Some solution to develop the card payment activity in Viet Nam Joint Stock Comercial Bank for Industry and Trade_VietinBank for the period of 2012_2017

INTRODUCTION 1.1 Reasons for the subject’s selection Vietnam Joint Stock Commercial Bank for Industry and Trade_ VietinBank has been identifying that the retail bank’s service developme

VIETNAM NATIONAL UNIVERSITY, HANOI

SCHOOL OF BUSINESS

CHU THANH TAM

SOME SOLUTIONS TO DEVELOP THE CARD PAYMENT ACTIVITY IN VIET NAM JOINT STOCK COMMERCIAL BANK FOR INDUSTRY AND TRADE_VIETINBANK FOR THE PERIOD OF

2012 - 2017

Major: Business Administration

Code: 60 34 05

MASTER OF BUSINESS ADMINISTRATION THESIS

Supervisor 1: Dr Nguyen Thi Phi Nga Supervisor 2: Dr Pham Quy Long

Hanoi, 2012

TABLE OF CONTENTS

COMMITMENT i

ABSTRACT ii

TÓM TẮT iv

TABLE OF CONTENTS vi

LIST OF TABLE ix

LIST OF ABBRIVIATIONS xi

INTRODUCTION 1

CHAPTER 1: THE BASIC ISSUES ON THE CARD PAYMENT ACTIVITY 4

1.1 OVERVIEW OF THE BANK CARD AND REAL SITUATION OF THE CARD PAYMENT 4

1.1.1 Definition of the bank card and card payment 4

1.1.2 Classification of bank card and form of card payment 5

1.1.3 The of formation and development history of the payment card in Vietnam 7

1.2 PROCESS OF THE CARD PAYMENT 12

1.2.1 Overall process of card payment 12

1.2.2 The participation entities of the card payment 13

1.2.3 Charges and charges sharing rate in the card payment activity 14

1.3 THE ROLES AND THE MEANINGS OF CARD PAYMENT ACTIVITY 15

1.3.1 For the society- national economy 15

1.3.2 For the bank joining in the payment 18

1.3.3 Impact on the card owner and the unit accepting the card payment 22

CHAPTER 2: THE FACTUAL SITUATION OF CARD PAYMENT IN

VIETINBANK 26

2.1 GENERAL INTRODUCTION ON VIETINBANK 26

2.1.1 The general introduction on VietinBank 26

2.1.2 The general introduction on VietinBank Card business Center 27

2.1.3 The process of formation and development of payment operation by card at VietinBank 30

2.2 THE POSITION OF VIETINBANK CARD SERIVES 32

2.2.1 The prominent speed of growth, leading in the quantity of market share 32

2.2.2 The quality and profit have not yet been proportional to the potential 37

2.3 THE FACTUAL SITUATION OF IMPLEMENTATION AND DEVELOPMENT OF PAYMENT SERVICE BY CARD IN VIETINBANK 41

2.3.1 The factual situation of implementation and development of card business and payment 41

2.3.2 The evaluation of real situation of conducting and developing the VietinBank’s card payment 54

2.4 SWOT ANALYSIS ON VIETINBANK CARD PAYMENT BUSINESS 59

2.4.1 External environment analysis- challenges and opportunities of VietinBank 60 2.4.2 Internal environment analysis- strong and weak point 68

2.4.3 SWOT matrix analysis 75

CHAPTER 3: SOME SOLUTIONS TO DEVELOP CARD PAYMENT ACTIVITY IN VIETINBANK 80

3.1 Focusing on the market segment, groups of lines and types of card which bring the sales of payment and profit 80

3.1.1 Exploiting the group of lines bringing the sales of payment and high profit 80

3.1.2 Increase the transaction according to the card forms and the transaction forms 81

3 2 Cover and scoop the whole open and potential market 83

3.3 Improve the card payment business effectiveness through marketing mix 7Ps 85 3.3.1 P1 - Product: 85

3.3.2 The price 92

3 3.3 Promotion and media 95

3.3 4 Place - Distribution channels 97

3 3.5 Human resource 99

3 3.6 The process 100

3 3.7 The physical evidence 102

3.4 SOME RECOMMENDATION 104

3.4.1 The recommendation to the government on the policy and legal lobby 104

3.4.2 The recommendation to some relevant merchants, boards, sections 105

REFERENCES 106 Appendix 1

Apenndix 2

Appendix 3

LIST OF TABLE

Table 2.1 : The results of Card payment implementation and development 42

Table 2.2 : Popupar Objetion on POS sales 44

Table 2.3 : Parameters of the training conduct 47

Table 2.4: Some basic financial indicators 54

Table 2 5&6: estimation calculation of some finacial indicators on two leading banks 57

Table 2.7: Takcare quality comparison table 73

Table 3.1 : VietinBank revenue by region and category 80

Table 3.2: Revenue by credit card type 82

Table 3.3: MOTO transaction and the normal transaction comparison 90

Table 3.4: EDC quantity and card payment revenue 98

LIST OF FIGURES

Figure 1.1 : General payment-via-card process 12

Figure 1.2: The roles of the card payment activity 15

Figure 1.3: Benefits for payment bank 19

Figure 1.4: Credit Card statement cycles 21

Figure 2.1 : Debitcard segmentation in 2010 33

Figure 2.2 : Credit card segmentation in 2010 34

Figure 2.3 : POS segmentation in 2010 37

Figure 2.4 : Card payment revenue in 2010 39

Figure 2.5 : Card payment sales of two Banks 40

Figure 2.6 : The model of implementation and development of card business and payment 41

