Tóm tắt risk management of card system operation in card centermilitary commercial joint stock bank

Tóm tắt risk management of card system operation in card centermilitary commercial joint stock bank Tóm tắt 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 Managament Code: 8340202.01QTD

SUMMARY OF THE THESIS

SUMMARY

Thesis title: RISK MANAGEMENT OF CARD SYSTEM OPERATION

IN CARD CENTER- MILITARY COMMERCIAL JOINT STOCK BANK

University：International school - Vietnam national university, Hanoi

Graduate School：Master in financial management

There are two main roles performed in this review; that is the mediating role and the regulatory role In which, the intermediary role represents the risk identification and risk management process of MB Card Center for the card system Meanwhile, the regulatory role is the influencing factor of the card system and the transaction process on the consumer's interest The factors in this study were examined through structured qualitative and quantitative methods

Research questions:

- 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?

The aim is to improve the system to make it more effective and efficient in dealing with risks involved in card system The effectiveness of the system will increase the confidence of card users in card transactions and systems As a result, customers will use the card system in a more confident way to maximize the benefits of the card system and help MB Card Center in the development of its card business The study results can provide advisory to the MB Bank and MB Card Center for improving their system in the future

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

1.1 Overview of card operation activities of commercial banks

According to Harper, Ian, Simes, Ric, and Malam (2006), credit card technology has been evolving since the 1960s People used to use checks or cash

to pay for their transactions before credit cards were introduced American Express, Visa, and MasterCard were the first to provide debit cards in the 1970s These cards are now nearly universally recognized When funds are not accessible in a checking account, credit cards can be utilized since they allow you

to borrow up-to-the-limit sums from your bank without having to wait for it to clear money in limited account days The credit card provider then assesses a fee for the card's use Credit cards can also be used to purchase items such as cars and vacations Credit cards are typically intended to provide credit rather than cash or payment in full, and they may offer a discount on items if you pay off your debt in full Credit cards can be obtained through banks and other financial organizations, as well as from third-party vendors such as travel agencies, restaurants, petrol stations, and department shops When you sign up for a credit card with a defined limit, they function similarly to checks by granting access to

an account that stores funds To use the card, a credit card number is required

The use of bank cards is on the rise It is difficult to offer an exact number

of bank cards in a nation, although it is believed that they are used by more than

90 percent of people in several European Union countries They may be used to make real-time payments, which has long been a fantasy of both customers and merchants Bank card transactions account for 60% of total transaction value globally, and their use is increasing as a result of decreased interchange costs for credit, debit, and prepaid cards under the SEPA program

According to Bojinov and Bojidar (2005), a bank card is a value identifier that is suitable to electronic payment systems The card data includes the name of the cardholder as well as the name of the bank that issued the card The card number is sometimes referred to as the AAD (Account Number) If it is used for credit transactions, the issuer's name is referred to as the CVV (Currency Value Verification Code) Most cards include a magnetic stripe with an integrated chip that can be read at a POS machine to ensure that no one other than the authorized user can use them, but this doesn't stop others from recording them

Truong et al (2020) study bank card construction and make the following observations: (1) The card's front carries the following information: the card's trademark, the name and logo of the card's issuing bank, and the card number; the cardholder's name is embossed (2) On the back of the card, there is a magnetic stripe with encrypted information such as the card number, expiration date, and other safety check criteria, as well as 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

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

Participants in the process of card issuance and payment include

International Card Organization (provides members with workshops, tutorials,

and support for those who want to learn how to make their own cards (Devlin et

al., 2007)), Card issuer (offer an array of benefits to suit your situation best (Sander et al., 1999)), Cardholder ( also known as the holder of the account, who

is responsible for all purchases made with that particular account), Card

payment organization (payment providers for debit cards, credit cards, gift card,

and other related products), Card Acceptance Units (card-shaped devices that

allow people to process the payment through the use of a smartcard payment system)

1.2 Risk management 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 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

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

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

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

Time Shareholder Share Holding %

Telecommunications Group (Viettel)

Investment Corporation

(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 1: 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 2: Member companies of MBBANK

(Sources: Annual report 2021, MBBank)

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

Income Statement 2017 2018 2019 2020

Net fee and

Operating profit before

provision for credit

Profit after tax for

shareholders of the

parent company

(Sources: 2020 Annual financial report, MBBank)

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

Balance Sheet 2017 2018 2019 2020

Cash on hand, gold, silver, gemstones 1,842 1,737 2,344 3,109

Balances with the State Bank of Vietnam 6,684 10,548 14,347 17,297

Balances with and loans to other credit

Derivatives and other financial assets 122 15 37

Loans, advances and finance leases to

Liabilities and owner's equity -

Amounts due to the Government and the

State Bank of Vietnam

Derivatives and other financial liabilities 6 -

Other borrowed funds 297 320 302 207

Valuable papers issued 6,022 11,158 26,289 50,924

(Sources: 2020 Annual financial report, MBBank)

The year 2003 marks the beginning of MB's involvement in the card business MB Card Center has been an official member of international payment organizations such as VISA, MasterCard, JCB, since its inception In order to provide clients with the most sophisticated, contemporary, and secure goods possible, MB Bank independently issued the MB MasterCard international credit

card with modern Chip technology and the greatest level of protection in June

2006 This event has helped MBBANK maintain its position as one of the top ten card banks in Vietnam's joint stock banking market

MB introduced the worldwide prepaid card MB MasterCard in March 2010, becoming one of the first banks to do so Individual or corporate clients may use the VIB MasterCard prepaid card to replace cash, effortlessly monitor personal spending, and pay for travel, study, and business excursions throughout the world with a high degree of security, safety, and flexibility in card payment After barely three months of operation, MB has issued 5,000 cards to meet consumers' payment and spending demands

Along with the increased number of cards, MB also expanded the card payment network with 515 ATMs in over 44 provinces and cities and 5000 POS machines (as of December 31, 2020) MB's card payment service is diversified with many industries: hotels, restaurants, commercial centers increasingly improved in quality to better serve customer needs Besides, MB also increased investment and improved the quality of card services with utilities such as e-Savings, Combo packages, and promoted cross-selling products to help the number of card issuance continuously increase in the past time

2.2 Risk situation and risk management for card operation at MB

The crime situation has continuously increased in recent times and has become increasingly sophisticated The data shows that the total number of card violations increased from 229 billion VND in 2018 to 260 billion VND in 2020 Although the situation increased in the whole banking industry, MB always controlled the situation, the ratio well The Fraudulent card compared to the whole industry continuously decreased and reached 4.2% in 2020 Compared to card usage, the value of fraudulent cards only accounts for a very small part of about 0.03%