improving payment card service on point of sale (pos) in bank for investment and development of viet nam

Objectives of payment card service on POS Payment card service on POS analysis Interview with customers, manager, cashiers at merchant Questionnaires Expectations of merchants and custom

First of all, I would like to thank all of the professors from NationalEconomics University (NEU) Thanks to Program Directors, Coordinators of theprogram and Teachers who did try their best to provide us valuable knowledgeduring the MBA course

Through all subjects in this course, I gained and widened a lot of knowledge ingeneral, market economy and business management in particularly They are veryuseful for my current work and my future career, especially about economicfoundation

I also would like to express special thanks to my thesis supervisors,Associate Professor, Dr Tran Tho Dat, who provided me with valuable advises,guidance during the time I have done the thesis

I am grateful to my colleges, supervisors and managers of Bank forInvestment and Development of Viet Nam for their valuable supports and providing

me data during the preparation of this Thesis Thanks to all people whom kindenough to grant me an interview or enthusiastically provide me their feedbacks in

my surveys

TABLE OF CONTENTS

ACKNOWLEGEMENT 1

TABLE OF CONTENTS 2

ABBREVIATIONS 6

LIST OF TABLES 7

LIST OF FIGURES 8

EXECUTIVE SUMMARY 9

CHAPTER 1: INTRODUCTION 11

1.1 Rationale 11

1.2 Research objectives 12

1.3 Research questions 12

1.4 Research methodology 12

1.4.1 Research process 12

1.4.2 Data collection method 13

1.4.3 Analyzing data 14

1.5 Research scope 15

1.6 Research structure 15

CHAPTER 2: THEORETICAL BACKGROUND ON CARD AND PAYMENT CARD ON POS 16

2.1 History and development of ATM card and payment card on POS 16

2.1.1 History and development of debit card 16

2.1.2 History and development of credit card 16

2.1.3 History and development of ATM and POS systems 17

2.2 Definition, classification, feature and transaction processing 18

2.2.1 Definitions 18

2.2.2 Classification type of transactions on POS 19

2.2.3 Feature and transaction processing 20

2.3 Member taking part in payment card on POS 20

2.4 Payment card on POS general framework 21

2.5 Role and benefit of cards and payment card on POS 22

2.5.1 Benefit of card and payment card to the economy 22

2.5.2 Benefit of cards and payment card on POS to customers 23

2.5.3 Benefit of cards and payment card on POS to merchants 23

2.6 Factors affecting to payment card service on POS 24

2.6.1 Habit of using cash in the economy 24

2.6.2 The guidelines and policies government for payment card service on POS 25

2.6.3 The development of science technology 25

2.6.4 The infrastructures for using payment card 26

2.7 Rules for a good payment card service on POS 26

2.7.1 Security service 26

2.7.2 Convenient service 27

2.7.3 Speed processing: 27

2.8 Activities of Payment card service on POS 27

CHAPTER 3: CURRENT SITUATION OF PAYMENT CARD SERVICE ON POS IN BANK FOR INVESTMENT AND DEVELOPMENT OF VIETNAM 30

3.1 Introduction of BIDV 30

3.1.1 General information of BIDV 30

3.1.2 Fields of operation 30

3.1.3 Human Resources and Network: 30

3.1.4 Customers: 31

3.1.5 Technology: 31

3.1.6 Commitment: 32

3.1.7 Business reputation of BIDV: 32

3.2 Overview of card service in BIDV 33

3.3 Current situation of payment card service on POS in BIDV 36

3.3.1 Type of card accepted at BIDV POS 36

3.3.2 Function 36

3.3.3 Type of fee and ratio fee 36

3.3.4 Criterion to become BIDV merchant 37

3.3.5 Process to establish a merchant 39

3.3.6 Process of payment card 40

3.4 Evaluation of current BIDV POS services 43

3.4.1 Evaluation of transactions on BIDV POS 44

3.4.2 Evaluation of BIDV POS terminal 46

3.4.3 Evaluation of BIDV merchants 48

3.4.4 Evaluation of solving problem 50

3.4.5 Evaluation of customer’s satisfactions 51

3.4.6 Evaluation of revenue and fee on POS 52

3.4.7 Evaluation percentage of mean of payments 54

3.4.8 Number of Merchants 55

3.5 Gap between current POS services and required services .56

3.5.1 Transaction 56

3.5.2 Terminal 56

3.5.3 Merchant 57

3.5.4 Solving problem 57

3.5.5 Customer’s satisfaction 57

3.6 Limitations and reasons 58

3.6.1 Limitation 58

3.6.2 Reasons 59

3.6.2.1 Objective Reasons 59

3.6.2.2 Subjective Reasons 59

CHAPTER 4: SOLUTIONS TO IMPROVE PAYMENT CARD SERVICE ON POS IN BIDV 60

4.1 Solutions for marketing of card and payment card 60

4.1.1 Promoting advertisement of card and payment card 60

4.1.2 Identifying market segment and targets 61

4.1.3 Build brand name of BIDV 62

4.2 Solution for expanding and developing merchant network 62

4.2.1 Make merchants aware of benefit and utility of payment card 59

4.2.2 Having a suitable promotion and customer care program 63

4.3 Increasing investment for technical equipment and system for payment 64

4.3.1 Investing and developing technology on POS services 64

4.3.2 Updating system in accordance with international card organization’ rule

64

4.4 Pay attention to develop human resource 64

4.4.1 Reorganize Card department at branch more suitable 64

4.4.2 Developing human resources for card services 65

4.5 Enhance utility of card and POS services 65

4.5.1 Enhance research activities and develop card product 65

4.5.2 Connect between other banks and financial organization 66

4.6 Solutions for preventing and manager risk on payment card 66

4.6.1 Enhance risk management activities and prevent risk 66

4.6.2 Make a choice reputable merchant 68

4.6.3 Limit the risk of payment card service on POS 68

CONCLUSION 70

LIST OF REFERENCES 71

APPENDICES……… 72

ATM: Automatic Teller Machine

BIDV: Bank for Investment and Development of Vietnam

EDC: Electronic data capture

HR: Human resource

MOTO: Mail order/ Telephone Order

POS: Point of Sale

PIN: Personal identification number

VCB: Joint stock commercial bank for foreign trade of Viet Nam

LIST OF TABLES

Table 1.1: Data collection method 14

Table 3.1: Number of POS in the Market in Viet Nam 34

Table 3.2: Requirement of minimum revenue 38Table 3.3: Message code from POS terminal 43