Figure 2.7: The POS sales channel in 2010 48

Figure 2.8 : Micro-environment analysis of business 60

Figure 2.9: Michael Porter’s five forces model 65

Figure 2.10 : Michael Porter’s Value chain model 71

Figure 3.1: The reason for changing card payment sales 83

Figure 3.2: The awareness of promotion programs 96

Figure 3.3: Information flow 96

LIST OF ABBRIVIATIONS

EDC Electronic Data Capture

INTRODUCTION

1.1 Reasons for the subject’s selection

Vietnam Joint Stock Commercial Bank for Industry and Trade_ VietinBank has been identifying that the retail bank’s service development is an important part in its development strategy, and especially, of which developing the account product, the payment card, the payment service by card is considered

as the core and basic products in the context that the Card market in Vietnam

is being evaluated the most dynamic market all over the world, with the growth rate of 18,4% annually from 2014, the tendency of card payment is the tendency of the near future With the aim of becoming the number one financial group of Vietnam and having the position in Asia, one of the large targets of VietinBank is developing the card payment as the leader In front of the above situation and as the staff working in Card business Center - Department of Marketing and Sales under Headquarter of VietinBank, I

decided to choose the subject “Some solutions to develop the card payment

activity in Vietnam Joint Stock Commercial Bank for Industry and Trade_VietinBank for the period of 2012-2017”

1.2 The objective of the research

The research objective is to systemize theoretical framework related to the business services of the bank card payment Then analysing the real situation and the card payment business of VietinBank, since then recommending the practical and applied solutions to increase the profits from the card payment activity of VietinBank matching with the potential, to shorten the gap with the first competitor and toward to occupy the market and become the leading bank of Vietnam and have the position in the local area

1.3 Scope of the study

Becoming the number one retail bank in domestic in the service sector requires the research and analysis in many subject, many different fields of the experienced and deeply understanding persons in the financial sector in general and the retail financial sector in particular, since then building the synchronous and practical strategy with the reality of this bank

Due to the limited time and working conditions, the study scope of the subject

is limited with researching some solutions to develop the card payment activity in Vietnam Joint Stock Commercial Bank for Industry and Trade-VietinBank In detail, the reseach study the card payment service business in VietinBank at 152 its branches and Card Business Center as primary data and also collect secondary data about others banks such as Vietcombank, Agribank, Techcombank, HSBC, AnZ bank ….during the study time from

2009 to 2011

The study entities are mainly 3 characters who are Merchants – Shops or supper markets use card payment method according to cash payment method, Customer – card owner and VietinBank staffs – people undertake VietinBank card payment serivce business

1.4 Research method:

Some methods of analysis, evaluation, comparison and collection are used to study and build the thesis, of which the analysis method (micro, macro environments method, SWOT matrix analysis) will be mainly used For the theoretical base of the subject, the thesis uses the research, the writings on the card payment activity in general and the card payment activity in Vietnam market in particular conducted by the leading experts The used theoretical bases include the theoretical bases on payment card, card payment activity, factors impacting on the card payment turnover, the specific strategy of the banking service, etc combining with real survey in the card payment

merchants of the research bank and the competitive bank, referring the successful models of the foreign countries

1.5 New contribution of the subject

The subject uses the real and the most updated data from the reports of Vietnam Card Association, the Department of Market Research, Department

of Sales of Card business center; as well as uses the primary data from the real survey in card acceptance merchants of the banks, survey in the card owners, the bank’s staffs working in the department of card payment service Therefore, the subject will contribute the solutions matching with the reality and the present situation of VietinBank, these solutions are specific in contents, creativeness, and feasible to apply for VietinBank in term of becoming the leading bank of card payment service in Vietnam At the same time, the subject will be useful to recommend the solutions for developing the card payment service for any specific unit trading the card payment service in Vietnam market

1.6 Structure of the subject

The thesis is structured with 3 chapters and 1 section, in details as follows;

- Introduction

- Chapter 1: The basic issues on the card payment activity

- Chapter 2: The real situation of the card payment development in VietinBank company

- Chapter 3: Some solutions to develop the card payment activity on VietinBank

CHAPTER 1: THE BASIC ISSUES ON THE CARD

PAYMENT ACTIVITY

1.1 OVERVIEW OF THE BANK CARD AND REAL SITUATION OF THE CARD PAYMENT

1.1.1 Definition of the bank card and card payment

The ancestor of the payment card is the purchase card when the shops sale the purchase cards for the customers to buy the goods instead of cash In 1949, Frank Mc Namara, an American businessman, invented the first payment card named “Dinner’s Club” This card was useful to pay the restaurant invoices, the card owners could eat in the restaurant without paying in cash This was the paper card, used in the system of Dinners Club Then in 1958, American Express Organization issued the first charge card, Bank of American also issued the bank card which was called VISA card at the same year In 1966, MasterCard was appeared, it was considered as the competitor of VISA card Therefore, it can be defined that the card payment is the payment method in which the card owner can use the card to pay for the goods and services purchase money or withdraw automatically cash through the card readers or the automated taller machines, or in other words, the card payment is payment method without using the cash but the card

The material of the first payment card was paper, but its disadvantage was easy to corrupt and tear, so it was gradually replace by the plastic card with the better endurance When the demands of information security and large storage became the considered issue, the card with the magnetic tape and the intelligent card using the EMV standard as a very small computer was appeared and helped to perform the banking operations such as license permission and bank clearing The payment card is developed diversified such

as card classification, the payment card linking with many non-financial function cards become the connection cards or co-trademark cards The forms

of using card are very flexible, sometimes; the payment does need the direct appearance of the card but can be un-touch payment by the payment machine

1.1.2 Classification of bank card and form of card payment

1.1.2.1 According to the payment characteristic of the card

According to the payment characteristic of the card, there are two main forms: Credit card and Debit card

Credit card: is the card allowing the card owners to implement payment,

withdrawing within the issued credit line according to the agreement with the card issuance bank This is the most popular used bank, the card owners are entitled to use the credit line without being paid the interest to purchase the goods and the services in the business merchants, hotels, airport, etc which accept this card It was called the credit card because the card owners can advance the consumption line without being paid money immediately, only paid after the certain period From this characteristic, the credit card can be called the delayed debit card or deferred debit card

