LV Thạc sỹ_Develop the credit card business activities in HSBC Vietnam

1.3 Risk and control risk...271.3.1Risk on issuing28 1.3.2Risk on currency and payment card 29 1.3.3Control risk 30 Chapter 2: Situation of Credit card in HSBC Viet Nam 32 2.1 Overview o

NATIONAL ECONOMICS UNIVERSITY

ADVANCED EDUCATIONAL PROGRAM

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BACHELOR THESIS DEVELOPING CREDIT CARD BUSINESS

ACTIVITIES OF HSBC VIETNAM

The report is being made for the fulfillment of Internship course.

I would like to thank the following people at HSBC who provided me help to learn as much as possible during a short span of time.

The Internship Report is prepared under the supervision of Banking and Finance of National Economics University.

I would like to extend my gratitude’s to my teacher for her advice,

encouragement and valuable suggestions which made it possible for me to complete

my Internship Report.

The purpose of research work is to analyze the real situation and find the solution to develop credit card activities of HSBC Vietnam from 2009 to 2011 The Internship Report contains Overview of Credit card, Real situations and Solutions.

In this report primary and secondary data is used In primary date the

information is collected by getting briefings form Card center and in secondary data published literature of HSBC and the electronic data on HSBC’s website.

TABLE OF CONTENT

PREFACE

ABSTRACT

TABLE OF CONTENT

Chapter 1: Overview of credit card 6

1.1 Overview of Credit Card 6

1.1.1Definition 6

1.1.2History of credit card 6

1.1.3Classification 8

1.1.4Advantages and disadvantages of payment by credit card11

1.2 Procedure of issuing, using and payment credit card 13

1.2.1Issuing procedure 13

1.2.2Accepting and payment procedure of credit card 14

1.2.3Complaint and refund 17

1.3 International credit organization 18

1.3 Risk and control risk 27

1.3.1Risk on issuing28

1.3.2Risk on currency and payment card 29

1.3.3Control risk 30

Chapter 2: Situation of Credit card in HSBC Viet Nam 32

2.1 Overview of HSBC Viet Nam 32

2.1.1Overview of HSBC Group 32

2.1.2Overview of HSBC Viet Nam 32

2.2 The real situation of issuing, using and paying credit card in VietNam 38

2.2.1Legal foundation 38

2.2.2Overview of the situation of issuing, using and paying credit card in HSBC Viet Nam

392.2.4Advantages and disadvantages of developing credit card operation in HSBC Vietnam

50

Chapter 3: Some solutions to develop the credit card

business activities in Viet Nam 52

3.1 Business orientation of credit card in HSBC Viet Nam 52 3.2 Some solutions to develop credit market in HSBC Viet Nam 53

3.2.1Expand target customer who can use credit card 53

3.2.2Strengthen marketing strategy 53

3.2.3Invest technology and equipment 54

1.1.1 Definition

Credit card is an alternate means for making payment This payment is made oncredit, i.e the cardholder is not required to pay any money immediately for their purchases.The credit card issuing bank first pays the merchant for the purchases and the cardholdersettles the transaction amount on or before the payment due date

Cardholders can also withdraw cash from the credit card account (cash advance) ifthey wish to

A credit limit is assigned to each card within which cardholders can spend andperform cash advance

A credit card also allows the customer to 'revolve' their balance, i.e not paying thestatement balance as indicated in the credit card monthly statement in full However, theminimum payment amount stated in the credit card statement must be paid on or before thedue date

A credit card is different to a debit card in that the former does not remove moneyfrom the cardholder’s deposit account after every purchase or cash withdrawal

It is also different from a charge card which requires the balance to be paid in fulleach month

Credit card is a popular product in developed countries, but in Vietnam, it is still avery new concept with more than 95% of Vietnamese population According to somesurvey, due to local people’s habit of paying in cash, over 90 percent of amount paid incredit cards in Vietnam was by foreign visitors and Vietnamese card holders who spentmoney abroad The forecasts that there will be a major change in both the number and type

of credit card users thanks to international banks and card organizations’ currentprogrammes to expand their markets

1.1.2 History of credit card

The first card in the world was issued by California Petro Company for theirworkers and customers in order to promote selling its products

In 1949 an American businessman Mc Namara had dinner in a restaurant in NewYork He was embarrassed when he did not bring cash with After that time, he invented a

payment tool which could replace with cash carrying He issued a card name “DinnerCard”, which its annual fee was USD 5 These card holders could debit money when theyhad dinner in 27 restaurants in New York Till 1951, there was 1 billion USD had beendebited from these cards and more and more cards rose up The Diner Card issuingcompany gained much benefit from its job Mc Namara sold all share for two otherscollective name Ralph Schneider and Alfred Bloomingdale in 1953 because he could nothave foreseen he could earn billions USD of this new job (issue Dinner Card).