Table 3.4: Profile of respondent 44

Table 3.5: Evaluation of transactions on BIDV POS 45

Table 3.6: Evaluation of BIDV POS Terminal 47

Table 3.7: Evaluation of BIDV Merchants 49

Table 3.8: Evaluation of solving problem 50

Table 3.9: Evaluation Customer’s satisfactions 52

Table 3.10: Revenues and fee divide by transaction types 53

Table 3.11: Revenues divide by card type 54

Table 3.12: Percentage of mean of payments 54

Table 3.13: Gap between current services and requires 57

LIST OF FIGURES

Chart 1: The process of study of thesis 13

Chart 2: Members taking part in payment card on pos 21

Chart 3: Payment card general framework 22

Finger 3.1: Evaluation of transactions on BIDV POS 45

Finger 3.2: Errors code reply from system 46

Finger 3.3: Number of POS terminal of some banks 47

Finger 3.4: Evaluation of BIDV POS Terminal 48

Finger 3.5: Numbers of merchants divide by Business fields 48

Finger 3.6: Evaluation of BIDV Merchants 50

Finger 3.7: Evaluation of solving problem 51

Finger 3.8: Evaluation of customer’s satisfy 52

Finger 3.9: Revenues and fee divide by transaction types 53

Finger 3.10: Revenues divide by card type 54

Finger 3.11: Percentage of mean of payment 55

Finger 3.12: Number of Merchants 55

Finger 3.13: Gap between services and requires 58

EXECUTIVE SUMMARY

The payment goods and services by card on POS is a convenient andadvance mean of payment and bring banks a lot of benefit from this service as well.Understanding the advantage of the mean of payment, BIDV has invested anddeveloped this service since 2007 However, with the limited technology systemand lack of experiences, the development of this service in BIDV is much less thanother banks More and more banks have concentrated on developing card servicesincluding POS services and merchant network On the other hand, retail bankingservice including card services play an important role in banking activities It is one

of a channel bring a lot of benefit to the banks and make a close image of the bankwith customers For purpose of having a greater understanding of this issue, thethesis is designed to answer following questions: Firstly, what are expectations ofmerchants and customers of using card and card services? Secondly, what is currentsituation of payment card service on POS in BIDV? Thirdly, is there any gapbetween the current situation of payment card service on POS and the expectations

of merchants and customers? Fourthly, which solutions considered consistent toexpand merchant network in BIDV basing on the current conditions of the bank?Finally, which solutions should be taken to improve payment card service on POS

in BIDV?

Base on literature foundation of card, payment card on POS, model ofpayment card, the author would like to have a deeply understanding about thisservices, analysis and synthesis primary data and secondary data to give out result,limitation since then find out reasons Primary data collected by in depth interviewsand questionnaire survey Secondary data collected mostly from the bank policies,regulations and reports

I made surveys with 50 customers who have either BIDV card or the card ofother banks and have ever made payment on BIDV POS to get their expectationswhen they make payment by card on POS and get their point of views about BIDVPOS service I also made surveys with 30 BIDV merchants (include both managersand cashiers) to get their expectations when they use BIDV POS services and get

their feedbacks of quality of BIDV POS services The content of survey includeboth questionnaire and evaluate by rate from 1 to 5 in which 1 is lowest and 5 arehighest I analyzed data by excel application software Moreover, I in deptinterviewed with 5 business customers and 5 managers at merchants to understanddeeply about their needs The survey revealed some key finding as following:

BIDV payment card service on POS is not good enough in comparison withcustomer’s expectation Ratio of error transactions are still high and processing time

is still slow BIDV POS terminal accepts not many types of cards It is one of abarrier to approach potential merchants

Merchant networks have not been covered in the country yet They arelocated almost in big cities There are few merchants which are located in ruralareas

Procedures to establish a merchant is still slow and complicated BIDV hasconcentrated on customer care programs However, it has not got a big result asexpectations Some merchant still surcharge cardholder when they make payment

by card

Majority of customers prefer paying cash to card because of their habits.Most of people often uses mean of payment by card are businesses or the peoplewho have a high income or go abroad frequently They find the convenience of themean of payment

Both cardholders and merchants would like to accept any types of card ofdifferent banks at POS terminal Transactions are processed speed and exact

CHAPTER 1 INTRODUCTION

1.1 Rationale

Payment card on POS is very popular in many countries in the world Buyinggoods and services by card on POS has many advantages and brings customersconvenience and safety However, it has not been a habit of Vietnamese people, yet.One of reason why is that majority of Vietnamese often buy goods and services bycash Minority of Vietnamese use card as a means of payment (only the people whohave high income, often travel abroad or young generation) Moreover, theinfrastructure to support the payment cards on POS is still limited by thetechnologies, quantities of merchants, etc… However, Viet Nam is a developingcountry but we have joined the world trade organization and gradually integratedand caught up with other countries So, the payment card on POS might change andbecome more popular and necessary to Vietnamese people if it has more supportfrom the government, other financial organizations, banks and means of media, etc

In some recent years, several banks in Vietnam have concentrated ondeveloping card services and payment cards on POS Bank for Investment andDevelopment of Viet Nam (BIDV) is one of the banks which pay attention todeveloping card services and payment card service on POS However, its quantitiesand qualities of payment card service on POS in comparison with other banks areless advanced Types of card excepted at merchants are limited Ratios of failtransactions and fraud transactions are still high Some commercial banks invest incard services later than BIDV However, they have invested better moderntechnologies and taken experiences from previous banks Therefore, they haveprovided better card services, even better than BIDV or VCB which is considered to

be the leading banks in Viet Nam Thus, developing and improving the paymentcard service on POS to catch up with the development of the world, to meet theneeds of markets and customers are an important tasks for Vietnamese banks ingeneral and BIDV in particular I, myself, have worked in BIDV Card center forover 2 years With the hope of performing a research relating to the payment card

service on POS in BIDV, I decide to follow this research topic “Improving paymentcard service on Point of Sale (POS) in Bank for Investment and Development ofViet Nam”.

