Risks in credit card business activities at bank for investment and development of vietnam JSC BIDV

ĐẠI HỌC QUỐC GIA HÀ NỘI KHOA QUẢN TRỊ VÀ KINH DOANH --- PHẠM NAM SƠN RISKS IN CREDIT CARD BUSINESS ACTIVITIES AT BANK FOR INVESTMENT AND DEVELOPMENT OF VIETNAM JSC-BIDV RỦI RO TRONG

ĐẠI HỌC QUỐC GIA HÀ NỘI KHOA QUẢN TRỊ VÀ KINH DOANH

-

PHẠM NAM SƠN

RISKS IN CREDIT CARD BUSINESS ACTIVITIES

AT BANK FOR INVESTMENT AND DEVELOPMENT

OF VIETNAM JSC-BIDV

RỦI RO TRONG HOẠT ĐỘNG KINH DOANH THẺ TÍN DỤNG TẠI NGÂN HÀNG TMCP ĐẦU TƯ VÀ PHÁT TRIỂN

VIỆT NAM – BIDV

LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

HÀ NỘI - 2021

ĐẠI HỌC QUỐC GIA HÀ NỘI KHOA QUẢN TRỊ VÀ KINH DOANH

-

PHẠM NAM SƠN

RISKS IN CREDIT CARD BUSINESS ACTIVITIES

AT BANK FOR INVESTMENT AND DEVELOPMENT

OF VIETNAM JSC-BIDV

RỦI RO TRONG HOẠT ĐỘNG KINH DOANH THẺ TÍN DỤNG TẠI NGÂN HÀNG TMCP ĐẦU TƯ VÀ PHÁT TRIỂN

VIỆT NAM – BIDV

Chuyên ngành: Quản trị kinh doanh

Mã số: 8340101.01

LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

NGƯỜI HƯỚNG DẪN KHOA HỌC: PGS.TS PHẠM THỊ THANH HÒA

HÀ NỘI - 2021

DECLARATION

I hereby declare that the data and research results in this thesis are truthful and have never been used All the help in implementing this thesis has been appriciated and the information cited in the thesis has been quoted

ACKNOWLEDGEMENT

Through theoretical and practical research, the author has completed the

master thesis with the topic “RISKS IN CREDIT CARD BUSINESS ACTIVITIES AT BANK FOR INVESTMENT AND DEVELOPMENT OF VIETNAM JSC - BIDV”

First of all, I would like to express my deep gratitude to Assoc., Prof., Ph.D Pham Thi Thanh Hoa who scientifically help me to complete this thesis

I would like to thank the teachers of the Ha Noi School Of Business & Management (HSB) for their candid, profound comments and wholehearted help to complete this thesis

I would like to send my sincere thanks to the leaders and departments of the Bank for Investment and Development of Vietnam JSC - BIDV for providing information to analyze as well as comments for me to complete the thesis

I would like to express my gratitude to my family, colleagues, and close friends who have regularly encouraged and helped me in the most difficult times to pass and complete my master training

Thank you very much!

TABLE OF CONTENT

LIST OF TABLES, CHART, CHART, DRAWINGS i

LIST OF FIGURE ii

INTRODUCTION 1

CHAPTER 1 THEORETICAL BASIS OF CARD AND RISKS IN CREDIT CARD BUSINESS ACTIVITIES OF COMMERCIAL BANK 6

1.1 Theoretical basis of card 6

1.1.1 Card definition and development history 6

1.1.2 Card classification 7

1.1.3 Card usage and payment process 9

1.1.4 The card business segments 11

1.2 Risk in credit card business activities at commercial banks 17

1.3 Card risk management at commercial banks 20

1.4 Factors affecting risks in credit card business activities at commercial banks 23

1.4.1 The subjective factors 23

1.4.2 The objective factors 26

CHAPTER 2 SITUATION OF RISK IN CREDIT CARD BUSINESS ACTIVITIES AT BANK FOR INVESTMENT AND DEVELOPMENT OF VIETNAM JSC- BIDV 28

2.1 An introduction of Bank for Investment and Development of Vietnam JSC - BIDV 28

2.1.1 The process of formation and development 28

2.1.2 Organizational structure 29

2.1.3 Business performance 30

2.2 The current situation of credit card business at Bank for Investment and Development of Vietnam JSC - BIDV 34

2.2.1 Credit card development history at Bank for Investment and Development of Vietnam 34

2.2.2 Credit card products of Bank for Investment and Development of Vietnam 35

2.3 Situation of risk in credit card business at Bank for Investment and

Development of Vietnam JSC - BIDV 42

2.3.1 Risks in credit card business 42

2.3.2 Situation of measures taken by the Bank for Investment and Development of Vietnam JSC - BIDV to limit card business risks 55

2.4 Assessing the current situation of risk management in credit card business activities at the Bank for Investment and Development of Vietnam JSC - BIDV 61