Debit card: is the card allowing the card owners to implement payment,

withdrawing within the amount of money in the payment deposit account of the card owners opened in a bank This is the card which has the direct relation and connects with the deposit account When this card is used to buy the goods or the services, the transaction values will be immediately deducted into the owner’s account by the electronic devices located at the shops, the hotels, etc; at the same time, immediately transfer to the account of the shops, the hotels The debit card is also used to withdraw cash in the automated taller machine The debit card does not have the credit line because it is based on the available balance in the account of the card owners

Besides the above two cards, there is Cash card: this is the cash drawing card

in the automated taller machine or the bank With the specific function only using for cash drawing, to use this card is that the card owners have to deposit into the bank account or the card owners have to be issued the credit in account

1.1.2.2 According to payment scope

According to the payment scope, the card can be used in Vietnam and can be used worldwide

Domestic card: is the card which is limited in the scope of a nation, so that

the exchange currency must be the local currency of this country The home debit card and the home credit card are the domestic cards

International card: is the card which is accepted all over the world, uses the

strong foreign exchange for payment The international debit card and the international credit card are the international cards and can be used for payment both in the foreign countries

1.1.2.3 According to issuance entity

Bank Card: is the card issued by the bank in order to help the clients use

amount of money financed by the Bank This card is mainly used in Vietnam

Non-bank Card: is the tourism and entertainment cards issued by the large

business groups or the big petrol companies, the large shops, etc such as Dinner’s Club, Amex, etc

1.1.2.4 According to production technology

Embossing card: Based on the embossing technology; the first card was

produced by this technology At the present, this card is not been used no longer because its technology is too simple, easy for counterfeit

Magnetic stripe: Based on the letter technique with two magnetic tapes

storing information in the card’s back This card was used popular in the last

20 years, but there are some weaknesses: because the information in the card can not be coded by itself, the card only stores the fixed information, the data storage space is litter; it can not apply the coding technique, information security, etc

Smart Card: this is the newest generation of the payment card; the structure

of the card is the same as a computer

1.1.3 The of formation and development history of the payment card in Vietnam

1.1.3.1 History of formation and appearance of the payment card in

Vietnam

In 1990, VietcomBank signed the contract of Visa card disbursement agency with French bank, this activity started the adoption of the payment card into Vietnam The main purpose of this connection was to serve for the international tourists coming to Vietnam Following the Foreign Trade Bank, Sai Gon Thuong Tin Bank also connected with the center of Visa card payment for becoming the payment agency May be the clear open policy brought for Vietnam a socio-economic face with many potentials The foreign investment projects have increased from the quantity to the scope, the large financial institutions have paid attention to Vietnam and following these groups, there are the concurrent services of which the payment card is integral

In 1995, Ho Chi Minh City Foreign Bank, A Chau Commercial Joint Stock Bank, First-Vina-Bank and Eximbank were allowed to officially join in the Mastercard international card organization by Governor of the State Bank of Vietnam

In 1996, the Foreign Bank officially became the member of Visa International Organization Then, A Chau Bank, VietinBank Vietnam also became the official members of the Visa Card Organization, of which the Foreign Bank

and A Chau Bank implemented the direct payment with this organization At this year, Vietnam Foreign Bank (VCB) issued pilot the first bank card, as well as the association of Vietnam card payment banks was also established with the four founders including VietcomBank, A Chau Commercial Joint Stock Bank, Joint Stock Commercial Bank for Import and Export (Eximbank) and First Vinabank The legal corridor for the card activity at that time was only the Decision No 74 issued by Governor of the State Bank on 10/4/1993 regulating the “temporary regulations on issuing and using the payment card” The card application in Vietnam at that time was limited by the legal base, economic and technical structure conditions, etc Based on the agreement of the State Bank, the commercial bank pilot issuing the card had to set up the rules, the issuance contract and the card utilization by itself, it means that the legality was only in the rate of “internal” adjustment between the issuance bank and the owners It can be said that VietinBank joined in this playground later than VietcomBank near half of the decade; the knowledge and the experience about the card of VietcomBank are the clear advantages and the competitive advantages of this leading bank

The card market in 2006, 2007 was eventful because Vietnam joined in the large playground- WTO, Vietnam financial market competed fiercer when there were many more the foreign banks investing on this sector and the credit card service and ATM card were the efficient “weapons” for the bank to penetrate the market A series of payment card products were appeared, opened a “card issuance competition” among the domestic banks

1.1.3.2 The development of payment card in Vietnam and some

achievements

In over the last 15 years, the card service has been developed with the high speed, from when being considered as a property or a trademark of the

successful person, at the present, the bank card becomes the popular payment tool According to the State Bank, the card service has had the high growth rate in the recent years, 150-300%/year By the end of 2007, the banks issued near 8,3 million of cards, in average among 10 persons, there is one person using the card According to the statistic, the card market of Vietnam in 2007 grew 2,5 times in comparison with 2006 By the end of 2007, a number of the card issued by the banks are near 8,3 million of cards, in comparison with 3,5 million of cards in 2006 At the present, the payment density by card accounts for 6% in the sum of the exchanges of non-cash payment tools Among the cards issued by the domestic issuance organizations, the local debit card (popular named ATM card) accounts for 93,87%, then the international debit card accounts for 3,65%, the international credit card accounts for 2,22% and the local credit card accounts for 0,31% Despite the unevenly density, it can show that the card service has created the important channel leading the capitals for the banks, because most of the issued card quantities are connected with the individual deposit account and there are a certain deposit balance in this In Vietnam, there are 32 banks issuing the card, with about

130 different card trademarks, of which 54% are the local card trademarks

By the end of 2007, there were 4.300 ATM machines in all the country; over 23.000 places accepted the payment by POS card In comparison with 2006, the above number was 2.500 ATM and 14.000 POS At the present, the main

card unions in Vietnam include Smartlink Company with 25 members, 2.056

ATM machines (accounting for 48%), 17.502 POS/EDC machines (accounting for 57%) and the number of issued cards of 4.721.946 (57%); East Asia Card Union with 05 members, issuing 1.766.053 cards (21%), 783 ATM machines (18%), and 1.682 POS/EDC machines (57%); International Financial Switching Joint Stock Company Banknetvn with the number of