 Analyzing current payment card services on POS in BIDV

 Giving out solutions and suggestions to improve payment card service onPOS in BIDV

1.3 Research questions

Related to this thesis, I will concentrate on answering some following questions:

 What are expectations of merchants and customers of using card and cardservices?

 What is current situation of payment card service on POS in BIDV?

 Is there any gap between the current situation of payment card service onPOS and the expectations of merchants and customers?

 Which solutions are considered consistent to expand merchant network inBIDV basing on the current conditions of the bank?

 Which solutions should be taken to improve payment card service on POS inBIDV?

1.4 Research methodology

1.4.1 Research process

The process of study of this thesis could be summed up in following chart:

CHART 1: THE PROCESS OF STUDY OF THESIS

Source: Author’s idea

1.4.2 Data collection method

Secondary data: Secondary data collected via internal source of BIDV.

They were collected mainly base on BIDV’s report, regulations and officialdocuments of BIDV, internet and newspapers within 4 years from 2007 to 2010 andused as the data for a desk research Secondary data is use to analyze the currentsituation of payment card service on POS in BIDV

Primary data: Qualitative and quantitative methods were collected to get

the information Qualitative data is collected through in-depth interview with veryimportant person (VIP) and managers This data helps researcher to understandclearly about their needs and expectations when they make payment by card

Objectives of payment card service on POS

Payment card service on POS

analysis

Interview with

customers, manager, cashiers

at merchant

Questionnaires

Expectations

of merchants and customers for payment card

Current situation

Of Payment card service

on POS in BIDV GAPS

Solutions

Moreover, the researcher would like to know about their point of view when theyuse BIDV payment card service, find out their expectations.

While quantitative data is collected through customer survey through Email,telephone and meet in person

I brief the method as follows:

Table 1.1: Data collection method

Manager at

 Exploring their viewwhen they use BIDVpayment card service,

expectations

Survey

Customers whohave ever made

of view, finding outweakness, strong,advantages,

disadvantages of BIDVpayment card services

Managers of

merchant whoswipe card inperson

 Scope of the research: Payment card service on point of sale (POS) atBIDV merchant which is located in the north of Viet Nam.

 Time period is chosen from 2007 – 2010

1.6 Research structure

Chapter one: Introduction

Chapter two: Theoretical background on card and payment card on POSChapter three: Current situation of payment card service on POS in BIDVChapter four: Solutions to improve payment card service on POS in BIDV

CHAPTER 2 THEORETICAL BACKGROUND

ON CARD AND PAYMENT CARD ON POS

In this chapter, the author presents key concepts and relevant theoryregarding card and payment card on POS All theories are quoted from MasterCardinternational organization and Visa international organization

2.1 History and development of ATM card and payment card on POS

2.1.1 History and development of debit card

Debit cards are a new method to transact cash between a buyer and a seller ofgoods or services They replace the interest-bearing debt created by using creditcards and restrict the user to the actual amount of money contained in his account.When the card is used like an ATM card, or for online purchases, some banks andcredit unions charge fees

The First National Bank of Seattle issued the first debit card to businessexecutives with large savings accounts in 1978 These cards acted like a checksignature or a guarantee card, where the bank promised the funds would cover thetransaction without the customer needing a check to complete the transaction Thebank only issued debit cards to those customers who had a long history with thebank and were in good standing, because like a check, the funds were notimmediately removed from the account In 1984, Landmark implemented the firstnationwide debiting system, built on the credit card infrastructure and ATMnetworks already in place By 1998, debit cards outnumbered check usage aroundthe world Its preference over checks continues to grow every year

2.1.2 History and development of credit card

The credit card boom began in earnest in the 1960s, when bank-issued cardsfrom MasterCard and Visa became popular By harnessing the electronic transactionability of large banks, MasterCard and Visa eclipsed the previously dominateDiners Club, a company which processed transactions independently More access

to processing systems mean that consumers could use cards at more retailers andrestaurants; the more establishments that accepted credit cards, the more popularthey became.

In the 1980s, American Express, which was originally marketed tobusinesspeople, and Discover became market forces Consumers could now choosebetween bank- and store-issued cards, as well as independent credit card companieslike American Express and Discover

China, India and South Korea provide the biggest opportunities for creditcard growth As emerging economies, the capitalist public policies of thesecountries and increased tourism mean credit card companies are gaining customersoverseas Although growth is predicted to be somewhat slower in Latin Americaand Eastern Europe, credit cards continue to penetrate these regions as well Simply,the more formerly socialist and communist countries turn to capitalist-basedeconomic systems, the more opportunity for credit card industry growth worldwide

In a 2008 U.S Department of Commerce Report, Scott Schmith wrote thatgrowth in exports and the larger economy equates with growth for the credit cardand electronic payment industry Therefore, as the global recession subsides, creditcard industry growth is expected Yet the timing of that growth is debated Thebanking consultancy Tower Group predicts that moderate growth in the credit cardindustry will not begin until 2011 This is due to the potential for strictergovernment regulation of credit cards, as well as trends toward debit card spendingand high credit delinquency rates, Tower Group says

2.1.3 History and development of ATM and POS systems

Barclays Bank in the United Kingdom developed and installed the firstautomatic teller machine (ATM) in 1967 However, it did not resemble the one astoday Customers weren’t given a plastic card instead they received paper vouchersthat had a value of 10 The customer would insert the voucher into the machine inexchange for a 10 pound note

In 1969, Chemical Bank of New York installed the first modern ATM at itsRockville Center office in Long Island Although the first ATM card – acceptingATM came about in 1969, the first ATM card didn’t come about until 1972 In theyear between 1969 through 1972, customer had to have credit card to utilize anATM City National Bank of Cleveland issued the first ATM cards that allowedcustomer to debit money directly from customer’s bank account Customer couldonly withdraw money from ATMs with these cards Customer could not use them tomake purchases.