2.4.1 Achievement 61

2.4.2 Restrictions 62

2.4.3 The cause of the restriction 63

CHAPTER 3 RISK LIMITATION SOLUTIONS IN CREDIT CARD BUSINESS ACTIVITIES AT BANK FOR INVESTMENT AND DEVELOPMENT OF VIETNAM JSC - BIDV 69

3.1 The development orientation of Bank for Investment and Development of Vietnam JSC - BIDV 69

3.1.1 General orientation 69

3.1.2 Development orientation of credit card services 71

3.2 Some solutions to limit risks in credit card business activities at Bank for Investment and Development of Vietnam JSC - BIDV 72

3.2.1 Professionally 72

3.2.2 Engineering and technology 78

3.2.3 Management, personnel organization 79

3.2.4 Some other solutions 80

CONCLUSION AND RECOMMENDATIONS 86

REFERENCES 90

APPENDIX 92

LIST OF TABLES, CHART, CHART, DRAWINGS

Table 2.1: Number of credit cards used at BIDV in 2017-2019 39

Table 2.2 Market share of BIDV’s card services compared to some banks from 2017-2019 40

Table 2.3: Net income of credit cards of BIDV in 2017 - 2019 41

Table 2.4: Forging credit cards of BIDV issued in 2017 - 2019 44

Table 2.5 Outstanding credit card balance at BIDV in 2017 - 2019 52

Table 2.6 Bad debt ratio of credit card at BIDV in 2017 - 2019 53

LIST OF FIGURE

Figure 1.1: Card issuance, usage and payment process 10

Figure 1.2: Card issuance process 12

Figure 1.3: Card payment process 13

Figure 2.1 Number of new credit cards issued by BIDV in 2017-2019 38

Unit: Card 39

Figure 2.2: Ratio of fraudulent payment / Total revenue from BIDV credit card payment in 2017-2019 46

Figure 2.3 Reasons for losing credit card of customers at BIDV 48

Figure 2.4: The way customers deal with lost of card 49

INTRODUCTION

1 The urgency of the topic

Along with the renovation of the economy, society and the context of international economic integration, the payment system in Vietnam is gradually developing and perfecting to meet the increasing demand for payment of goods and services not only domestically but also internationally

In a developed society, payment cards are one of the most commonly used payment ways and Vietnam is not out of general trend Mr An Vogels, Director of MasterCard in Indochina acknowledged that Vietnam has great potential to develop the card market Currently, the number of MasterCard acceptance points in Vietnam

is the highest in the region MasterCard with affiliated banks will launch many different types of cards, besides credit cards, including with domestic debit cards This excitement is explained by the huge profit generated from the card

The Government has also approved the scheme to promote non-cash payments in Vietnam Both the Government and commercial banks are making efforts to research and bring to customers features and card products, especially credit cards, which are encouraged to use mainly for paying of goods without using cash

The development of the card market in Vietnam contributes positively to changing the perception of the population about using banking services According

to estimates of the Bank Card Association, about 40% the Vietnamese population of working age has been using banking services so far This is a breakthrough that card services have brought to the operations of commercial banks, making an important contribution to promoting non-cash payments according to the Government's orientation

Growth in the number of cards and the value of credit card transactions, obviously bring profits to the bank, convenience for consumers, on the other hand it also has many potential risks for all stakeholders According to the research by international card organizations, the rate of card fraud risk in Vietnam is often

higher than the average of the Asia-Pacific region and the world and this is explained that the tight and strict regulation of credit card operations of some countries such as Thailand, Malaysia, Singapore have led criminals to switch to other markets, including Vietnam, where card services are in explosive development

Entering the card market in Vietnam from the beginning, BIDV has made great efforts in the research and development of products and services as well as always put credit card safety first Revenue of BIDV credit card transactions has always achieved high growth

In addition to these achievements, BIDV also faces risks in the credit card business process: attacked by international criminal organizations when turning to the Vietnamese market From 2002 up to now, the fraudulent situation in payment and card usage at BIDV is increasing at an ominous speed causing damage to banks, affecting the reputation and business efficiency Therefore, it is imperative that bank pay proper attention to risk management in their card business

Therefore, the requirement for risk management in card operations, especially credit cards, has become an urgent content set out for BIDV's Board of Directors However, in the recent period there is no research on this issue

Therefore, the selection of the topic “Risks in credit card business activities at the

Bank for Investment and Development of Vietnam JSC – BIDV” is quite practical

Nguyen Le Nguyen Huong (2017), “Completing the card service

management at Vietnam Joint Stock Commercial Bank for Industry and Trade, Hue Branch”, Master thesis of economic science, Hue College of Economics – Hue