ATM machines accounting for 62% (2.654 machines), POS/EDC accounting for 46% (10.548) and issuing 5.170.229 cards (accounting for 62%)

In 2007, in the tendency of increasing the competitiveness, many banks issued the card forms with the high security, which was the CHIP card with the EMV standard and supplying many attached benefits for the customers such

as payment for the goods and services’ invoice, online purchase, account overdraft, preferential enjoyment on service and purchase rebate in the connection place, payment insurance amount by card, savings remittance by card besides the basic benefits such as cash drawing, transferring

By the end of 2010, the growth rate of the card market was very great; there were 15.000 ATM machines in all country, over 40.000 places accepting the payment by POS card The two large unions, Banknet and Smartlink cooperated with each other and gathered the card payment for all the member banks

1.1.3.3 Some main obstacles in the progress of the card payment

development activity

Although there are the above significant achievements, Vietnam payment card has many limits and insufficiencies preventing the development progress of the payment card, in details:

The biggest obstacle which makes the card quantities low in comparison with the market potential is that the habit of using the cash in consumption of Vietnamese people is very popular According to the statistic of Visa International Organization, the cash supply in the circulation in the developed countries is only 10-25% whereas in the developing countries this number is 75-90% In particular, in Vietnam, according to Head Representative of Visa Gordon Cooper, the cash is still the “king” over 99% of individual consumption is performed by this form For the current ATM system in

Vietnam, most of the exchanges are for cash drawing, although there are many other utilities such as credit transfer, payment for insurance service, electricity, telephone fees, etc

Many countries all over the world, pioneering in ATM sector, underwent 03 development stages; firstly each bank set up the individual payment system

by itself Then the bank groups which committed to use the same system would be formed Lastly, all the banks would cooperate to set up the unique system The Chief Ta Quang Tien said that “Vietnam is the behind country,

we can study to skip the second stage, by actually we are swept away by the old method of the pioneer countries” “The main reason is that Vietnam lacks

an instruction and management mechanism, does not have the clue organization to mobilize and collect whereas the banks are not consensus; even they consider the ATM development as the competitive weapon”

The security issue of card payment is not been assured, leading to the disorder and unbelief of the card users At the present, using the fake card to draw money from the customer’s account is often occurred, even the robbery in the ATM machine, using the devices to destroy ATM machine The above situation is partly caused by the weak payment network management, low card production technology At the present, in the world, the chip cards are mostly used while the magnetic cards are mainly used in Vietnam As we know, the security of the chip card is higher than the magnetic cards

1.2 PROCESS OF THE CARD PAYMENT

1.2.1 Overall process of card payment

Figure 1.1 : General payment-via-card process

(Sources: Card centre - VietinBank )

Step 1: The card owner submits the request of card issuance and receives the

card printed by the issuance bank, owns the account with his/her name, deposits into the card if this is the debit card

Step 2-3: Sell the goods in the business merchants which accepts the card

payment Implement the payment for the amounts in the purchase invoices by swiping the card performed by cashier or the owner

Step 4: If the money is enough to pay, and the card swiping exchange is

successful, the payment amounts paid by the bank will be reported credit in the account of the shop’s owner

Step 5: The payment bank will charge the card payment by reporting the card

payment debt into the account of the shop’s owner

Step 6: The payment band and the issuance bank through the card union

organization will make the offset accounting, reporting the debt for the advanced amounts of the shop’s owner to the issuance bank so that the

issuance bank can report and account to deduct in the account of the card owner, each party will retrieve the receivable charges

1.2.2 The participation entities of the card payment

The card owner: is the person whose name is written in the card and is

entitled to use the card to pay the amounts of goods and service purchase Only the card owner can use his/her card When paying for the Merchants of the goods, services or paying the debts, the card owner has to show the card in order to check under the process and set up the payment receipt

Merchants: are the goods and services business sectors which sign with the

payment bank on accepting the card payment such as the restaurants, the hotels, the shops, etc These merchants have to equip the machines, technology to receive the payment card for the goods and services amounts, the debt payment replacing for cash This entity plays the roles of issuing the cards and remaining the account

Issuance bank: is the bank which issues the card for the owner This bank is

usually the official member of the international card organizations The issuance bank takes responsibility to receive the document of the card issuance request, solve and issue the card, open and control the card’s account,

as well as implement the last payment with the owner This entity plays the role of developing and maintaining the relations with the Merchants

Payment bank: is the bank which installs the card payment machines The

bank directly signs the contract with the receipt unit and pays the exchange documents presented by the Merchants A bank can play the role of card payment and the role of issuance

International card organization and switching card organization: are the

organizations which connect the payment bank and the issuance bank This entity takes responsibility to switch and solve the clearing payment, set up the

payment and issuance standards For example, in Vietnam, the financial switching card union organizations are Smartlink and Banknet, and on the world these are Visa Card organization and Master, JCB, American Express, etc

1.2.3 Charges and charges sharing rate in the card payment activity

The card payment charges are the charges which the Merchants have to pay for the payment bank, means the bank owning this card payment machine These charges are directly proportional to the card payment turnover if the unit and calculated by % of card payment The average charges which the Merchants have to pay for the bank are 2% However, this charge rate is based on the payment card forms and the issuance bank These charges are included the after-sale service charges including supplying paper to print the monthly invoices, hiring the card payment machine, providing the documents and the advertisement instruments to realize the card acceptance merchants

and the fees of caring and solving the problems related to the payment process

These returned charges will be distributed, normally 50% of which will be paid for the financial switching organization For example, with 2% of charges from the Visa/Master card swiping transaction for the goods payment, the payment bank has to pay for the above international organization 1.1% of the received charge rate

