage, Sandamali, (2021) presents that a typical method of issuing cards is by obtaining a simple application form to fill in, which may include giving information about the account holder including the name of the cardholder, his/her address and contact details Usually, a verification of this information may

be required by contacting any one of the account holders’ references Each country has its own set of rules regarding what kind of information to be included on the card

The second step would consist in verifying that other information provided by

an applicant is correct, for example bank accounts or rates to other types of accounts This would be done either manually or electronically using specialized software that can process large volumes of data quickly

1.1.5.2 Card payment and acceptance activities

A card payment is the purchase of a good or service by presenting a plastic card such as a credit card, debit card, or ATM card The magnetic stripe on the back

of the card contains data that tells the retailer how much money to charge from the

customer's bank account and hence provides authorization for completing the transaction It can also be thought of as an electronic funds transfer where there is

no actual exchange of physical currency This type of payment usually does not require direct contact with a financial institution to authorize each individual transaction Card payment is also used to refer to the transaction itself, where a payment card is used to make online purchases

An acceptance terminal may be an automated terminal for using electronic payments, including mobile payments These are widely used in supermarkets, shops and various other places Some examples of acceptance terminals are mobile point of sale devices (POS) or machine-to-machine interaction (M2M) Card payment or card acceptance terminals are responsible for processing credit card or debit card transactions on behalf of the retailer at the point-of-sale register, but can also accept cash payments Some examples of these include cash machine stations, kiosks that take Visa cards at convenience stores and automatic teller machines (ATM)

1.1.5.3 Other activities

There are the card operation activities that are performed in other activities

- The card counting activities in the gambling game

- In the promotion of events or increased participation in games, including betting on or betting on games, to increase the chance of success

- For instance when you want to make a donation to a worthy cause but you don't want to use your credit card for this purpose

- When you have made small bets and want to raise them without revealing your cards For example at the poker table where it is not allowed for players

to display their cards until they fold or bet all their chips

- You can also use cards to hide your identity For example to pay certain bills which you would otherwise have to write a check for, or to avoid paying unnecessary fees etc

1.1.6 Card management system

Technology has been applied in all areas of life and the banking industry has also undergone a lot of changes in the 4.0 era Technology has been applied in the bank's internal card processing activities The card management system is mainly built with the purpose to manage and maintain the card The card management system for issuing credit cards and bank debits is clearer and faster The external card transaction system is interacted with by the card management system by generating card information maintained and managed by the bank The main purpose of creating a card management system was to approach the demand for debit cards, credit cards and point-of-sale networks

Figure: Architecture of card management system

Source: Ko, Yang & Lee, 2017 According to Mohandes, (2010) A card management system is a must for modern banks If banks do not apply this system, it will be difficult to manage professionally The application of this system will help the bank save considerable time, thereby improving operational efficiency

According to Sharma and Shrestha (2020), Card management system is a decisive part in the development of a bank if the bank wants to focus on individual customers, especially the card business The card management system makes the operation from card issuance to post-issuance card management faster, thereby helping the bank to better manage card risk According to this study, commercial banks all use a separate system Some banks believe that the current features of the system are enough to meet the needs of banks, however, some banks Proposing need

to improve current technology, some comments such as: Reconciliation module plus card tracking system (delivery of cards) as well as integration with CBS for various card related reports, There should be some easy way for tracking the international agreement , The process can be more streamlined if cards from particular branch can

be delivered to other branches as well, Link card with internet banking and activate/deactivate/set pin by customer itself

1.2 Risk in card operation

1.2.1 Risks in card operation

1.2.1.1 The concept of risk in card operation

According to Ko, Seok-heon & Yang, Gil-mo & Lee, Jun-dong, (2017), card operations is a multifaceted field which requires the proper risk management There are always risks involved in any business or industry, and card operations are no different In order to mitigate the risks of card operation, it is important for operators

to understand what risks there are and how they can best be mitigated Fraud, chargebacks, social engineering attacks etc, are appropriate risks in card operation Fraud is a huge problem in the credit card industry As a result, a large portion of a credit card companies' revenues come from fraud-related charges either directly or indirectly