The term “ATM card” and “debit card” are largely interchangeable Thereason customer could not make a purchase with their City National Bank debit cardwasn’t that the card wouldn’t allow it The point of sale (POS), technology andinfrastructure had yet to be developed In 1976, grocery chains in Massachusetts,Angelo’s and Starmarket, installed the first known POS system Large chain gasstation began testing POS systems in the early 1980s

2.2 Definition, classification, feature and transaction processing

POS/EDC (Point of Sale/Electronic Data Capture) means the card acceptance

device provided to the Merchant by acquirer bank to perform transactions

Payment by card on POS is a service which is provided by merchant and banks for

cardholder It allows cardholders to make payment of goods and services throughPOS terminal at merchants

Card means a mean of payment issued by the Issuing Bank to the Cardholder Credit cards are plastic cards that allow users to get a cash advance or buy items

on credit Credit is borrowed money that must be paid back within a certain time

frame Credit users are typically charged interest on the borrowed money if themoney is not paid back in full within that time.

Debit card is a plastic card, often issued by a bank that can be used to purchase

items; the money is deducted instantly from the balance of the account connected tothe card Using a debit card is similar to spending cash

Authorization Response Code means the code provided by the Issuing Bank to indicate

its approval of the transaction and is printed or written on the transaction receipt

Transaction means POS/EDC transaction to pay for goods/services or to withdraw cash Card-not-present Transaction means a transaction made without the Cardholder

and the Card being present

Card Present Transaction means a Transaction in which the Cardholder and the

Card are both physically present

Transaction receipt means the document evidencing card transactions by the

cardholder;

PIN (personal identification number) issued to the cardholder and issued to

withdraw cash or obtain the other services at ATM (automatic teller machine)

2.2.2 Classification type of transactions on POS

Sale transaction is performed when cardholders have demand to make payment by card Cash transaction is performed when cardholder would like to take cash at

merchants

Balance Transfer transaction allows cardholder transfers money in their account

to other account on POS

Balance Inquiry transaction is performed when cardholders would like to know their balance in their account.

Void transaction is performed when cardholders would like to cancel their

previous transaction Condition to be performed is that the transactions have notbeen settled

Adjust transaction is performed when cardholders would like to increase or

decrease amount of transactions

Refund transaction is performed when cardholders or merchants would like to

cancel transactions without voiding transactions

Card verify transaction and Offline transaction are performed to be booked

goods and services in advance Normally, it is useful for hotel services

Change pin transaction - cardholders would like to change pin

Settle transaction is performed to load all transactions that were performed before.

The purpose is to be paid for merchant by acquirers

2.2.3 Feature and transaction processing

POS machines feature a thin slot through which customers slide the magneticstrip of their debit or credit cards Magnetic strips contain account informationwhich the machine reads and transmits through a telephone connection to thefinancial institution that issued the card Retailers type the amount of the transactioninto the machine and the customer's bank approves or denies the transaction MostPOS machines have keypads on which cardholders enter their personalidentification numbers (PIN) POS terminals also print transaction receipts thatrequire customer signatures when PINs are not used Here under is transactionprocessing in details:

(1) Cardholder requests to make payment by card

(2) Cashier checks information on card and swipe or insert card through POSterminal, key in the amount the transaction is for

(3) The terminal then sends detail transaction to acquirer which checks card torequest authorization and processing

(4) Message is continue sent to Card organization for checking In this case, issuerand acquirer are the same Message will be sent back to merchant Transaction

is approved or declined

(5) If issuer and acquirer are different, message is sent to issuer for checking card(card limit, card status, balance…) and request authorization

(6) Message is sent back to Card organization for processing

(7) Message is sent back to acquirer for processing

(8) Message will be sent back to merchant Transaction is approved or declined

2.3 Member taking part in payment card on POS

There are following some parties who take part in a transaction on POS

CHART 2: MEMBERS TAKING PART IN PAYMENT CARD ON POS

Source: Visa international organization

Cardholder: The holder of card who uses it to pay for goods and services.

Issuer: An entity, typically a financial institution, which maintains a direct

relationship with the cardholder, and is responsible for identification andauthorization procedures in each transaction, as well as for setting correspondingcredit limits and interest rates, charging the cardholder and receiving the relevantpayment, and defining, if any the reward program

Acquirer: An entity, usually a bank or an entity controlled by a bank, which is

responsible for the relationship with merchants participating in the payment card

Merchant: Business and services provider that accepts payments by mean of card Card Organization: Mean Visa or Master card or any organization whose

members are the financial institutions that issue cards and or sign merchants toaccept these cards

2.4 Payment card on POS general framework

CHART 3: PAYMENT CARD GENERAL FRAMEWORK

Source: Report on Brazilian card industry

2.5 Role and benefit of cards and payment card on POS

2.5.1 Benefit of card and payment card to the economy

Payment card on POS have arrange of advantages for merchants, consumersand the overall economy The economic benefits merchants receive from creditcards exceed their interchange costs Widespread consumer use of payment cards as

a purchasing medium facilitates the transition to efficient electronic commerce,reallocates costly nonpayment risks away from merchants, speeds transactions,facilitates on-line shopping, and enables small businesses to compete on equal termswith large department stores The ability of consumers to obtain short-term credit,make purchase decisions independently of financing decisions, and dispense withcash are enormously valuable, not only to consumers themselves but also tomerchants Another significant benefit of payments cards, and one that shouldinterest especially government, is the minimization of the size of the grey economy.Diversion of payments from cards to cash would mean lower tax collections andother harm from the government’s perspective