1.3 THE ROLES AND THE MEANINGS OF CARD PAYMENT

ACTIVITY

1.3.1 For the society- national economy

Figure 1.2: The roles of the card payment activity

(Sources: VietinBank Card center )

 Reduce the social charges to organize the payment activity

Annually Vietnam Government has to pay a significant finance to print cash for the payment activity of the economy with 80 populations and GDP of over

100 billion USD In additions, using the cash will waste a lot of time and unnecessary time for the transportation, storage, reservation, checking in the bank systems if the money is in the account form It is very easy to make mistake and loss when checking, make conditions for the circulation of the false money, dolarrization, difficult to control the credit In additions, the

Roles and meanings of card payment activity

Limit the fraudulent, tax evasion, debt delayed payment, create conditions to

anti-circulate the false money, money laundering

paper money expresses the large limits because it is easy to tear, burnt, corrupt in the circulation process

 Limit the fraudulent, tax evasion, debt delayed payment, create

conditions to anti-circulate the false money, money laundering

The tax evasion of the merchants, the business households who do not obviously want to receive the money by the card payment, because these income sources in the bank account will be declared, will be reduced due to the payment card utilization When discussing the Law on anti-money laundering, the member of the Assembly Standing Committee confirmed that the cash utilization made the cash flow management more difficult, brings Vietnam to become a “destination” of the money-laundering crime” and then the solutions of the cash circulation limit will be recommended to “prevent from the origin”

In 2001, the State Bank quoted the statistic data when summarizing the six years of executing the Decree No 74 of the Government on preventing and fighting the money laundering, showing that the tax evasion, smuggling, corruption, counterfeit production and purchase, speculation in the securities market, the real estate and the gold market were gradually increased

Therefore, the benefited subjects are implemented through the legal activities such as consigning on to the bank, investing on the securities, real estate, gold

or remitting to the foreign banks which have the secret bank law The “money laundering” demand is larger more and more when there is the regulation that the officials have to list their properties, the individual income in the Law on anti- corruption

United Nations Office on Drug and Crime (UNODC) considered that Vietnam

is the destination which is easy for the money laundering crime to come because its economy uses lots of money and the commercial and investment activities are more and more increased UNODC warned that if there were not

the fast and effective methods to cope with money laundering, the crime and corruption would be increased, the legal financial operation will be effected Actually, a very big cash flow was felt in the stock market and the real estate market, the development speed of capital is difficult to estimate, however, checking the money’s origin are not properly concerned

Besides the loose legal law, due to the psychology of losing the customers of the credit organizations, checking the information, the origin of the exchanged money of the customers is usually formalism The habit of using the cash in payment makes difficult for controlling the circulated cash flow in the economy and makes conditions for the money laundering crime to perform easier

Whereas, the main origin of the illegal money in Vietnam is from defrauding, gambling, weapon trafficking, prostitution, smuggling, drugs, etc; but because the entities use the cash in payment, it is difficult to control this illegal cash flow

 The card payment facilitates the commercial exchange to occur

without being limited by time and space

At 12h00 A.M, an entity can buy the scratched card to fund money for his/her prepaid mobile phone by a message, the money will be automatically deducted from the card account corresponding with the value of the scratched card Whenever and wherever in a day, a busy businessman can book and pay for the overbroad airplane ticket thanks to using the payment card

Normally, formally with the goods payment in cash, the buyer and the seller had to appear to implement “sell and buy” activities When the form of delivery in advance- then payment appeared, telephone-order-selling, email-order-selling, internet-order-selling or called e-commerce were gradually appeared and favored by the customers because of its great benefits in comparison with the traditional selling for some commodities This tendency

required the solution for payment without the physical appearance of the buyer and the seller And this solution is the credit transfer or card payment The buyer only has the payment card and the seller has the bank account, the payment can be implemented in any geological distance between the seller and the buyers as well as the payment time

In Vietnam, there are some popular and prestigious online payment portals such as Nganluong.vn, VNmart.vn, Payoo.vn, Onepay and Baokim.vn In here, the customer owning the payment card can feel secure collection and goods purchase

1.3.2 For the bank joining in the payment

The card activity of the banks is developed more and more, puts the banks into the new status, new appearance Besides building the friendly image with each individual customer, the successful card service performance can confirm the technology advance of the bank; so that the card service has been considering as the important competitive advantages in the race of toward the retail bank market of the commercial banks

 For payment bank

Normally, when using the card payment service of a bank, this unit’s owner has to open an account in this bank either individual account or ATM account

in order to receive the sales money when the customers strike the card for payment At that time, the payment bank will be benefited the payment charges which the unit’s owner agrees to pay This is also the most realizable financial benefits for the payment bank However, many banks accept to maximum reduce the charges for the Merchants when balancing this benefit with two the residual benefits- “Mobilization source” and “Foreign currency mobilization” The number of 40% shows that of the payment turnover is 100A, 40A will be the average amounts which the account owner places in

the card or the account receiving the card payment money of the goods The card payment turnover of Melia Hotel is 8 billions/month; it means that 3.2 billions is the average balance in the account of this unit The non-term interest for this unit will be 3% in comparison with the 14% of mobilization interest from the residents; so that the bank will also be enjoyed a price gap rate of 11% Therefore, the charges paid by the Hotel for the payment bank is

160 million (2% of 8 billions VND) The interest gap rate (11%) from the average of non-term money source in the account (40% of 8 billions) is 11% x

8 billion = 352 million So that the real total revenue per month of the payment bank will be 352 million + 160 million = 512 million equivalent to 6% of the card payment charges not 2%

Figure 1.3: Benefits for payment bank

(Sources: VietinBank card Center)