In the Dinner Club development system of Schineider, retail agents would gain 5%commission per each product Retail agents satisfied with benefit because they hopedwould sell to a lot of people by this channel

These first credit Cards were issued for high-ranking and rich person in New York,event that they could use them to pay among 27 restaurants at that time To go along withDinner Club’s tendency, American Express Company also issued American Express Card.But because of their limited in restaurant and travel usage only, so Credit Card was notpopular to large of people and it also was not as The Magic Card

In the World War 2 (WW2), all Credit card and Charge Card were forbidden to usetill the end of WW2 Banks were interested in Cards’ benefit so they took part in this field.However, card still use in local areas and in retail stores Till 1970 when the telegraphicdeveloped and the raising of basic system of “The Standards for Magnetic Strip”, thetechnique of Credit Card have extremely developed and became a part of the informationperiod

In 1966 Bank of America cooperated with different banks in other States to hungover the right to issued of American Card for banks by their agents contract, which speeded

up the development of card Till 1977 Bank of America’s Credit Card was accepted all overthe world

The Visa, which its main color were turquoise, white and yellow, replaced forBankAmerica

In the same year 1966, group of 3 big banks in the East of USA agreed to set upprivate credit Business Corporation which named Interbank Card Association (ICA) After

that, ICA changed to MasterCard ICA issued rules about balance transaction, marketingactivities, security about legal issues in order to run the system effectively In 1968 ICAexpanded its task in global by cooperating with Bancon National Bank of Mexico ThenICA continuous to fine partner in Europe market and issued Euro Card Still in the year

1968, in order to reach the EST Asia market, ICA had enlarged some members in Japan

Beside the advantages the development of credit card also faced to thedisadvantages such as in the Christmas Eve 1966, Banks in Chicago had delivered creditcard to all families both people who had gone far away as well as babies A lot of themused credit card and some of them sold those cards It was certainly that the name of thepeople on the card had to take responsibility for those cards

In Oct 1970, the President Richard Nixon signed a regulation which ruled thatBanks could not deliver credit card to whom without demand and if card holders informedthat they had lost or stolen their credit card, they would be not take responsibilities for theircard payment since then After that, the legal tighten about Card issue

Nowadays, card is developing and appeared all over the world, and it becomes apopular payment tool in the developed countries Companies and banks coordinate withothers to develop such a much benefit field Card payment becomes an intelligent andconvenient style Master, Visa, Dinner Club, JCB, American Express cards are used allover the world and they divide together the broad market

 Smart Card

As the latest generation of credit card, security is very high Smart card based oninformatics technology through attaching an electronic chip which has structure like aperfect computer However due to new technology, high cost make accepting payment thiscard only prevalent in developed countries

b/ According to issuing subject

 Debit Card

Debit cards issued by banks for deposit accounts opened at banks allow cardholders

to pay for owners a part or full of account balance The payment is performed by

transferring money from the cardholder's account to the seller's account Cardholders are spent within their ability, but in order to increase the competitiveness of this card, bank cangrant an overdraft leel

There are two basic types:

Card online: is a debit card that transaction value is deducted immediately on

account

Card offline: is a debit card that transaction value will be deducted on account after few days.

 Cash card

Cash card has specialized functions to withdrawal at ATMs or at banks Onlycardholders who have deposit or are granted credit in account can use cash card Theamount of withdrawn each time will be subtracted from the deposit Cash Card with thefollowing categories:

- Automatic Teller Machine

- Check Guarantee Card

- The types of Debit card with brands such as Circus, IDPLUS of VISA; Mastro ofMaster Card

 Stored Value Card

Card is issued by submitting a certain amount to buy, each time using the amount oncard is deducted This tag is often used to purchase goods with relatively little value such

as petrol in automatic stations, phones, road charges

e/ According to acceptable use policy

 Business Card

Business card is issued for employees to use, in order to help company to closelymanage spending on general works of company Monthly, quarterly and annually companywill be provided summary and detail information of these spending.