Cardholder

Issuer

Issuer’s Processor

Supplier of cards

International cardorganizations

NetworkService provider

Merchant

Acquirer

Acquirer’s Processor

Clearing and settlementService provider

Provider ofterminal

Provider of Communication

2.5.2 Benefit of cards and payment card on POS to customers

Credit cards offer consumers the option to revolve their balances, givingthem optional, easy access to short-term consumer credit Moreover, Credit cardspermit cardholders to make purchases even when they are liquidity constrained,permitting consumption to occur when it is most valuable to consumers Creditcards also offer strong fraud protection for buyers, limiting exposure forunauthorized

By reducing the need to carry cash, cards offer theft protection Cardsfacilitate travel: They eliminate the need for traveler’s checks and guaranteeacceptance of payment around the world Cards are more convenient and helpful inemergencies when an ATM is unavailable or a visit to an ATM is impractical Cardsfacilitate return of defective or unsatisfactory products by keeping an electronicrecord of the transaction

If customers pay goods and services by cards especially credit card, manycredit cards produce an array of additional benefits, such as rewards, cash-back onpurchases Cards facilitate on-line shopping, which is infeasible with cash orchecks

2.5.3 Benefit of cards and payment card on POS to merchants

Merchants make sales on debit and credit cards while avoiding not only thecosts, risks, and delays in payment, but also the contentious efforts to collect fromcustomers who fail to pay on time For many consumers—and importantly, formany merchants and small businesses—this access to cheap and easy credit and theability to avoid liquidity constraints is an enormous benefit Bank-issued creditcards permit merchants to avoid the costs of operating their own, includingespecially the costs of non-payment, fraud detection and avoidance, collections,billing, float and the basic administrative costs of the system

By accepting bank-issued cards, merchants avoid the risk of loss whencardholders do not pay the bank for the transaction, which enables merchants toincrease their revenues Credit cards facilitate consumer liquidity, allowing

merchants to make optimal pricing decisions without regard for consumer liquidityconstraints.

Rewards and other benefits offered by many credit cards provide aneffective discount to cardholders which lead to increased spending at merchants’shops Credit cards facilitate e-commerce, in many cases reducing merchants’overall operating costs and permitting low-cost, around-the-clock shopping

By accepting payment by card, merchant can increased Sales for exampleconsumers spend more when they’re not constrained by cash at hand Merchantsmay see increased purchases of higher-margin products as well as speciality items.And customers may visit your store more often

Making Customer Satisfy such as customers will appreciate the fact thatmerchant allow them the flexibility to pay the way they want to pay – including bycredit or debit card Happier customers are more loyal customers

Speeding of Checkout for example merchant will speed theirs customersthrough checkout with rapid electronic payment No more counting change orwaiting while customers write cheques

By accepting payment by card, it will be improved efficiency such as cardtransactions today are conducted electronically Paperless payments can savemerchant time and money by minimizing cash handling and payment reconciliation,giving you more time to focus on more important things – like managing andgrowing your business

It will create Safety for merchant as well because with lower volumes ofcash, merchants are less vulnerable to theft and pilfering

2.6 Factors affecting to payment card service on POS

2.6.1 Habit of using cash in the economy

Debit card and credit card is one of mean of payment without cash It is theresult of modernize and apply technology in banking service Cash and other mean

of payment without cash have developed and used for a long time However,

payment card have been initiated and used for several decades It has taken time toresearch, use and develop the mean of payment In Viet Nam, The first cardappeared in 1990 However, the mean of payment by card has been attracted bycustomer within 10 years ago Using cash to buy goods and services is one of thehabits of Vietnamese for a long time and payment card service on POS isconcentrated in big city, industrial zone…So this kind of service is still not popularwith Vietnamese people On the other hand, in Viet Nam, living standard andincome of people is lower in comparison with other country in the world Majority

of people do not meet the requirement to open credit card or they do not haveredundant finance source It is one of the reasons to affect the development ofpayment card service on POS

2.6.2 The guidelines and policies government for payment card service on POS

Governments create the rule and frameworks in banking service includingpayment card service They affected to the development of card service.Government create legal environment to limit or develop this kind service.Moreover, the Government will advance a program to deal with the economic crisisand act to create economic conditions or protect field of economy including bankingservice in general and payment card service in particular Therefore, they will beaffected to the development of the mean of payment by card

2.6.3 The development of science technology

Payment by card is a mean of payment that is non-cash It is a foundation

of the application of scientific advances of modern technology in the bankingsector So the more developed science technology the more developed this kind

of mean of payment For example, the first card technology is magnetic card andlater chip card In reality, Chip cards are more secure, have more applicationsand are more convenient than the existing magnetic stripe cards Chip cards arefast becoming the standard payment technology across the world Chip cardshave much greater capacity to store information and programs than currentmagnetic stripe technology Moreover, chip card can carry more sophisticated

payment applications, including enhanced security programs that provide betterprotection against unauthorized use of the card Beside Chip cards can be usedfor innovative new applications, a convenient payment program that will allowcardholder to fast check – out locations like petrol stations and conveniencestores Finally, Chip technology can protect cardholder against skimming, whichinvolves the copying of private information from the magnetic stripe on the card.Unlike the magnetic stripe, a chip cannot be copied, which will protectcardholder in the day to day use of the card It is also the factor to affect thedevelopment of payment card service on POS It makes belief of cardholderswhen they use card as a mean of payment.