Actually, although the inhabitants owning the debit cards are mainly, the credit card accounts for 90% in the card payment in a unit When the owner owning the credit card issued in the foreign bank pays for the goods in Vietnam, this foreign currency will be poured into the foreign currency account; if the unit’s owner has the foreign currency account or this foreign currency will be poured into the account receiving the payment money in the foreign currency By this way, imperceptibly the bank has mobilized the

number of foreign currency without any fees At the present, Government regulates that the Merchants in Vietnam territory are forced to receive the goods payment money in VND This will help the bank benefit more when having the cheap and benefited foreign currency mobilization channel

However, the payment bank are not enjoyed all the above payment charges, practically, the payment bank has to deduct a part of which, about 1% of card payment turnover to pay for input charges or simply the bank only helps the Merchants to return the amounts to pay for charges of hiring the transmission line, deducted charges of the card payment machine, charges of currency exchange, cash advanced charges

 For the issuance bank:

Actually, the expenditure of the debit card owner only accounts for a very small weight in comparison with the credit card owner, and the banks mostly gain profits from this credit card owner Because by nature the credit card is the consumption loan, the bank uses the copy circle (15 to 45 days from the date of payment) as the “bait”, with the minimum credit debt payment percentage of 10%, imperceptibly the bank makes the credit card owner become the borrowing customer with the normal interest higher than the deposit mobilization interest from the residents of 5-6%

The credit card owner of the bank A strikes the card in POS machine of the bank B, a payment amount with the value of 50 million dong; the returns which the issuance bank can return are the charges and interest from the card owner (interest approximately 20-21%); may be with the charges of printing the copy, overdraft, delay payment penalty (4% per the payable minimum balance), charges of automatic debt appropriation, charges of foreign currency conversion, message, etc In other words, the credit card owner is lent the consumption loan by the bank and is free of interest within 15-45 days in accordance with the copy circle of this bank After the period of free of

interest, the card owner becomes the loan owner with the interest the same as the interest of the normal consumption loan but being bounded by period of paying the copy outstanding

Illustrate the copy circle of VietinBank:

Figure 1.4: Credit Card statement cycles

(Sources: VietinBank card Center)

 Card organization: Banknet union, Smartlink, VISA MASTER JCB

This entity will receive the switching charges, the member charges Normally, the international card organization will be received the charges of 1.1% per the payment exchange of the credit card and the local debit card organization will be received the charges of 0.77% per the payment exchange of the debit card These are the charges paid for becoming the member of the above card organizations, paid for the clearing switching charges among the banks which these medium organizations are responsible for solution

Thanks to joining in the above card organizations and unions, the card owner

of other banks in the card unions can pay on any card striking machines of any bank, without being forced the card striking machines of this bank However, both the card owner and the bank will enjoy the most benefit if they

strike the card in their POS This exchange is called “On us” exchange and the exchange on which the card is struck on POS of another bank is called

“Not on us” This is the forced charges and automatically recorded into the account of the provider of this switching service

1.3.3 Impact on the card owner and the unit accepting the card payment

 Impact on the card owner:

Strength: Using the payment card when buying the goods will bring the card

owners convenience because they do not have to draw cash for payment The card owners can quickly pay for the commodities with the big payment value

It is safe because the card owners do not have to keep the cash

In addition to, the card payment allow to the distance payment: via internet, booking room, booking tourism, airplane ticket; spending and consuming in the foreign countries without being exchanged Vietnam dong into foreign currency; avoiding the regulations of Vietnam Customs on brining the cash or foreign currency not exceeding a certain amount

However, there are some small weaknesses such as the risk of revealing the

account information and password, stealing money in the card Many Merchants receive the external charges when using the form of card payment

 Impact on the unit accepting the card payment or the place of cash

advance

In the viewpoint of the Merchants, there is the comparison table between the advantages and the disadvantages as follows:

Advantages Disadvantages

 Reduce the risk of cash

 Save time of checking the

large number of money,

repaying the loose cash

 Increase the sales revenue

 Increase the satisfaction of the

customers

 Create the professional image

of the Merchants in the

customer’s eyes

 The Merchants have to bear a card payment charge from 1 to 3% value of the purchased goods

 The payment is based on the transmission line’s quality and network, machine techniques

 Transparency on the goods revenue if being required by the tax office

The form of paying salary via the card is gradually annulling the form of paying salary via the cash as tradition This is the tendency of the current industrialization and modernization period The multi media reported that in the next time, Ministry of Labor will release the forced regulation on paying the salary via ATM card account According to the statistic, 20% Vietnamese people own the bank card; and the persons making the income in the population tower are the customers of the business merchants, accounting for 50% of Vietnam population Making a calculation can show that 40% customers own the bank card Besides, nearly 100% international customers tend to pay in card for their individual expenditures So that it can be seen that the customer group who can use the card payment service account for the high density among a number of customers trading, purchasing the goods at the present In the view point of intellectual standards of the people, the higher the intellectual standards and the culture are, the larger the card bank using rate is The high intellectual standards are directly proportional to the

income; it also means that the group of 40% customers owning the bank card will be the customers group who has the best payment capacity

Therefore, using the card payment machines is synonymous with that the merchants can save 40% efforts to check the cash, reduce 40% risks of false and torn money and service of loose cash paid for 40% of customers This is the most visible benefit to persuade the fastidious Merchants who are not acquainted with the card payment form and are making the comparison between the service charges and the invisible benefits of this service However, the most significant benefit is increasing the payment turnover of the merchants, which should have the time for checking and clear analyzing

to realize

When going shopping, the customers usually plan in their mind the goods quantity and forms which they will buy, so that they will bring the cash amounts or spend amounts corresponding to the market price of this commodity However, many reasons such as the display attraction of the shop, the suitable space to stir the implicit demand and the clever selling art will make the customer appear the purchase demand that they do not have before coming the shop The buying decision of the buyers is affected by their feelings; these feelings are affected by the environment and surroundings at the period of purchase The card payment service supply is the “clever and invisible hand” for the seller to “winkle” the amount of money which is not in the initial purchase plan of the customers For example, the shopping faithful will be affected by the goods attraction and the brought cash amounts are the