University

The thesis has raised the urgency of the card service management at Vietnam Joint Stock Commercial Bank for Industry and Trade - Hue Branch, systematized the theoretical basis of the card payment service of commercial banks, thereby giving explanations of card services development was a trend of commercial banks

in the current era; analyzed and clarified the current situation of the management of card service activities at Vietnam Joint Stock Commercial Bank for Industry and Trade - Hue branch during the period from 2014 to 2016 From assessing the current situation, point of view and objectives, the thesis proposed a number of solutions to complete the card service management in terms of both size and quality

at Hue Branch

Pham Thu Huong (2016), “Risks in credit card business activities at Joint

Stock Commercial Bank for Investment and Development of Vietnam”, Master thesis

in banking and finance, VNU University of Economics and Business

Thesis systematized the theoretical basis of cards and related risks at commercial banks; analyzed and assessed the current situation of risk and managed credit card risks at the Joint Stock Commercial Bank for Investment and Development of Vietnam, on that basis, proposed 5 solutions about: Operation; Technique and technology; Management, Organization of personnel activities; Communication and guidance for customers to use cards safely; Combination of business goals and safety of the BIDV card system helps to effectively manage risks for card operations of the Joint Stock Commercial Bank for Investment and Development of Vietnam

Tran Thi Kim Loan, Ngo Thi Anh (2019), “The solution to limit risks in card

business at BIDV, Tra Vinh province”, Review of Finance issue 2-12

By collecting secondary data from reports on card operations at the State Bank of Tra Vinh Branch and BIDV Tra Vinh Branch about risks arising in card

business at BIDV Tra Vinh in the period of 2016- 2018, through descriptive statistical methods, analysis, comparison, evaluation and survey of 20 experts in the field of card operations, this research shows the risks in card business at Branch From there, the authors proposed the implications of governance, improved risk control in card business at BIDV Tra Vinh Branch in the future

In the studies on risks in credit card business activities at banks, according to the author’s research, there has not been research on risks in credit card business activities at the Joint Stock Commercial Bank for Investment and Development of Vietnam with the scope of time and space as the subject Therefore, the author chose the topic: “Risks in credit card business activities at Bank for Investment and Development of Vietnam JSC – BIDV” as research topic

3 Research objective

The research objective of the topic is to propose solutions to limit risks in the

card business of BIDV Specificially:

The first is to systematize the theoretical basis of cards and credit card risks

Time: Data from 2017 to 2019

Location: The Thesis is researched at BIDV

Content: The thesis focuses on analyzing the current situation of risks in

credit card business activities at BIDV through secondary data Thereby, proposing

management solutions to limit risks in credit card business activities at commercial banks

6 Research Methods

- Data collection method

The author collects secondary data from textbooks, master thesis, related articles and studies to serve as the theoretical basis, and at the same time, collect from BIDV’s annual reports

- Data processing methods:

The data is collected aggregately and statistically processed by Excel software

- Information analysis method:

+ Descriptive statistical method: Based on the statistical data, the data describes the fluctuations as well as the changes in data This method is used to describe the current situation of risks in credit card business activitiesat BIDV

+ Comparative method: is used in the process of analyzing and assessing the current situation of risks in credit card business activities at BIDV over the years From there draw comments and assessments that create a basis for analytical and synthesis methods

Comparison by absolute figure: Through the results of subtraction between the value of the analysis period compared with the base period of the economic indicators, we see the variation in the absolute figure of the analyzed indicators

Comparison by relative figure: From the comparison results between the actual number and the original number adjusted by a coefficient of the relevant indicator in the direction of the analytical indicator to find the percentage of increasing or decreasing in the target of reality compared to the original

CHAPTER 1 THEORETICAL BASIS OF CARD AND RISKS IN CREDIT

CARD BUSINESS ACTIVITIES OF COMMERCIAL BANK

1.1 Theoretical basis of card

1.1.1 Card definition and development history

1.1.1.1 Card definition

Based on “Regulations on issuance, payment, use and provision of banking

card operations” issued under Decision No 20/2007 / QD-NHNN, banking cards or

cards are issued by the card issuer to perform card transactions under the terms and conditions agreed upon by the parties; does not include cards issued by goods and service suppliers for using in the payment of goods and services to such issuers

As defined by the Vietnam Bank Card Association, a bank card is a non-cash payment, developed from the method of buying and selling goods subject to retail sales and development associated with the application of information technology in banking and finance sector A bank card is a payment tool to pay for goods or services or withdraw cash within your deposit balance or granted credit line A bank card can be used to make payment at POS or for services through an automated machine (ATM) system

1.1.1.2 Card development history

In 1946, John Biggins in Brooklyn (New York) created the first bank card called "Charg-It" When customers shop, spend, the bill will be transferred to Biggins' bank The bank pays the seller, and then the customer pays the bank Then this card is only used within the local area and only for customers of the bank

In 1949, a man named Frank McNamara went to dinner at a restaurant in New York When checking out, Frank realizes he forgot to bring his wallet That motivates him to devise a way to pay without using cash Together with partner Ralph Schneider, he has issued a specialized card for payment at restaurants In the first year alone, dozens of restaurants in New York accepted the card, and card users numbered in the tens of thousands Gradually, the card is used more in tourist and entertainment spots outside of the food and drink field

In 1966, Bank of America established BankAmericard Service Company to conduct the franchise business and issue cards with card banks around the world The company quickly grew and became an independent VISA credit card issuer in the 1970s