2.6.4 The infrastructures for using payment card

The infrastructure (such as POS network, technology…) play an importantrole in developing payment card service on POS When the infrastructures are largeand developed, it will create favorable condition for mean of payment by card Thedevelopment of debit card and credit card must parallel with the development ofinfrastructure So, it is critical to equip POS system at anywhere However, it takestime to equip the infrastructures such as POS system Moreover, in order to avoidwaste, it should be made plan through policy and bank should cooperate together toestablish a good infrastructures for development of mean of payment by card If anyeconomy is equipped with good infrastructures it will create environment fordeveloping payment by card

2.7 Rules for a good payment card service on POS

2.7.1 Security service

When using card to make payment, both merchants and cardholders getsecurity service

For merchants: By accepting payment by card, merchants have less cash on

hand are also less susceptible to losing money due to theft Moreover, when atransaction is processed, it ensure that cardholder’s account is check to ensure the

funds are available and that the card has not been reported as lost and stolen beforethe purchase is approved

For Cardholder: Card holders take small cards and they can make payment

at any time, any where Even, with the international card, it can be accepted inglobal

2.7.2 Convenient service

There are many ways to make payment However, Payment card service onPOS is a convenient service for both merchants and especially customers It noneeds to bring cash or be nervous to be burgled With a small card, cardholders canmake payment on global, purchase good and service in advance and post –paymentwhich brings about favorableness to cardholder any time, anywhere

2.7.3 Speed processing:

When making payment, customers would like to make a speed and exactpayment Mean of payment by card can meet the condition Cardholder gives thecard to make payment and transactions will be processed in a few seconds

2.8 Activities of Payment card service on POS

Payment card service on POS plays an important role in developing cardservice It not only gets benefit from the fee that merchant pay for the bank but alsosupply a perfect service, create a favorable condition for cardholder in using card.Nowadays, the demand for traveling, entertaining increase, payment card service onboth POS and internet are critical When the banks have developed this service thatmean, they can meet the diversified need of cardholders Beside, widening merchantnetwork it means that card can be accepted in a different areas It brings convenientand easier for cardholder and benefit for the banks Not only widening merchantnetwork by signing many new contracts but also the bank must care and remain therelationship with current customers It shows in customer care programs of the bank

in order to increase revenue on POS In brief, there are some activities in providingpayment card service on POS as follows:

With Acquirer:

- Investigating and finding out potential merchant

- Collecting and verifying information of merchant

- Sign the contract with merchants

- Establish data of merchant into acquirer system

- Provide Merchant with POS/EDC device(s), blank transaction receiptand Manuals to perform card acceptance service;

- Install POS terminal at merchant

- Building and managing information of merchants

- Pay Merchant for all Eligible Transactions, fees in accordance withBIDV’s regulations;

- Provide transaction statements, resolve Merchant’s claims aboutpayments between acquirer and Merchant according to Merchant’s request;

- Provide Merchant with customer services

- Managing mean of payment card transactions at merchant in accordantwith regulation of the bank and international organizations…

With Merchant:

- Provide acquirer with adequate and accurate information about Merchant

as required by BIDV Inform acquirer of changes in its business lines or businesslocation or merchant operation suspension/cancellation

- Display card acceptance devices and media according to acquirer’sinstruction at Merchant location and not to use such devices, media for otherpurposes

- Accept card for payment and be responsible for the quality and thedistribution of goods/services provided by the Merchant

- Pay card acceptance service fees in accordance with acquirer’sregulations.

- Keep and preserve Transaction Receipt for as the acquirer’s requirementfrom the Transaction Date; provide acquirer with Transaction Receipt (if request)

- Preserve the devices provided by acquirer and return such devices whenthis Agreement is terminated or upon acquirer’s request In case of devices’ loss anddamage due to Merchant’s fault, Merchant shall indemnify as per acquirer’sregulations

CHAPTER 3 CURRENT SITUATION OF PAYMENT CARD SERVICE ON POS IN BANK FOR INVESTMENT AND DEVELOPMENT

OF VIETNAM

3.1 Introduction of BIDV

3.1.1 General information of BIDV

Founded on 04/26/1957, BIDV is the oldest Commercial Bank in Vietnam

-As a long-established bank, BIDV has funded many investment projects and keyeconomic areas of the country BIDV has also built the largest enterprise customers,while confirming the implementation of prestigous items, objectives, economicprograms and social security of the country

3.1.2 Fields of operation

Bank: IDV functions as a leading experienced bank of finance services,

brokerage, loan syndication and advisory, modern, convenient banking products

Insurance: BIDV provides products for non-life insurance designed to

match the overall package to customers of BIDV

Stock: BIDV provides a wide range of brokerage services, investment and

investment consultant with the ability of quickly developing a system of agents toreceive orders nationwide

Financial investments: BIDV includes financial leasing, security trading

and capital contribution with the aim at establishing investment companies to theproject; Especially, it plays a leading role in coordinating key projects of thecountry such as company Aviation stock leasing (VALC) development companyhighway (BEDC), Investment, Long Thanh International Airport

3.1.3 Human Resources and Network:

With more than 14,000 officers, employees and financial consultants who arewell-qualified and well-trained with full experience and have been accumulated and

transferred for over half of a century, BIDV always brings its customers the benefitsand reliability

- Banking Network: BIDV has 108 branches and 500 transaction offices,thousands of ATMs and POS transactions in 63 provinces and cities nationwide

- Non-banking Networks: consists of Investment Securities Company(BSC), Insurance and Investment Company (BIC) and Leasing Company I & IIwith more than 20 branches nationwide

- Overseas representatives: It trades on all three sectors: Banking,Insurance and Financial Investment in Laos, Russia and especially in theCambodian market (Investment and Development Company of Cambodia - IDCC,Investment Banking and Development of Cambodia - Cambodian BIDC, InsuranceCompany - CVI

- Joint venture Bank: co-operates more effectively with internationalpartners such as Bank VID-Public Venture (partner Malaysia), Bank of the Lao-Vietnamese joint venture (with partner Laos), Vietnam Russia Joint VentureBank - VRB (with partners Russian), BIDV Tower Joint Venture Company(Singapore partner), venture investment management BIDV - Vietnam Partners(U.S partner), etc

3.1.4 Customers:

BIDV trades with Enterprises: corporations, big corporations, small andmedium enterprises; Financial institutions such as unilateral and multilateral WorldBank, ADB, JBIC, NIB ; Individuals include Millions of individuals have usedthe services of BIDV It has continuously tried to reach the goal of becoming aretail bank of high standards