“brake” to inhibit the allowable expenditure rate; however, when having the payment card, the customers can spend more because their payment capacity

is much more thanks to payment card

Another psychology is temporary called “Not see not afraid”; the payment via striking the card does not need the appearance of the cash, the consumers will

feel less suffering when expending Spending simple and gently and partly expressing the modern civilization are two of the factor making the customers who use the payment card expend much more than the customers who use the cash for payment

It is easy to realize that in the restaurants, the hotels having the foreign guests usually install the card payment machines, because these guests living and working in Vietnam bring the credit card or international debit card in order

to exchanging the cash and keeping the cash They usually choose the accommodation place where has the card payment service They book the room and the tourism from their countries and can pay in advance if this business unit has the card payment It is assumed that 10% customers choose the Hotel A because they can not pay in card payment service; it means that this hotel can gain 10% its revenue but loses it for the competitors In the view point of opportunity charges, they will lose 10% (lost) + 10% (felt into the competitors) = 20% sales turnover in comparison with the competitors

CHAPTER 2: THE FACTUAL SITUATION OF CARD

PAYMENT IN VIETINBANK

2.1 GENERAL INTRODUCTION ON VIETINBANK

2.1.1 The general introduction on VietinBank

VietinBank was established in 1988 after being separated from State Bank of Vietnam Being one of the four largest State-owned commercial banks of Vietnam, VietinBank’s total assets account for over 20 percent of the market share of the whole Vietnamese banking system VietinBank’s capital resources keep on increasing over the years and have been substantially rising since 1996 with the annual average growth of 20 percent, especially up 35 percent a year against that of last year

VietinBank has developed an operations network comprising of 01 Transaction Centers, 149 branches, 527 transaction offices, 166 savings offices, 02 Representative offices, 04 Subsidiaries, 03 administrative merchants and 1200 automatic Telling Machines (ATMs) Has established correspondent relationship with 850 banks, financial institutions of 90 countries and territories all over the world

Being the founder of the following Financial Credit Institutions: Saigon Bank for Commerce and Industry, Indovina Bank (the first joint-venture bank in Vietnam), Vietnam International Leasing Company – VILC (the first financial leasing company in Vietnam), Vietinbank Insurance Company Ltd In addition, VietinBank also is the official member of Vietnam’s Banker Association, Asian Banker’s Association, Society for Worldwide Interbank Financial Telecommunications (SWIFT), Visa International Services Association

Being diversified with 04 independent accounting subsidiaries: VietinBank Leasing Company, VietinBank Securities Company, Ltd., VietinBank Asset Management Company, VietinBank Insurance Company and 03 non-profit making merchants: VietinBank Information Technology Center, VietinBank Card Center and VietinBank Training Center VietinBank also is the only bank which has Branch in Europe – Germany now

Card Center, a unit of Vietnam Commercial Joint Stock Bank of Industry and Commerce, all operations are managed by the management principle of centralized control, consistency and conformity with the scope and activities

of the Bank; done dependent-accounting regime, its own seal, opened advance

of the date prescribed by the Bank

Central card management functions, administration and organization of all business activities of the bank card and directly involved trading accounts at the branch, no money for overnight cash advance & that will be completed in

in operational activities and business cards In addition to research, develop policies, procedures, regulations & documents guiding the implementation of business cards, card center also carries out research and product development services & other cards add new card features; performance management, support & distribution branch to ensure organizational business card in accordance with the plan & strategy development

2.1.2 The general introduction on VietinBank Card business Center

VietinBank Card Business Center was established in 2001 on the base of development and restructuring the model of personnel organization of the Card Team At the first time, the total number of staff who was in charge of card works of VietinBank only included 10 persons; therefore they had to implement many different works at the same time and as the result, the development of card works is not too strong In 2003, VietinBank established

the Division of Card Service in order to push up the operation of card business, enhance the professional capacity and the specialization in the card operation Card Business Center was officially established according to the Decision No QD26/NHCT32 dated on July 20th, 2009 by the President of Vietnam VietinBank Directorate including the functions, namely: Researching for the development, managing, executing, organizing for implementation, inspecting and supervising the card business in VietinBank and conducting the direct card business

The birth of Card Business Center has created the turning point in the development of VietinBank’s card service, contributing to raise the self-motivation, the authority of addressing the card works; by this way it makes the favorable condition for VietinBank to push up the development of card service and products, meeting and take highest advantage of opportunities of market development Currently, the number of staff of the Center reaches 160 persons; all are assigned the separate tasks and have high specialization capacity; Most of the cadres of the Center are at young age with good capacity and they are very dynamic and flexible in exploring the information and opportunities for the card service in the market The infrastructure and the machinery system, equipment serving for the development of card service are adequate and modern to meet the best the demand of development of VietinBank card service in the context of current competition

The appearance of Card business Centre contributes to bring VietinBank to be one of the biggest organizations of card issue in the market Besides the traditional products, VietinBank continues to launch the types of new cards in the market Comparing to other banks, VietinBank is always the leading bank with many breakthroughs in making the efforts to modernize the technology and minimize the usefulness for the client

On August, 2006, VietinBank officially launched the trademark of debit card E-Partner Card The card product of VietinBank included the debit card

Furthermore, VietinBank regularly implements many huge programs of expansion and promotion aiming at creating many conveniences in the using the card to pay costs and attracting the attention of the client The quantity of card and card market share of VietinBank continues increasing yearly As of

2010, the quantity of domestic debit card reached nearly 5 million of card; the number of credit card also reaches to 122.000 cards with the market shares of debit card gaining 20% and the market share of the credit card is 25.7% The operative card of VietinBank reaches nearly 90%- the highest rate among other banks