1.2.1.2 Classification of risks in card operation activities

The most common risk in card operation is based on the merchant's liability

to personal injuries due to malfunctioning door locks or other faulty equipment The second most common risk of any merchant is based on the lack of sufficient monetary protection for customers if they cannot make a purchase under circumstances such as damage due to natural disaster or theft Other types of risks include compromise vulnerabilities and structural failures, which are covered by different third-party insurance policies

One of the many risks involved in card operation activities is the threat of a credit card skimming Card skimming is an illegal technique that was prevalent in the 1990s and remains a prevalent, yet mostly unskilled, criminal activity A team of master criminals can create a small electronic device which attaches to a credit card's magnetic strip They then use it to "skim" information from legitimate customers who have their cards read electronically by terminals at ATMs, gas stations, or anywhere else you might find them being used for transactions

Some of the information that can be stolen include PIN numbers, account numbers, expiration dates, and the cardholder's name The device is also able to capture credit card numbers through the use of a camera to detect movements at a point-of-sale terminal After being captured by the skimmer, all details are sent over

an underground network for identification, once again making it difficult to trace the activity back to its perpetrators

The risks involved in losing your money are high because an unsuspecting victim will have no way to detect their money has been swiped or that it has been hijacked unless they turn back to their bank or retail establishment that evening after realizing they have not made a credit card purchase during their regular business hours

The risks involved in this type of crime are predominantly financial Most cases are made public by the victims themselves who have become victims of this type of crime Organizations issuing credit cards provide highly detailed information

about the risks involved for customers on their websites, or direct customers to contact them directly with questions about these types of activities However, customers are only warned once they have become victims of card skimming, which

is usually too late to be able to take any preventative measures against the crime

1.2.1.3 Risks in Card management system

According to Zhang, (2014) Some risks associated with the card risk management system include:

- The rapid development of financial technology often comes with safety and security issues, cyber security, and high-tech crime Customer data is very important, especially when it comes to personal finances

- Data is centralized in the card management system, when the number of cards that need to be issued is too much, it will lead to overload This issue is related

to technical risks

1.2.2 Risk management in card operation

1.2.2.1 The concept of risk management in card operation

Risk management is similar to risk management that focuses on quantifying the risks that an entity may face As it has been stated before, risk can be defined as

"the combination of uncertainties inherent in any event" The element of uncertainty

is given by the fact that there are no certain facts surrounding any particular problem

so many factors can affect outcomes The concept of risk management deals with the business' attempts to minimize but not eliminate this uncertainty by determining actions or actions based on probabilities so if they happen they are minimized The interconnectedness between companies can also be calculated by using quantitative methods (Butaru, et al., 2016)

1.2.2.2 Content and tasks of risk management in card operation

It has been useful for companies to routinely identify, measure, manage, monitor their risks which are otherwise known as "business risks" This enables them to have a clear understanding of their company's risk position enabling them to set appropriate strategies The International Association of Risk Professionals (IARP) defines Risk Management as "The process by which an entity identifies potential losses or opportunities with regards to ensuring its success Risk Management is the theory and practice of identifying, quantifying, evaluating and transferring risk to an entity"

In the card operation, there are many risk management tasks that come into play These include: balancing risks, trading risks with others, mitigating risks, and monitoring and controlling risk exposure When a risk management task is undertaken in card operations, it should be done in a way that meets guidelines set

by the institution's internal policy for one of these tasks to be considered a success

1.2.2.3 Risk management measures in card operation

To avoid losing money to fraud, credit card providers take a wide variety of security measures These include installing a chip and PIN technology for financial transactions, as well as making the purchase process more difficult by requiring longer periods for confirmation As a result of these risk management measures, consumers have experienced lower fraud rates and fewer number of complaints against their issuers