3.1.5 Technology:

BIDV always has innovations and technology applications servingeffectively for the management and development of advanced banking services,developing the most advanced information technology systems such as ATM, POS,Contact Center, to consolidate and develop all infrastructure systems such as

monitoring of network resources, network-oriented services (SONA), access controlworkstation; enhance information processing service, banking executivemanagement MIS; CRM

Since 2007, BIDV has occupied the leading position in the top list ofVietnam ICT Index (index available for application development and informationtechnology) and in the typical Top 10 CIO (Information Technology Leadership) inthe area of Indochina in 2009 and of ASIA in 2010

3.1.6 Commitment:

To customers: BIDV always provides all customers with high quality

products and modern banking service and it is the last to be responsible for thegiven sevices

To other partners: BIDV is willing to “share the opportunity and co-operate

successfully”

To working staff: BIDV follows the motto “each staff must be a

competitive edge” in both professional skills and personal virtue For this reason,BIDV has continually paid attention to ensuring legitimate rights, improvingphysical and spiritual life of its employees to make them feel comfortable andinspired to serve in BIDV

3.1.7 Business reputation of BIDV:

BIDV is the choice, the trust for economic organizations, the leadingenterprises of both countries and individuals in accessing the financial and bankingservices

BIDV has been known and recognized as one of the largest banking brand

in Vietnam and certified as a trademark in the U.S and also rewarded annually fromorganizations, financial institutions at home country and abroad

BIDV is always the pride of generations of staff and financial and bankingsector in 53 years with traditional professional development investment for thecountry

3.2 Overview of payment card services

3.2.1 Overview of payment card service on POS in Viet Nam

Currently, according to statistics from the Bank Card Association as of May6/2011, Vietnam had 40 banks to deploy the services with a total of 63,405 POSdevices

Lead by the Foreign Trade Bank (Vietcombank) with 17,646 POS networkacross the country (27.8% market share) It also accepts many type of card andmajority of POS devices installed at many hotels, restaurants, luxury resort In theend of 2009, at Vietcombank, revenue of sales on POS reached 567 million USD,accounting for 50% of total sales of payment of the entire market

Second is the Industrial and Commercial Bank (Vietinbank) with 13,137POS (market share 20.7%) These banks have developed rapidly in the POSnetwork in the period 2009-present, only in two years rose from the fourth to thesecond in market, beyond which the Bank has developed a very good POSpreviously as ACB, Techcombank It shows that Vietinbank are interested in thiskind of service and will continue to have many breaks through in the near future

In addition, banks like Agribank, PG Bank, VIB, Techcombank, Sacombank

is the Bank engaged in developing powerful card payment, accept a variety ofinternational and domestic card, entered into a number of trade centers andsupermarkets of the country such as Big C (Techcombank), Parkson (VIB) .Especially, some banks have developed the strategy is clear as Agribank (growing

in size), PG Bank (niche market strategy, demand for gasoline) In addition theBank has invested in a traditional payment card operations to serve the needs ofinternational cardholders as ACB, HSBC continues to maintain and develop high-end customers and so much more enhanced increased utility for the payment cardholder

Table 3.1: Number of POS in the Market in Viet Nam

Name of

Market share to 30/6/201 1

Source: Viet Nam card associations to 30/06/2011

The Bank is now actively increasing accepting various type of card on thePOS card acceptance and implementation of various services In terms of chargesand fees applicable to services paid for with cards bearing international brands likeVisa, Master, JCB are within about 2% -3% / sales ratio, the difference in feesbetween banks is negligible; fees for domestic card in alliance Banknetvn,Smartlink ranged between 0.5% -1% / sales ratio

Thus it is possible that, in general, banks are focusing on networkdeployment, product improvements towards accepting more cards, reasonable price.But with the card payment services through a network of competition, product, cost

is not competitive long term strategies by product is not too different, the rate willsoon be unified in a floor or ceiling so the difference in cost is negligible

3.2.2 Overview of payment card service in BIDV

Bank card is an advance mean of payment It is the development of paymentactivities and especially the application of science and technology in banking andpromoting financial integration with the region and the world Foreseeing this trend,the Bank of Investment and Development of Viet Nam has been promoted retailbanking services including card services With the aim of strengthening theeffective development of business cards, serving the needs of customers, BIDVCard Center was established under Decision No 3107 / QD - TCCB1 on

06/12/2006 and function as a headquarters unit of professional organizations andactivities related to areas of the bank card.

Since then, BIDV Card Center has made efforts to research and developtechnology systems, expanding the network of payment in order to diversifyproducts, services and meet the diverse needs of customers At the present, BIDVhas over 2 million domestic debit cardholders, 20.000 international creditcardholders, more than 1,000 ATM and thousands POS spread across the country.Along with a staff of qualified professional, dynamic, enthusiastic, be trained andwork in a professional environment, BIDV Card Center also maintains andcontinuous expansion of relationships with many organizations in the country tooffer many kind of products with excellent quality service to meet the need ofcustomers Hereunder is some memorable period time:

 In 2002, BIDV is one of the first banks which issued Debit card with Power,Etrans 365+ and Van dam trade mark, in Vietnam

 In 2006, BIDV successfully connected with VISA/Plus through BIDV ATMsystem

 In 2007, BIDV successfully connected with Banknet ATM system; providedservices with accepting payment card through POS/EDC; become the first bankswith ATM network spread all 63 provinces, in Vietnam

 In 2008, BIDV provided services with accepting payment card through POS

on Mailinh Taxi in Ho Chi Minh city; provide services with payment bill phone

 In 2009, BIDV issued the first international credit with BIDV precious andBIDV Flexi trademarks; provide service with accepting payment Jestar Pacifficticket on BIDV ATM; bill payment service for telecommunications companies

 In 2010: BIDV issued BIDV harmony trade mark; provide services withpayment goods and services on any website which connected with VnMart; makepayment insurance bill and buy insurance on BIDV ATM

3.3 Current situation of payment card service on POS in BIDV

3.3.1 Type of card accepted at BIDV POS

BIDV POS terminals are accepted different types of card such as BIDVharmony, BIDV Etrans; BIDV Moving, International Visa card and the cards areissued by Banknetvn,Smartlink (Banknetvn card has been accepted at thebeginning of 2011)