Currently, VietinBank possesses the ATM network including 1,300 machineries which are placed in the headquarters of the branches, the bank’s transaction Department, the Area of Citizen, bodies, schools, etc throughout the country There are over 8.000 points which accept the card The new products continue to be expanded widely such as: Visa debit card, Platinum international credit Card, Co-branding international credit Card, etc and they have the new and improved utilities such as: Receiving the remittance, e-pocket, sending the savings with the term at ATM, invoice payment at ATM, the online payment, prepaid card purchase, etc Especially, in 2010, VietinBank was the first bank which successfully implemented the non-stop service of the road charges and the service of petroleum payment by the card

on the base of co-operation with Military Petroleum Company, etc

The orientation of Card Business Centre strategy is bringing the product of card service of VietinBank to be leading product in terms of quality and quantity in Vietnam Market Up to 2013, Card Business Centre will develop

to become Card business company- one unit of independent business with high income under VietinBank

2.1.3 The process of formation and development of payment operation by card at VietinBank

VietinBank conducted researching and has officially entered into the market

of card service since 2001 After more than 10 years of implementation, together with the development and integration of the nation and the strong growth of the bank, the card service of VietinBank has gained the significant achievements, which confirms the position and trademark in the market and gradually becomes the advantage in the competition of VietinBank in the field

of finance-bank in general and the retail service of banking in particular in the context of integration competition

At the very first days when participating in the market of card, VietinBank had to face a lot of difficulties, challenges of one new market, namely: The technology system has not yet invested satisfactorily, the number of ATM is few; the function of the card is so simple and especially, the citizen are too strange in using the card as one means of payment without using the cash As other banks, in this period, VietinBank made the biggest efforts to overcome these obstacles If at the first time, there are only cards which are too simple with the basic function of drawing money, in 2006, VietinBank started to launch the type of debit card E-Partner Card with the trademarks of card suitable for each client of different markets In addition to providing the normal debit card, VietinBank promoted co-operating with universities, banks

of policy, social insurance and the enterprises nationwide to develop the card

in the connection with the merchants aiming at launching the multi-functional cards Thanks to this creativity, as of this time, the total number of issued debit card of VietinBank reaches more than 7 million cards The product of card service of VietinBank confirms the competition position in the market of debit card in Vietnam As the result, VietinBank becomes the leading bank in terms of issued debit cards

Regarding the product of credit card, in 2005, VietinBank officially became 1 among 04 Vietnam’s banks which are the first official member of the Visa

&Mastercard international organization of card The product of the Cremium international card service of VietinBank provided the diversified term with the various values of growth Furthermore, VietinBank is also known as Vietnam’s leading bank which applies the card technology according to EMV standard (The compulsory technology standard for the member bank of Visa

& Mastercard) in order to ensure the highest safety for the client On the base

of successes in issuing and paying Visa & Mastercard in Vietnam, in 2009, VietinBank officially accepted paying by the international card with the trademark JCB and continued to negotiate with other international organizations of card in the world The total number of international credit cards issued by VIETINBANKcompan gained 150.000 cards, ranking the second in the card market with 30% the market share

Regarding on the network: Currently, the number of machines of the ATM

system of VietinBank increases to 2,000 machines The current quantity of POS also increases up to 12,000machines and VietinBank becomes the second bank in the market in terms of POS market share as of 2010 According to the preliminary statistics, currently, the number of EDC machine of VietinBank gains the first position Especially, with the participation in founding the company with transferring the Banknetvn finance and the dynamic characteristic in the participation of connecting successfully with POS system of almost the banks such as: BIDV, VietcomBank, Techcombank, etc, which creates a wide and convenient network of transaction for the holder of Epartmer Card

Increasing the utility, different value for the card product of the client is the

leading important factor in the close connection with the development of the bank Therefore, over the past time, in addition to extending the market,

increasing the quantity of issued cards, VietinBank always researches, operates, applies the modern technology to increase the card’s utility

co-VietinBank leads in the market in the development of utility of E-Partner Card service Besides the normal utilities which other banks often provide

such as drawing the money, transferring the account, consulting the news, the card holder of VietinBank can conduct more complicated transactions in the card at the network of the branches: ATM, POS conveniently such as: Paying goods, services; sending the savings with the term at ATM; receiving the remittance by the card; paying money for the prepay mobile Subscriber, checking the news of account by the MSM; paying the ticket of train for the company of Saigon Railway after implementing booking the ticket through the internet Besides the debit card, VietinBank also always attaches great importance of increasing the utility, simplifying the procedures for the holder

of international credit card

2.2 THE POSITION OF VIETINBANK CARD SERIVES

2.2.1 The prominent speed of growth, leading in the quantity of market share

The operation of domestic debit issue (ATM card): In the context that using

without the cash is more popular together the directive 20/2007/CP-TTg by the Prime Minister, most of the companies implements paying the salary by ATM; therefore, the quantity of the ATM cards has increased sharply over the past years As of December, 2010, the quantity of domestic debit card gained more than 27 million cards, increasing more than 7,3 million holders comparing to the ending time of 2009 VietinBank- VietinBank passes the VietcomBank, the Bank of East Asia and become the second bank in the market in terms of the quantity of issued domestic debit cards with about 19% the market share, of which the leading bank is The Agriculture Bank with

about 21% market share, VietcomBank gains the third position with about 18% market share and East-Asia keeps the fourth position with 17% market share In order to gain the above-mentioned rapidly increasing quantity, Agribank and VietinBank continued exploiting, extending the subject of clients in the combination with the programs of promotion, issuing cost exemption

Figure 2.1 : Debitcard segmentation in 2010

(Source: Vietnam Card Association )

According to the statistic from the market research department, as of November, 2011, VietinBank issued from 5, 7 million cards to more than 7 million credit cards while the second competitor just issued nearly 6,5 million cards and with the official result from the Card Association, VietinBank will

officially become the bank leading the market in issuing the debit card

The operation of international credit card: According to the tendency of

issuing the card over the past years, the number of domestic debit card has grown sharply and this makes the market of debit card become saturated Mastering this tendency, the domestic commercial banks gradually moves toward the new orientation, namely: increasing the human resources to push

up developing the quantity of the international credit cards- the type of card