 Travel and Entertainment Card

A type of card issued by corporations or large private companies serves tourism andentertainment

1.1.4 Advantages and disadvantages of payment by credit card

a Advantages of payment by credit card

Finding credit card signed to make a sudden attack on banking technology Concertwith the socio-economic developing in the world, credit card has been promoting itspositive role:

- First, contribute to reduce the amounts of cash in circulation Credit paymentoccupies maximum density of facilities in the developed countries As a result, decreasingvolume and pressure cash inflow, reducing transportation cost, distribution cost, cashinventory in economy, and helping to limit counterfeit money calamity

- Second, contribute to speeding up the payment cycle Most of transactions withinthe country or in the worldwide is achieved and paid online, so the speed is faster than itsother payment facilities Instead of transactions on paper, all information of cardtransactions is processed through convenient electronic machinery

- Third, execute macro-management policies of the State Using card achievedthrough by internet under the control of Bank has created important conditions forcontrolling the cash volume of the population and of the whole economy Thereby, reducethe underground economic activities, and be able to calculate money supply

- Fourth, improving the civilized business environment, attracting tourists andforeign investments Payment in card facilitates Vietnamese economy to affiliate with theworld in financial banking Thereby, create the civilized business environment to attractmore foreign inventors and tourists Payment in card which is safe, efficient, fast and

accurate will put customers ‘faith upon banking system Only with the small card, you canclear goods and services with any kind of money without paying any surcharge at the POSs

in the world

+ Do not be limited the amount of cash in hand, and can solve sudden generatedneed of yourself

+ Be granted a credit line to expense first, pay later

+ Can withdraw cash as needed at banks or ATMs in the world

+ Can check balance at the place which can advance cash through by bankingequipments

+ Can enjoy some services provided by bank such as: insurance services, medicalservices, global supports

+ Be safe property, only cardholder knows the password (PIN), thus safe onfinancial management of accepting card units Because transaction information arerecorded, be no loss in cash and avoid counterfeit money, reduce error of payment

- Fifth, less cost effective if borrowing for a short-term period – Personal loans can

be expensive to borrow than if you borrowed the balance off a credit card The interest ispaid on the remaining debt only, not the whole loan

 More flexible – You can pay small amounts each month or can pay up to the totalbalance

There are no redemption penalties – If you paid off a loan earlier than contracted, youwould come across a redemption penalty

 Interest free credit – Normally, up to 30 days interest free credit

 Telephone and Internet shopping – With this you can purchase items remotely

b Disadvantages of payment by credit card

Payment by credit card has many benefits for customers, many profits for Bank andeffective socio-economy However, this payment also has some disadvantages following:

+ Credit limit exceeded – You are only limited to a certain credit limit

+ Higher rates when withdrawing cash – If you withdraw money out the cash point,

it can be much more cost effective

+ Can fall into a larger debt – Credit cards offer a feature, which can make people,spend more than what they can actually afford

+ Using credit card is limited more than using cash because it can be used inaccepting card units

+ Banks should issue a great number of cards if they want to have many profits Inthis case, banks must incur great expenses to using technology and ATM system, setting upthe accepting card network

+ Easier to be a victim of fraud – When using your credit card remotely, you have ahigher chance to be a victim of fraud as card details may be taken and used by a thirdparty

1.2 Procedure of issuing, using and payment credit card

1.2.1 Issuing procedure

Issuing procedure is the first on card service of bank It includes: managing andexpanding the issuing card, following expenses and debts of customers Not only supply acard, there is also the following service process related to use card

Diagram 1.1: Issuing procedure

(1) First, customers present the issuing documents for bank These documentmust be completed the request of bank, filled some information, such as: full name, age,sex, income, job, residency status …

(2) Bank approves the application of customers Review process is carried outstep by step by following, such as: evaluating accurately informations provided bycustomers, estimating their capacities, estimating risk to decide the requirement or toamend more details.