3.3.2 Function

There are many functions on POS However, at the present, BIDV POSterminal has following function: Sale transaction, void transaction, balance inquiry,preauthorize, offline and settlement The main function on POS is sale transactionsfor cardholder to pay goods and services by card instead of cash A transaction isprocessed though many members However, it takes only under 10 seconds toprocess and complete transactions

3.3.3 Type of fee and ratio fee

Monthly Fees

In order for a merchant to accept credit and debit cards, it must first set up anaccount with a merchant processor or acquirer That acquirer provides a means bywhich the merchant is able to transmit its transactions to MasterCard and Visa whothen send them along to the appropriate issuing banks who then provide payment tothe merchant The acquirers typically charge each merchant a monthly maintenancefee for having an account In BIDV, merchant is charged 50.000 VND if they openindividual account

Another potential monthly fee that a merchant may be faced with isequipment rental, if it rents or leases terminals from its acquirer, rather thanpurchasing them outright However, at present, in order to encourage merchant,BIDV provide merchant terminal freely But they are responsible to take care

Interchange - or the Cost of Doing Business

A merchant must accept any Visa or MasterCard branded card, regardless ofhow much it will cost them Every credit card transaction that a merchant processes

must pass through Visa or MasterCard or other networks in order to be paid.Depending upon how the merchant processes the transaction, MasterCard and Visawill charge a specific percentage of each transaction to the merchant Thispercentage is known as the interchange rate, which is a major component of thediscount rate that is passed on to the merchant This rate can be impacted by thingssuch as what kind of card the customer presented, whether the merchant was able to

"swipe" the card through the terminal reader or had to key in the information, andwhether the amount that was authorized and the amount that was settled were thesame Certain types of cards, such as rewards cards, cost more money to accept, andcertain ways of processing those cards are more expensive

Debit transactions are generally far less expensive than credit transactions

At the present, BIDV merchant must pay from 2 percent to 3 percent of revenues tothe bank if they accept Visa card With domestic card, BIDV collect 0.3 percent to 1percent of revenues

Other Fees

There are other events that can cost merchants money when accepting creditand debit payments If a cardholder disputes a transaction for any reason, themerchant can be faced with a chargeback A chargeback effectively returns themoney from the merchant back to the cardholder without the merchant having anysay in the transaction Most acquirers will charge a merchant an additional fee foreach chargeback

Despite all of these fees, merchants generally stand to increase their businessand their overall profits by accepting credit payments

3.3.4 Criterion to become BIDV merchant

With the simple procedure for network participation and being supportedwith devoted services, all individuals and agencies who supply goods and services

in Vietnam could become BIDV merchant if they meet the requirement as follows:

 Having business registration documents under the requirements of laws

 Having legal and convenient business location and healthy financialsituation

 Appropriate infrastructure meeting the requirements of card payment:Internet line, environment for setting up EDC equipment (that is provided free ofcharge by the Bank to its merchants)

 Being not named in the list of International Card Institutions as cardmerchants of high risk level or terminated merchant contract

 Opening demand deposit account with BIDV

 Meet the minimum revenue as follows:

Table 3.2: Requirement of minimum revenue

Unit: Million dongs

Source: BIDV document

3.3.5 Process to establish a merchant

Investigating and finding out potential merchant

In order to find out potential merchant, at branches, sale persons makeinvestigation in their area to find out potential merchants, introduce BIDV POSservices to individuals and agencies that have high revenue or attract foreigncustomers such as entertainment area, hotel, restaurant, super market, tourismagency…Potential merchants must be meet the above BIDV conditions

Collecting and verifying information of merchant

When sale persons get an agreement of individuals or agencies, they startcollect information of merchants such as business name, business license, or similarlegal paper, address and field of business… Sale persons are responsible to verifyinformation and submit to manager

Sign the contract with merchants

In order to become BIDV merchant, merchant must have account in BIDV

So, if merchants have not had BIDV account yet, sale person require merchant toopen account in BIDV Sale person are responsible to guideline them in openingaccount, negotiate the fee that merchant have to pay for the bank or inform themany preference or promotion program of the bank Finally, BIDV and merchant willsign the contract together

Establish data of merchant into BIDV system.

Sale person send information of merchant to card center by email or fax inorder to register data into system Card center is responsible to create merchantnumber and terminal number into system and send data back to branch At branch,technical staff will load data that registered into system to POS terminal Afterconnecting with telephone line, staff will test the transaction by do the transactions

on POS

Install POS terminal at merchant

Both sale person and technical staff go to merchant to install POS terminal atmerchant Sale person is responsible to provide logo, guideline document for

merchant Technical is responsible to install POS terminal at merchant, guidelinethem how to do the transaction as follows:

 BIDV POS terminal is only accept the card that have BIDV logo, Visa logoand Banknetvn logo (the cards are issued by banks which is the member ofBanknet)

 BIDV POS terminals have not been accepted other card such Mastercard,JCB card, Diner club card…

 Cards may be whether magnetic card or chip card

 Customer must sign into transaction receipt after transaction is successfuland complete

 BIDV POS terminal has functions as follows: Sale, void, balance,preauthorize and offline (For hotel merchant only) and settle Sale person must tellmerchant the meaning of this transactions, the way to do it and how to solve theproblem if it happens

3.3.6 Process of payment card

3.3.6.1 Card Present Transaction

Check the Card’s validity: When cardholder presents card for payment,

merchant must verify the card features, including but not limited to:

 Check and ensure that the card (including the front and the back of the card)

is not visibly altered or mutilated in any way

 Check the expiry date of the card to ensure the card is valid

 Match the first 04 digits of the card number with the 04 digits printed above/below it

 Check the security features of the card according to card schemes’regulations (such as the symbol of issuing bank, the hologram of the card scheme)

 If the Card bears a photo of the cardholder, verify that the person whopresents the card is the actual cardholder

Obtain authorization:

 Automatic authorization request: Merchant must request for authorization for