In 1966, the national credit system was visualized and established the American Interbank Card Association (ICA), now is MasterCard, becoming a direct competitor of VISA These are the two largest card organizations in the world In addition, there are a number of other card organizations such as American Express, Diners Club also participate in the global card market

Today, the bank card has been widely presented and developed all over the world, and has become a popular way of payment in developed countries, with companies and banks working together to exploit the field with this much profit Credit cards are gradually considered as a civilized and convenient tool in goods and service purchase and sale transactions

1.1.2 Card classification

* According to card holder

Card issued by bank: a card issued by a bank to a customer to use their account or an account issued by the bank for payment or to use banking services

Cards issued by non-bank institutions: Cards are issued by non-bank institutions with the same payment process and scope as cards issued by banks such

as Amex, JCB

* According to the credit limit

Gold Card: is a card issued to customers who need to pay large sums of money This card has different characteristics depending on each region of the country to regulate the withdrawal and deposit limit

Standard Card: is the most basic type of card which is the most commonly used today According to statistics, up to 160 million people around the world use each day The limit depends on each bank’s regulation is usually 1000 USD

* According to card making technology

Cards engraved with braille: The cards are made on the braille engraving technique, the necessary information is embossed on the card, so there is very little information and easy to be counterfeited, so nowadays such cards are less used

Magnetic tapes: Cards with magnetic tapes to store information, only carry fixed information that has not been encrypted so it is not safe and easy to be tampered with Especially, it can store very little information

Smart card: Card with electronic chip to store information that can hold up to

200 most recent transactions, and has high safety, difficult to counterfeit due to encryption

* According to the usage

International card: Card issued by domestic bank but used for payment inside and outside the territory of that country or issued in a foreign country but can be used for domestic payment For example: ANZ Card, HSBC,

International card means a card issued by a card issuing bank in Vietnam, used and paid within and outside the territory of Vietnam or cards are issued in foreign countries but can be used in the Socialist Republic of Vietnam

International cards are paid in a strong foreign currency

Domestic card: The card is issued by domestic bank and can be used within the country for payment in local currency

Domestic card means a card issued by a card issuing bank in Vietnam, used

and paid in the Socialist Republic of Vietnam

* According to the nature of the payment

Credit Card: also known as deferred or delayed debit card in which the card holder can use the card to pay for goods and services, withdraw cash within the credit limit issued by the bank

Normally, customers will have different credit card limits because the limit is issued to the cardholder by the bank on the basis of credit rating and appraisal, the cardholder's monthly salary or the amount of deposit or collateral at the bank With features of “spend first, pay later”, credit cards are a great support for

cardholders to quickly make payment for goods and services at merchants or on commerce websites Periodically to a certain date, according to each bank’s regulation, the bank sends a statement listing the previous month's expenditures of the credit card holder in detail and requires the cardholder to pay Cardholder can choose to pay the full amount before the deadline indicated in the notice, when the cardholder does not pay interest If not, the cardholder can choose to pay the minimum amount, the rest can be paid slowly and interest will be charged according

e-to the bank's regulations When the entire amount arising is returned e-to the bank by the payer, the cardholder's credit limit is restored to the original This is also called the cyclic nature of the tag

Banks usually classify credit cards according to grades to manage customers such as standard cards, gold cards, platinum cards the higher the credit card holder uses, customer will enjoy more privileges and more dedicated care

Debit Card: This card is directly related and attached to the deposit account

of the issuing card holder This type of card, when buying goods and services, will

be immediately credited to the cardholder's account and immediately credited to the merchant's account Debit cards have two types of cards: online and offline

Cash Card: is a card used to withdraw cash at ATMs or banks with a special function of withdrawal, the amount withdrawn each time will be immediately deducted from the account cardholder's account

* According to the object responsible for the payment

Personal card: is a card issued to individuals who need and meet the conditions to open a card at a bank Cardholder is responsible for paying all expenses on the card with his or her own money or issue additional cards

Card of an individual authorized by the company to use: A card issued to an individual or an organization, the company is going to undersign the card issue and authorize that individual to use the card and is responsible for paying all expenses

on the card

1.1.3 Card usage and payment process

Card usage and payment activities in each country and bank are different in terms of procedures and conditions, due to many factors that are bound by law, politics, intellectual level of development or conditions But overall it includes the following basic content:

Figure 1.1: Card issuance, usage and payment process

When a customer wishes to use the card (1), the issuing bank requires the customer to provide the necessary documents in accordance with the regulations to

be able to issue the card to the customer, the papers according to the regulations of each bank, each country but basically proof of customer identity, the solvency of customers and related organizations and individuals After verifying the documents,

if the customer is eligible to make a card, the bank will issue the card to the customer (2), instruct how to use and preserve the card Customers use the card to pay for goods or services or withdraw cash at the card accepting points (3), the agent will check the card’s solvency by applying for payment bank authorization If the card does not matter, the issuing bank will pay (4) and notify the merchant The merchant will then ask the cardholder to sign the invoice (make sure the signature

on the invoice must match the signature on the card) and provide goods, services or cash advance to the customer (5) The merchant receives the payment from the acquiring bank (6) after returning the bill to the bank (if the card scanner), or after the review on the electronic card reader and deducted an agent discount The acquiring bank will collect money from the issuing bank (7) through the international card organization (in case the issuing bank and the acquiring bank are not in the same system), the tasks of the international card institution is debited to the issuing bank’s account and credited to the acquiring bank