According to an article written by World Finance CFO, the following are some risk management measures that should be taken into consideration:

- Pre-authorization: When someone applies for an upcoming credit card transaction online or over the phone with their debit account information, it can take 1-3 business days before final approval This is because the issuer wants to make sure the customer is not committing fraud

- Address Verification: Before a card is shipped to a customer's address, the provider will check with a third-party company to confirm that it is valid and current, and that there isn't an account at their address which has been closed This helps issuers verify that identities aren't being stolen - Fraud monitoring: Most credit card issuers hire outside firms to monitor for fraudulent activity on their network This kind of security can help prevent large purchases from occurring without authorization

- Credit check: Though a credit card doesn't contain a lot of personal information, it can still be used to commit identity theft As a result, many issuers will check a customer's credit standing before approving a credit card

- Security codes: For extra security, some credit card companies require customers to enter both the CVV code and expiration date during online or phone purchases

1.3 Risk measurement in card operation

1.3.1 Risk of fraud

1.3.1.1 Value of Fraudulent Total value of Fraudulent

- Actual number of fraudulent/fake transactions

- The actual fraudulent/forgery value and the recovered fraudulent/forgery value

- Rate of fraud on card spending sales

1.3.1.2 Value of Fraudulent at MB / Card usage

Fraudulent use of MB/MC cards has a significant impact on the cardholder and the issuing bank, as well as retailers

The cost of fraud is disproportionally high for small businesses because their prices are typically higher than those in larger chains For example, a fraudulent customer might buy $100 worth of goods using an MB card and pay $105 If this transaction were to take place at a large retail store, it would be unlikely for the store

to notice or care about an extra $5 loss This same transaction at a smaller business may represent 10% or more of their total revenue for the day and 20% to 50% of their profit margin

1.3.3 Card credit risk

1.3.3.1 Overdue loan / total card loan

Credit cards have been a popular way of making purchases for some time now And with the convenience of credit cards come risks The first is that this debt accumulates, and if you don't repay it, could be considered overdraft or default on your loan agreements And if you do not repay this debt it will be reported to the credit bureaus and your creditworthiness could be affected Risk measurement is an integral part of any company's business practice And as financial institutions, or any company for that matter, they want to know as much as possible about the potential risks associated with their operations before taking them on Some businesses use statistical tools and analysis, and others use something called a stochastic model which reflects the random nature of their business operations and helps them forecast future monetary outcomes based on those random operations

1.3.3.2 Number of overdue customers/ total customer

A negative correlation exists between the cost of borrowing money and the percentage of overdue customers The higher the interest rate charged, the lower the percentage of overdue customers

1.3.3 Risk of card management system

The risks related to the card management system are measured by the value of damage due to technical problems

The most recent data released by the European Central Bank (ECB) shows that the average spread across Europe is at its lowest level since 2000 This could

imply that card issuers are now better estimate of credit losses due to technological systemic risk

Because card operations are continuous and online 24/7, any incident will directly affect the transaction, the accuracy of payment, the card accepting units as well as the customers customer interests The incident has a knock-on effect: when the system fails, it not only affects a single customer, a bank or a financial institution but also affects the card business of the entire international financial institution and customers participating in card activities Therefore, if the loss occurs, it will be very large and difficult to control, so ensuring the system to operate correctly and continuously is the top requirement for members when participating in card business

CHAPTER II: REALITY OF RISK MANAGEMENT IN CARD

OPERATION ACTIVITIES AT MILITARY COMMERCIAL JOINT

STOCK BANK 2.1 Overview of MB Bank and structure of MB card system operation

2.1.1 Overview of Military Commercial Joint Stock Bank

2.1.1.1 About Military Commercial Joint Stock Bank

Military Commercial Joint Stock Bank, abbreviated as Military Bank, abbreviated as MB, is a joint stock commercial bank of Vietnam, an enterprise directly under the Ministry of National Defense The bank's charter capital is 37,783 trillion dong In addition to banking services, Military Bank also engages in securities brokerage services, fund management, real estate trading, insurance, debt management and asset exploitation by holding controlling shares of the Bank several businesses in this field Currently, Military Bank has a nationwide network with over 120 branches and over 200 transaction points spread across 48 cities and provinces In addition, MBBank also has a representative office in the Russian Federation, branches in Laos and Cambodia