(3) If accepted, bank issues card for cardholder It includes: open account, typeand class of card, limit expense, expired date Last, print and give card to customer

After giving card for customer, bank must:

+ Manage information

+ Manage using activities of cardholder

+ Collect debts of cardholders

+ Organize clearing with international card

In addition to enjoy issuing fee, bank can receive exchange fee which bank shareswith international organizations It is the basic profit of financial institutions and banks.From this, they offer interest-fees and incentives for customers to expand using cards and

as well as increasing sales

1.2.2 Accepting and payment procedure of credit card

Issuing procedure finish when customers receive credit card and they can use it tospend, pay or withdraw without credit limit signed with bank When they buy goods orservices, they can take card to pay They can pay by machine – the major payment, or byhand It is so fast to process, only 3 to 4 seconds, however it is complicated There aredivided into two parts:

Stage 1: Accept payment

Diagram 1.2 : Card acceptance payment procedure

acceptance units

Card payment center

Issuing bank 2

( 1 ) When cardholders buy goods or services at card acceptance units by card, unitsrub card through electronic machines and input information of cardholders, units andtransactions that will be transferred to international credit card payment center.

( 2 ) At international payment center, data from the units is accepted and transferred

to issuing bank to request bank confirmation these spending

( 3 ) Issuing banks receive data form center and carry out data processing: checkcredit limit to ensure that owner spending still fall within credit limit or do not include:Blulltin list, locked card …

( 4 ) Accepted, issuing bank will send the report which inform that they accept thespending of cardholders

( 5 ) International credit card payment center receive the report from issuing bankand resend to card acceptance units

( 6 ) At the units, after receive the report from the center, electronic machine willprint bill to be confirmed by cardholders

Stage 2: Collect cash and debt

Diagram 1.3: Collecting cash and debt procedure

Card acceptance

units

Cardholder

Card payment center

Issuing bank

3 4

Reimbursing bank

( 1 ) Card acceptance units send information about card transaction to reimbursingbank.

( 2 ) Reimbursing bank take charge money to account of card acceptance unit, andsends transaction information to international credit card payment center This center takescharge money to reimbursing bank, debit and send data of transaction to issuing bank

( 3 ) Issuing bank receives information from center, officially debits credit limit ofcustomer Issuing bank will list their spending and send it to them, and request payment inprompt

( 4 ) Cardholder receives list from issuing bank After checking again, he will payhis spending

These transactions need many supporting merchandises, there are three majorequipments:

- Point of sales POS

- Electronic Data Capture EDC

- Automated Teller Machine ATM

1.2.3 Complaint and refund

If customers with any reason do not pay credit card as their request, issuing bankwill ask them to complain and carry out investigation

Diagram 1.4: Complain and refund procedure

( 1 ) Cardholders will dispute items in their account statement which they confirmthat they did not use.

( 2) After check information which cardholders provide, issuing bank requestinvestigation to international credit card center

( 3 ) This center receives request and continuously sends it to reimbursing bank.( 4 ) After that, reimbursing bank will require card acceptance unit to present thenecessary documents in order to prove these transactions

( 5 ) These documents will be sent to reimbursing bank by unit

( 6 ) After reimbursing bank revises evidence, they will present supportingdocuments and inform the International Card Center

( 7 ) Center will revise documents and answer issuing bank

( 8 ) Issuing bank will inform customers about claim, after it receives answer of theCenter

It is the basic step to solve claim; in fact, each step requires many things to take thelast result All steps have to base on the card regulations of International card Organization,and the card regulation of each country, each bank, and each issuing and reimbursing

Card payment center

7 8

1

organization In general, it takes many time, requirements, and debate among relatedparties As a result, which is wrong must take charge of indemnity

1.3 International credit organization

There are many organizations in the world which issue the credit card, such asMaster, Visa … However, I only represent two major organizations Master and Visa

1.3.1 VISA

The story of VISA is inseparable from one of the most significant paymentinnovations of the twentieth century the payment card By developed this tool ofunprecedented flexibility and popularizing its use around the world VISA shape the waythat people everywhere live

The VISA card has helped bring possibilities and independence to millennium VISAera began in 1958, when the Bank of America first issued its blue, white and goldBankAmericard to customers in California Its bedrock concept of personal empowermenttraces back much earlier A.P Giannini, founder of the Bank of America at the beginning ofthe century, believed that flexible personal credit could help ordinary men and women takecontrol of together The BankAmerica, a financial instrument established to drive positivesocial change, continued this legendary of compassionate, customer focused banking