Every month on the date of making the billing statement, the issuing bank receives a data file of detailed statements about cardholder's activities, then the bank prepares a transaction notice board and sends it to the cardholder to make payment request

During the process of card usage, issuance and payment, the issuing bank, the acquirer and the international card organization are responsible for settling all complaints, investigating, claiming reimbursement, handling disputes and others

1.1.4 The card business segments

1.1.4.1 Card issuance operations

The bank’s card issuance operations include the management and implementation of the entire card issuance process, card usage and customer debt collection Each part is closely related to customer service and risk management for the bank Financial institutions and card-issuing banks must develop regulations on card issuance, use and debt collection

* Subjects of card issuance

Individuals applying for the issuance and usage of credit cards under the authorization and / or guarantee of organizations and companies such as state agencies, enterprises, and international organizations Individuals who wish and meet the conditions for using the card in accordance with the bank's regulations

* Conditions for card issuance

Subjects applying for card issuance are organizations and companies: the

card user must be the legal representative of that organization or company

Subjects applying for card issuance are individuals: Having civil legal capacity

Cardholders who apply for credit card issuance on an unsecured basis must have sufficient financial capacity to repay the used credit with interest and accrued fees A cardholder with a mortgage, pledge or deposit is not required to meet the above requirements For debit cards, the cardholder is required to open and maintain

a balance on the deposit account

* Card issuance process

The process of issuing cards to customers includes the following steps:

Figure 1.2: Card issuance process

(1) The customer submits the card issuance request dossier to the issuing bank

The issuing bank requires the customer to complete the file of card issuance with full information as prescribed

(2) The issuing bank checks the accuracy and validity of information on the card issuance request documents declared by the customer Refer and compare with the risk notices (if any) of other agencies and relevant agencies

(3) After the application is accepted, the bank opens the card account for the customer, collects the card issuance fee, prepares the card management file,

Issuing Bank

determines the card grade and type, determines the credit limit for the credit card, money is used to encrypt the card, determine the PIN and print the card

(4) The bank delivers cards to customers safely and securely Cardholder receives the card and signs the card delivery paper and signature tape on the back of the card

Card payment operations

Figure 1.3: Card payment process

The bank’s card payment operations are as follows:

- Building and managing the customer information system of merchants: Reviewing and signing the card payment acceptance contract with merchants, which clearly stipulates the discount rate for card payment acceptance transactions

- Manage operations of the merchant network

- Organize payment for card usage transactions for merchants

The card payment when there are transactions occurred as follows:

(1) Cardholder uses the card to pay for goods and services or withdraw cash

at merchants Merchants, when receiving cards from customers, must check their validity If eligible, merchant will provide goods, services or cash to the customer

(2) Merchants transact with banks: send card payment invoices to the acquiring bank Card payment receipts are kept at the acquiring bank and used as original documents for checking and settling complaints (if any)

(3) Acquiring bank credit to Merchant’s account

(4) Payment with international card organizations and other members

At the end of each day, the bank summarizes all transaction data arising from cards issued by other banks and transmits data to international card associations

(5) The international card association notify the acquirer After receiving data from the acquirer, the international card association will proceed to credit the bank The data transmitted by the international card association includes the payments made by the acquirers, the fees payable to the international card associations, the transactions under the investigation

(6) The international card association transmits data to the issuing bank (7) The international card associations debit to the issuing bank

(8) On that basis, the bank shall send a statement to the cardholder

(9) Card holder to pay debt to the issuing bank: After receiving the statement, the cardholder will have to pay money for the goods and services they have consumed

In some cases, the merchants must contact the issuer or international card association (on behalf of the issuing bank) to apply for credit card payment license Payment authorization means the card issuing bank directly or informs the international card association to prepare for the card transaction by providing a license number or having appropriate handling requirements for the transaction applying for the license

For a transaction that requires a license, the merchant must apply for the license itself or contact the issuing bank for licensing according to regulations Transactions that require licensing include:

+ All cash advance transactions

+ Transactions performed by EDC machine

+ For ordinary transactions, if the transaction amount is equal to or greater than the payment limit of the Merchant.