Some memorable milestones of MB Bank

- Military Commercial Joint Stock Bank was established on November 4, 1994 with the goal of supporting military businesses to do business with an initial capital of less than 20 billion VND

- After 3 years of establishment, became the only bank to be profitable during the Asian Financial Crisis in 1997

- In the period from 1994 to 2002, MB has marked its maturity:

+ 1997: Became a member of the interbank foreign currency market + 1999: Established the Department of Capital and Currency Trading + Year 2000: Established Thang Long Securities Company - predecessor

of today's MBS

+ 2002: Established Debt Management & Asset Exploitation Company (MB AMC)

- 2004: Be the first bank to auction shares with a total value of 20 billion

- 2005: Signed a tripartite agreement with Vietcombank and Viettel Military Telecom on payment of Viettel charges via ATMs

- On November 1, 2011 the first transaction on HOSE with the reference price

of 13,800 dong

- 2019, marks the transformation of MB military bank with a changed logo appearance The new logo has an image of a red star crossed over each other, showing a close association and creating trust with all partners, always shining The symbols are lined up with stars like footsteps, which represent steady, confident strides forward

Table 1: Major shareholders of MBbank at 31/12/2020

12/31/2020

Vietnam Military Telecommunications Group (Viettel)

392,051,190 14.01

State Capital Investment

Corporation

261,367,460 9.34

Vietnam Helicopter Corporation 227,187,383 8.12 Saigon Newport

Company Limited 199,963,595 7.14

(Sources: Annual report, MBBank)

The MBBank's organizational structure is gradually being improved to operate more efficiently Accordingly, under the direction and direction of activities

of the Board of Directors and direct management of the General Director, the whole bank is divided into 20 Divisions and functional departments In which, there are four main business blocks, namely Large Customer Division, Small and Medium Enterprise Customer Division, Individual Customer Division and Funding and Currency Trading Division with respective functions and tasks of business development customers are large corporations, small and medium enterprises, individual customers and investment activities, profiting from capital

In addition, supporting business development activities are professional divisions and departments including: Digital Banking Division, Information Technology Division, Appraisal Division, Credit Approval Center, Accounting and Finance Division, etc

Figure 5: Organizational structure of MBBank

(Sources: Annual report 2021, MBBank)

Besides the main activity is banking MBBANK also work in other segments include insurance, valuation, securities, microcredit, with 6 brands including

MCredit, MBAMC, MBcapital, MBsecurities, Mic and Mbageas

Figure 6: Member companies of MBBANK

(Sources: Annual report 2021, MBBank)

2.1.1.2 MB business results from 2017 - 2020

Table 2: Income statement of MBbank in period 2017 - 2020

Net interest income 11,219 14,583 18,000 20,278 Net fee and commission

income 1,131 2,561 3,186 3,576 Net gain/(loss) from

trading foreign

currencies and gold

202 445 647 786

Net gain/(loss) from

provision for credit

losses

7,868 10,803 14,927 16,807

Provisions for credit

losses 3,252 3,035 4,891 6,118 Profit before tax 4,616 7,767 10,036 10,688 Net profit after tax 3,490 6,190 8,069 8,606 Profit after tax for

shareholders of the

parent company

3,461 6,113 7,823 8,263

Earnings per share 1,953 2,829 3,596 2,993

(Sources: 2020 Annual financial report, MBBank)

Table 3: Balance sheet of MBbank in period 2017 - 2020