With BankAmerica international popularity in the 1960s and 1970s new corporateentity, jointly owned and a operated by license member institutions, was created to supportthem The name “Visa” was introduced in 1976 and applied to the new organization SoonVisa credit cards were spreading around the world

Under the leadership of Dee Hock, Visa laid the groundwork for the success of itsmember financial institutions for decades to come Hock oversaw the creation of the first-ever electronic system for handling credit transactions-an investment in transactionprocessing infrastructure which would lead to rapid growth and expansion Throughout the1980s and 1990s, Visa continued to make important strides forward, introducing the firstpremium credit card, creating the first global ATM network, developing new smart andprepaid cards and gaining market share around the world

Today, Visa proudly lives up to its heritage by focusing on empowering customers.Visa 21,000 member institutions have issued more than one billion cards and to its valuesremain firmly anchored in service, commitment and innovation Visa is pioneering thecreation of commerce, or universal commerce-the ability to conduct commerce anywhere,and way In the real world and online, Visa is leading the global market with exciting newput on larger and grader and celebrations in an attempt to out-do each other.“Commercetechnologies and capabilities that add convenience and each to its payment solutions”.Jointly owned by more than 21,000 financial institutional around the global reach, Visaremains very much a local organization, giving its regional offices a high degree ofoperating and marketing autonomy, Because Visa’s regional organizations are closest totheir local markets, they know best how to help member institutions serve their customers.Empowering member financial institutions-it’s the principle that underlines Visa’s success.

Visa products and services-including credit, debit and prepaid, corporate, purchasingand business products-are offered directly by member financial institutional to theircustomers Visa international focuses on providing members with a strong competitiveplatform, including an advanced transactional processing infrastructure and globalbranding and marketing But around a highly responsive and flexible regional structure,Visa International also leads new initiates in product development, global research andstrategic alliances

1.3.2 MASTER

MasterCard International is a global payments company with one of the mostrecognized and respected brands in the world We manager a full range of paymentprograms and service, including MasterCard credit, MasterCard debit cards, Maestroonline debit cards, Cirrus ATM cash access, and related programs

With approximately 22,500 MasterCard, Cirrus and Maestro members worldwide,MasterCard serves consumers and businesses, both large and small, in 210 countries andterritories MasterCard is leader in quality and innovation, offering a wide range ofpayment solutions in the virtual and traditional worlds MasterCard’s award-winingPriceless advertising campaign is now seen in 98 countries and 46 languages, giving the

MasterCard brand a truly global reach and scope MasterCard is accepted at millions oflocations around the global.

MasterCard began in the 1940s when several U.S banks started giving theircustomers specially-issued paper that could be used like cash in local stores In 1951, TheFranklin National Bank in New York formalized the practice by introducing the first realcredit card

Over the next decade, several franchises evolved where a single bank in each majorcity would accept cards as payment with certain merchants they chosen to work with ONAugust 16,196, one of these groups formed the interbank card Association (ICA), whichlater become MasterCard International

Unlike other similar organizations, ICA was not dominated by a single bankMember committees were established to run the association They established rules forauthorization, clearing and settlement They also handled marketing, security and globalaspects of running the organization

Once the organization was well underway, it was time to expand globally In 1968,ICA began what is now a huge global network by forming an association with BancoNacinal in Mexico Later that year, they formed an alliance in Europe with Euro card andthe first Japanese’s members joined

Many countries followed behind the early international members and by the late1970s ICA had members from as far as Africa and Australia To reflect the commitment tointernational growth, ICA changed its name to MasterCard In the 1980s, there was futureexpansion into Asia and Latin America In 1987, MasterCard become the first paymentcard to be issued in the People’s Republic of China In 1988, the first MasterCard wasissued in the Soviet Union

Today, there are over 37 MasterCard offices around the world with the global areaccepted in more locations around the world than MasterCard

1.4 The facilities of credit card

1.4.1 For customer

In the first appearance, credit card had seen many facilities, especially with the highincome people However, it is more popular and convenient today, people who has fixedincome also uses it There are some benefits of credit card:

Flexibility and convenience on payment at home and abroad:

The prominent benefit is more flexible and convenient than its other instruments.Cardholders can really feel it when they travel or work in foreign countries Credit cardssuch as Visa, MasterCard and within less than Amex and Diners are accepted in the world

It means when planning to do abroad, instead of preparing amount of foreign currency ortraveler’s cheque, they can pay all expenditures by these cards

Saving time and higher abandonment value:

Credit card is more convenient than cash or traveler’s cheque in whole trip Withtraveler’s cheque, people must plan how much they will spent, after that must do procedure

to buy a check at bank They also pay fees, although in fact they have not yet used thischeque When go back, if they have not yet spent all value of it, they will take time tochange from cheque to cash or accept exchange rate risk while holding it to the next use

Using card is much simpler They do not need to plan or prepay for bank, due tothey can spend first and pay later Their accounts only are debited when they really spend

or payment by card Moreover, the exchange rate when they pay by card is more beneficialthan its payment in cash or traveler’s cheque Thus, not only saving money, it also savesbuying time, waiting procedure time to buy traveler’s cheque or cash, and limits risk

Credit automatically and immediately:

Purchasing ability without restraint is a facility of card Although plan merchanting

or not, card is also an automatically credit source People usually are afraid to do bank loanapplication, and they will highly appreciate card as a short-term credit, simple issuingprocedure (even by post) Moreover, they only pay a part (currently defined at least 5%)when mature (usually 1 month), the remainder can be paid later

Protecting consumers:

In the developed countries which have credit law ( such as Consumer credit law inthe UK issued in 1974), they regulate that consumers must protect maximum for itemsbought by card and valued at £100-15000 If the quality of item does not meet, they canrequest bank protection, even can be compensated Some banks also have concomitant

insurance such as: substitute items when stolen, damaged or lost; disburse accident or deathinsurance for goods or service paid by card Moreover, bank has incentives when usingsome medical services (for example PPP, BUPA in UK), club or bonus point after usingcard and these points can be accumulated to change other goods.

Cash withdrawn:

People can withdraw cash promptly in everywhere and at every time through banks

or ATMs, and use the other services provided by ATMs, such as: loan repayment,transaction, checking account balance …

Controlling spending

With the monthly statement sent by bank, cardholders can completely control theirspending, and calculate fees and interest paid each transaction Cost of all benefits cardoffers is annual fee which they must be beard and interest if transactions are not paid ontime; this interest rate is as high as its overdraft loans(currently at 25 – 26% per year).However, with all benefits, these fees are not appreciate and able to be accepted

1.4.2 For offices

Ensuring payment

For retailers, payment by card is more convenient than its cheque When customerswish to buy an item which value is greater than cheque’s warranty, tradesman must face todifficult choice: accept to pay by cheque and bear risk if bank refuse payment; or not selland sales figures will decrease With cards, accepting card units can be assured to becredited on account as soon as transmitting information from electronic machinery to bank.The license application for bank is also very fast and secure through automatic licensemachinery

Increasing sale goods and services, attracting more customers:

Accepting payment by card is to provide customer prompt and convenientequipment, therefore attractive ability will increase, theirs sale revenues are growing Cardcreates ability which is greater than other competitors Civilized and modern environment

is the important factor to draw customers, particularly foreign tourists and inventors

Rapid payback:

When data of transaction is transmitted to bank or units pay bill, their accounts will

be credited immediately The amount of money can be used to turn over capital or othertargets Rapid payback is more convenient than check which usually must take the fixedtime to be paid

Safety and security:

Transaction is paid immediately on accounts of units, although if not, payment bycard has less stolen risk more than payment in cash or cheque A drawer full of cash orcheque which has big value will be the object of dishonest employees and thieves.However, the same money shown on the invoice will not be taken care because it is onlygreat matter to the units

Rapid transaction with customer:

In transaction for cash, counting and recording are very complicated However withcard, the more devices in EFTPOS (Electronic funds transfer at point of sale) are used, thesimpler payment Just only put the tape over this device, all information is identified, andthe transaction is done EFTPOS system helps to push sale treatment process, to providesale information to bank, not to handle on paper

Reducing selling expenses

Due to payment by card helps units to significantly reduce cost of counting cash,preserving money, and managing finance; units can be decreased selling expenses

The difference between units and bank is the fees which they must pay for bank.Even though devices provided and preserved without charge by bank, depend on regulation

of each bank, units must bear fee counted transaction value: about 1,6% of transactionvalue in Uk, 3-4% for Amex card ( in everywhere), 2,5-3,6% in Vietnam

Another factor that may be profitable in this card is loyalty of customers Oncecustomers open account or card at bank, rarely would they like to change other rivals.Exploiting this psychology of customers, bank can increase interest rate in credit to gainmore profits without be afraid of flat losing customers.