+ In addition, during the card payment process, the operations of amendment, complaint and reimbursement also arise

- Provide customer service

- Organize training on card payment knowledge for merchants’ staff

- Provide equipment and materials for card payment activities

The international card payment operation is the main source of income for the card-trading banks, so banks always focus on effectively developing the network of merchants

* The related equipment

Payment by card is a modern form of payment, used mainly by machines and equipment There are many types of supported devices but nowadays mainly the following types:

- Invoice scrubbing machine: Is a device used to reprint the invoice with necessary information that is embossed on the card such as: Card number, cardholder's name, card validity date Invoice is considered as valid evidence of cardholder's consumption and is also a legal basis for settlement all disputes of related objects (if any)

- Automatic licensing machine: Is a word reader connected to the network of accepting banks and card issuing banks in the world It is used for licensing and online processing of card transactions at Merchants Financial transactions are thus done and recorded on the cardholder's account at the issuing bank

The machine is specially constructed with a magnetic tape reader on the card This reading also helps to check the authenticity on the card There is a screen displaying the information and a keyboard to enter the license amount on the device After transmitting the information, the machine will receive the reply directly from the licensing processing center This machine enables transactions to

be made 24 hours a day

- ATM machine: ATM system also provide card payment service through cash advance to international cardholders

ATM machine includes some basic parts: screen, keyboard to perform

the operations of withdrawal order, money transfer ., slit to put the card into the machine, the slit to receive money from the machine, the slit to receive transaction invoices To withdraw money, the cardholder must put the card into the machine and enter the correct PIN number The machine will not show the PIN on the screen

to ensure confidentiality and safety If the cardholder enters the wrong PIN, the machine will report an error on the screen and cannot withdraw money

Previously, when wanting to withdraw money, people had to go to the bank before it closed, but since ATM was born and worked 24 hours / day, customers can withdraw cash, transfer, check their account balance… at any time Due to the convenience that ATMs are increasingly used and developed in the world, many banks develop system ATM system with other finance companies This system is regional, national or international

* Card claims processing operations

In the course of using the credit card, if the customer does not accept the payment for a certain content on the statement for some reason, they can send a request for issuing bank and the issuing bank will conduct the checking as follows:

The above are the most basic steps in handling claims for a credit card transaction of goods and services at merchants In fact, at each step there will be problems that may arise that make the case is more complicated However, all of these issues must be resolved based on card regulations of international card associations as well as card regulations of the country, each bank, issuer and payment organization Depending on each international card corporation, the handling steps will be different if one of the parties disagrees with the other party’s answer, they can continue to negotiate or initiate a lawsuit in the international card association for processing

1.2 Risk in credit card business activities at commercial banks

According to Frank Knight (1921), “risk is only measurable uncertainty” Holton (2004) argues that risk is caused by two parts, the first part is the uncertainty about the outcome of an event and the remaining whether the outcome will make any difference in benefits, if not, it also does not bring any risks He gives the example of drawing a ball from a box with red and black balls Only when the withdrawal of the ball is associated with the difference in money, assuming that in gambling or betting, this drawing is related to risk, but if it is only for fun, there is

no win or loss and also no risks happened at all Alain Willet argues that “risk is uncertainty that can be associated with an unexpected event” while Irving Perfer says, “risk is a combination of randomness that can be measured by probability” The British economist Marilic Hurt Carty conceived “risk is a state in which events occurring in the future can be determined” Thus, the definitions differ in their wording but have the same meaning that risk is unexpected uncertainty, often causing damage and can be measured

More specifically, in the banking and finance industry, the risk is considered

as the ability of the bank to lose money All financial activities come with risks, therefore, strict management of transactions and activities in this field is extremely necessary If the risk management is not done well, banks will face huge losses According to the Vietnam Banking Association, it can be generally understood that Bank risks are unexpected events that cause loss of assets and income of the bank during the operation As an intermediary in the financial market, the bank performs the function of “borrowing to lend” Therefore, the bank has to bear risks from both sides: the borrower and the lender Similarly, risk in card operations is physical or non-material losses related to card business, including card issuance and payment operations Subjects at risk are banks, cardholders or merchants (State Bank)

For card services, in addition to some common risks associated with banking products, there are also a few other specific risks, details are as follows:

* Credit card fraud

Card fraud is the most characteristic and diversified form of risk in card operations, is a fraudulent behavior to conduct illegal card transactions, causing damage to the card merchant and cardholder Counterfeiting may arise at any irrespective of time, location, both in card issuance and payment activities, and cause loss to the bank The following forms of card fraud can be grouped:

- Counterfeiting in card issuance activities: Records of fake card issuance;

The card is taken advantage of / stolen before the time the issuing bank returns the card to the cardholder; Card is stolen / lost during use; The card is faked; Information on the card surface is exploited; Cardholder information is taken advantage of

- Counterfeiting in card payment operations: Merchant is fake, fraudulent;

Merchants accept fake cards; Merchant’s transaction is not valid; Merchants appropriate money from banks

* Credit risk

Credit risk: occurs when the cardholder fails to make a payment or is unable

to pay for purchases and credit card payments Although the credit limit of the credit card is not as large as real estate loans, car purchases, and business loans, the number of credit cards is increasing, if credit card debts are overdue or not recovered, they will contributed significantly to the loss of capital of the bank