In addition card business also make a “cross support”, which is effective for bank.The high rate from card business can compensate for less profitable activities from currentaccount business (usually low interest rate)

Global service

As a member of international card organizations such as Visa or MasterCard, eventhe smallest bank in the world also gives payment facility as any other competitors Forexample, everyday a bank in the UK - Fleming/Save & Prosper must pay transaction bycredit card for many banks in the world Through relationship with international cardorganizations, this bank only has dealing with Visa to pay all After profits, the ability toprovide global service is the greatest benefit to bank, which condition for bank to take part

in globalization process and affiliation with international community

High efficiency in payment:

Through by encouraging customers to use card, bank will do less transaction bycash and check Bank has many benefits: implement less transaction, update dailyinformation provided by international card organizations like Visa, Master in electronicform can make debit on customer account is faster, simpler…thus bank activities are moreefficient

Diversifying the types of banking services

The appearance of credit card enriches banking services, give the most convenientfacility, and satisfy the best demand of customers Not only that, in developed countries,the more developing issuing and payment card service, the more opportunities to expandthe other services such as: investment or insurance Information of these services will besent customer with monthly statement of bank According to statistics, in Fleming/Save &Prosper, 30 percent of cardholders have bought these services.

Modernizing banking technology:

Adding a new type of payment forced bank to constantly improve: improve level,equip more devices to give customer the best conditions on payment, ensuring prestige,safety, and efficiency of banking operations

Increasing capital for bank

Owing to credit card, the number of money to payment and the number of agentaccounts are also growth With the relatively large transaction volume, these accounts willgive bank a substantial amount of capital in cash, which can also consider as a source ofprofit for bank

Nowadays, in the world payment by card has become an inevitable trend Indeveloped countries, more than 80% of goods and services flow is paid by credit card.With a wide range of such payment, the roles of card surely extend more with everypassing day

1.4.4 For economy

Thanks to the brilliant achievements in information technology in recent years, theuse of credit card is constantly developed and expanded It show more its role indeveloping socio-economic in the following aspects

Reduce amounts of cash in circulation

As a device of non-cash payment, the first role of card is to reduce amounts of cash

in circulation In the developed countries, consumer payment by credit card accounts forthe largest proportion of total theirs devices As a result, amount and pressure of cashinflow decreased appreciably

Rapidly increase volume of transaction and payment in the economy.

Most card transactions within the country or in the world have been pay online, soits turnover and payment rate is faster than its other devices such as: cheque, paymentorder, and authorized to collect Instead of handle in paper, all information in card paymentare processed through an quickly and conveniently electronic device system

Implement of macro-control policy of the state

In card payment, transactions are under the control of bank Relying on that, bankcan easily control all transactions, provide the basis for the management of State tax, andexecute national foreign exchange policy In the real current, all regimes and policiesrelating to card depend on foreign exchange management policy of the state

Implement "deficit spending" measure of state

The more convenience using card for customers, card acceptance units, banks themore people want to use card and increase spending It makes card become an effectivetool contributing to implement “deficit spending” measures of the state Encourage issuingand payment card also promotes consumer demand Since that, create a effective supplycapital channel of commercial banks

Improve civilized commercial environment, attract tourists and foreign investors

Card payments reduce the manual transactions, which approaches a civilized facility

of the world, thus the commercial environment is more civilized and modern It is also afactor to attract tourists and foreign investors Besides being of great advantage to society,card is used more widely; due to the practical utilities bring to the directly related subjectssuch as: the cardholders, card acceptance units, banks

1.2 Factors influence developing credit card

1.2.2 Customer income

High income means higher living standard When living standard is improved, thetravel and entertainment demand are higher Credit card is the most effective device tosatisfy their needs On the other hand, only the high and stability income can meet theconditions of the bank which issues card With low income, even though customers wish touse card, the bank is also difficult to accept