* Technical risk

Technical risk is one of the types of risks that have great influence and degree of danger to credit card business The reason is that technical risks arise when there are problems related to the technical and information technology sectors for data processing, information transmission, transaction connection and security

of the data system and card security Due to the 24/24 online and continuous nature

of the card service, any incident will interrupt, directly affect the transaction, the accuracy of payment, the reputation of Merchant accepts cards as well as interests

of customers The incident has a chain effect: when the system has an incident it not

only affects a single customer, a single bank or financial institution, but also affects the card business of the entire international card association and customers participating in card activities Therefore, if a loss occurs, it will be very large and difficult to control, so ensuring the system operates correctly and continuously is a top requirement for members when participating in the card business

* Moral hazard

Moral hazard is a part of operational risk, inherent, associated with banking operations but very unpredictable: a phenomenon derived from human factors, occurring when bank officers or officials in the card industry in particular have unusual and illegal acts with intent to deceive, or behavior giving inaccurate information that the operator already knows is false or believes to be incorrect, they also know that these frauds can bring illegal benefits to certain individuals or organizations

These frauds are often very difficult to detect or only after a very long time when huge losses have occurred because bank staff are very familiar with the regulations, processes and bank security systems so they hide it very cleverly Moreover, they often collude with many people in many specialized departments, with a lot of experience, so the action is as subtle and concealed as possible

Several criteria for risk assessment in card business

In the banking, risk assessment is supported by many different risk measurement tools such as statistical methods, probability calculation, volatility calculation such as VaR… However, business activity is one of the highly specific activities in the bank, to control the risk of card fraud, it is necessary to pay attention to control a number of indicators as follows:

* FSV - Fraud to Sales Volume: It is frequently used by international

corporations such as VISA, MasterCard to compare risk levels in the world

FSV = Total transaction value with card fraud factor

Total transaction turnover This type of target is usually divided into two categories, namely FSV for

card issuance and FSV for card payment These two criteria will be different in the denominator of the above formula If the FSV of card issuing segment uses the total sales of card use of the issuing bank / region, the FSV of the card payment segment will have the denominator of the card acceptance sales on the bank / region’s device

at all kind of card, issued by any bank

* Bad debt ratio: Similar to other credit loans, credit cards also face the risk

of customers failing to repay principal or / and interest To ensure capital safety, the bank also applies grouping of debts and making credit card provisions according to general credit regulations

Subprime loan, doubtful, and non-performing loans are considered bad debt Annually, quarterly, the bank will analyze the general situation and set a plan for the NPL ratio to be achieved Along with that is the provision for credit losses based

on net credit risks of loans

However, for credit card loans, bank must have a loss settlement fund, another financial risk reserve fund to handle losses due to card fraud, operational risks or in handling complaints, merchants, and losers in checking card transactions…

1.3 Card risk management at commercial banks

In the business segments supporting credit card business, risk management is becoming increasingly important and urgent Banking operations in general and credit card operations in particular have become more and more complex, potentially risky In relation to the risk from the time the customer requests the card issuance, when the card is used by the customer at ATM / POS or when the card is lost, stolen, the cardholder’s account is taken advantage of; cardholder pays for goods by mail or phone, the risk is caused by a merchant staff to manipulate many times for a transaction, or by copying and creating fake tapes, credit risk In the role of a issuing bank, the acquirer bank must carefully conduct the operational steps, strictly comply with the card issuance, management and payment process to minimize possible risk At the same time, banks also need to have a flexible, fast

and effective method of handling risks

As mentioned, it can be seen that risk is a permanent factor and increasingly needs of attention and treatment Therefore, risk management in the banking system

is becoming more and more urgent than ever So what can risk management be understood?

According to Phi Trong Hien (2005), risk management is “using different measures to determine the level of forecasted risk that can occur in the operation and to come up with solutions to reduce the level of each type of risk” Risk management is based on a number of basic principles as follows: the principle of risk acceptance, the principle of permissible risk management, the principle of matching between the allowable level of risk and the level of income, the principle consistent with the general strategy of the bank

In order to implement a normal banking risk management policy, it is necessary to go through the following basic stages: First, identifying types of banking risks; Second, risk analysis; Third, risk assessment; Fourth, warn and minimize risks; Fifth, supervision and inspection; Sixth, setting up provisions, handling losses

The above principles and procedures also apply to credit card business but can be summarized as follows:

* Identify and classify risks: It is a process of continuously and

systematically identifying hazards and risks in credit card business, including monitoring, reviewing and studying the operating environment of card criminals

to count the existing risks and forecas new risks that may arise This is the first step

in the content of risk prevention, a premise for all other activities in risk management There are six risk identification tools: operational analysis, primary hazard analysis, “if-then” analysis, case handling, logic diagrams, changing analysis

* Risk analysis: At this step, it is necessary to identify the cause of the risk,

as a basis for assessing and finding solutions to prevent risks According to

W.H.Henrich, in order to find effective measures to prevent risks, it is necessary to analyze risks, find out the causes, influence the causes, change them, thereby preventing risks