1.2.3 Technical level

Card payment associates with the modern machinery If this system is get trouble, itwill make congestion in whole system Once present card services, bank must ensure thattheir payment technology is as modern as in the world Moreover, only have hightechnology, operation and maintenance system which serves the issuance and payment card

is effective Reducing service costs thus attract more people use it

1.3 Risk and control risk

Credit risk is much more safety than its other investment and lending The safety isshown on its issuing form In the current, credit cards issued in three forms are:

• Secured card

• Unsecured card

• Combining these forms

In the first time issuance, cardholder must mortgage 125% of credit limit granted

As a matter of course, it is absolutely safety for bank However the secured card is difficult

to develop credit card market and just fit in the testing period

Unsecured card is interested in as the new factor to expand the card market Bankbases on personal, annual income to determine the credit limit However this release form

is the most risky, particularly cardholder can pay because of subjective causes from them

or objective ones that affect credit repayment In fact, the current banks combine use ofthese forms; there are evaluating customers and requirement deposit to regulate the creditlimit

The credit card activities contribute to find the long-term and high stability partners,because this consumption credit in short-term is less variable of economic cycle Once

credit contract signed will connect bank to customers, the number of cards willcontinuously increase Rarely do cardholders take the initiative in dissolution with bank,except they are contracted out Creation of credit relationship, long-term settlement in theeternally evolving and keenly competitive environment are the major advantages of cardbusiness.

1.3.1 Risk on issuing

1.3.1.1The credit card application with falsifiable information

Due to carefully appraise record, bank issued credit card without knowing that theinformation is falsified These cases will take credit risks, on payday cardholders cannot besolvent

1.3.1.2Counterfeit card

Cards faked by criminal organizations base on information which they derived fromtransactions or cards were stolen Counterfeit cards are used to create fake transactions,which cause great damage to banks, particularly the issuing bank, because it absolutelybear the legal liability to all transactions of counterfeit cards which have bank code It isthe most dangerous risk that is difficult to manage, due to relate to multiple informationsource and beyond control of the issuing bank

1.3.1.3Stolen and lost card

Cardholders are stolen or lost cards, and used by others before they advise issuingbank to find the solution to restrict use or withdraw card These cards can be exploited bycrime organizations to emboss and encode cards again, which execute fake transactions.This risk which can cause damage to both cardholder and issuing bank is usually thelargest proportion

1.3.1.4Cardholders received no cards

Issuing bank sent card to customer by post, but it is lost or stolen While cards isused, the owners have no idea about it In this case, the risk will be incurred by issuingbank

1.3.2 Risk on currency and payment card

1.3.2.1Accounts are exploited

Become due to reissue card, issuing bank receive the request of changing address ofcardholder As bank has no check it, card is sent to the new address where the owner is, the

accounts are exploited This fault only reaches when the owner asks bank for new card orwhen he receives the debt statement which he has never spent Both issuing bank andcardholder are incurred losses

1.3.2.2Cards are falsified to payment by mail and telephone

Card acceptance units provide goods and services ordered by mail and telephone,they base on information of owner: card type, card number, effective date, cardholdername… However it is no idea to check who the real user is When this transaction isrefused, units must risk

1.3.2.3Employee of card acceptance units forges bill

Employee of units intentionally prints a lot of bills of one transaction, butcardholder signs only one bill The other will be forged a signature to require money frombank

1.3.2.4Create fake tape

Risk occurs when crime organizations use the equipments which are specialized incollecting date in tape of real card Then they use devices to encode and print magnetictape in counterfeit card, and do the fake transactions The type which bases on hightechnology is developing in advanced countries to cause damage to banks

1.3.2.5Other risks

Risk of dishonest customers: False customer intentionally use card at differentreception points with the lower payment limit, but total is higher than credit limit It is onlydiscovered when bank paid bills to card acceptance units and bank can incur when ownercannot be solvent Cardholders also take advantage of global essence of credit card tocollude with others, hand card over to others to use at different countries by fake signatureand refuse payment when issuing bank requires

Risk that payment bank must incur because in time not to provide blacklist for agentwhen transactions are accepted

1.3.3 Control risk

To prevent and limit risk, each banks has to fully and exactly issuing and paymentcard process These regulations promulgated banks based on standard of the international