* Risk assessment and measurement: After analyzing the risks that may be

faced in the card business, the bank conducts qualitative or quantitative assessment and measurement to rank them according to severity and frequency of occurrence

to prioritize processing

* Warning, risk reduction, monitoring and inspection: Once having a list

and order of priority are available for all types of card risks, a risk warning system will be set up on the bank’s card management system with very specific limits on the numbers of transaction fee, number of transactions, types of goods and services provided by Merchant If there is a situation of doubtful risk, the system will send

an alert to the card payment device as well as to the risk management department of Bank for checking and re-verificating with the cardholder or Merchant and the issuing bank to make a conclusion about whether to prevent transaction If timely, the impact will partly reduce the risk In addition, risk management is also monitored through the reports on warnings and the handling status of all the warnings

In addition, risk prevention is an important content that banks aim at The Bank may take measures to hedge risks from within and from outside:

- Internal security measures include: security measures, security within the bank to prevent risks that may arise from internally such as: control of card issuance documents (authentication customer information, Merchant information, signature ), inventory of issued cards, control valid cards and not valid cards to give real data about cards, which helps easier and more convenient to manage, implement regulations on information restriction and security

External control measures (controlling cardholders’ card usage activities and accepting card payments by merchants) include: preventive control measures for credit card payments This measure is performed with the purpose of assessing and

classifying potentially fraudulent and high-risk activities, checking the validity of the card, card holder as well as card transactions, warning the risk cases and recommending to minimize risks

These two activities require close coordination as well as providing information quickly, accurately and promptly This is a relatively independent but also inseparable activity On the contrary, they are closely related, complement each other because the common goal is to prevent risks

* Setting up provisions, dealing with losses: According to the State Bank’s

regulations, all banks implementing card services, whether they are issuers or acquirers, must make provisions to offset risks arising from card issuance and payment operations Levels of provisions, methods of setting up provisions and use

of provisions shall comply with regulations of the State Bank of Vietnam and other relevant Vietnamese laws

The above are the basic theoretical content to provide an overview of the card products in general and credit cards in particular as well as the basic risks that often occur in credit card business From here, students have full theoretical basis to combine with information and data from practice to serve the analysis and assessment of the status of card risk management at BIDV

1.4 Factors affecting risks in credit card business activities at commercial banks

1.4.1 The subjective factors

1.4.1.1 Banking technology system

Bank cards are a product associated with modern technical technology Therefore, the technical technology system plays a very important role for the development of card services, safe and efficient operation The selection of a bank’s technology system must be suitable for the bank’s development strategy

Banks implementing card services need to invest in a technical technology system with international standards, including: Customer information management system, responsive card payment and usage management system meets the

requirements of international card organizations This system will connect online with the data processing system of international corporations

In addition, banks also have to invest in a system of equipment for card issuance and payment such as card printers, hand machines, automatic card payment machines, automatic transaction machines, and card payment licensing, other devices connecting the system This system must be synchronous and highly integrated, because card transactions are processed quickly or slowly depending on the synchronization, ability and processing speed of the whole system

1.4.1.2 Human resource

People are the center of all activities, the decisive factor to success or failure

in all areas of the economy Card staff are those who are in direct contact with the card business every day, with arising problems as well as fraudulent behaviors in the card industry Experience, vigilance, and strict compliance with banking regulations in card business of card staff will contribute to detecting, preventing and limiting risks for both banks and customers during operation However, card officers are the most knowledgeable about card payment activities, so frauds caused

by card officers are difficult to detect and usually happen for a long time

On the other hand, in the process of customer appraisal to issue cards or accept customers as merchants of the bank, card staff and credit officers are those who directly deal with customers, analyze and evaluate the legal capacity, financial capacity of the customer to decide whether to agree or refuse to issue the card to the customer, merchant for the bank

As we know, granting overdraft limits or agreeing to issue credit cards to customers means that the bank has agreed to lend money to customers A team of qualified, experienced and ethical staff will wisely choose the bank with good customers, refuse to give the bank customers with fraudulent intentions, limit the risk of customers not paying debt or appropriating bank capital

Card issuance and payment, especially international cards, is a new and rather complicated field, requiring strict compliance with the international card

organization’s regulations Therefore, the qualification of business staff in this field

is especially important and cared for properly

1.4.1.3 Customer appraisal

In the card service, customer appraisal is the analysis and assessment of the legal capacity, behavioral capacity, financial capacity of the customer to decide to agree or refuse to issue the card to customers or merchants For individual customers, agreeing to issue a credit card means giving the customer a loan with a circulating limit As for merchants, if you agree to let them sign contracts, that means you agree to advance transaction fees for those units Therefore, the quality

of customer appraisal has a direct impact on the risks that may occur to the bank High appraisal quality means that the bank has selected for itself good customers, refuse customers with fraudulent intentions, limit the risk of cardholders failing to make payments, fraud accepting merchants, appropriating bank capital

1.4.1.4 Business card strategy

Business strategy includes long-term strategies, business plans and card product development programs in each period, each stage of the bank, risks that may arise in the implementation process of new card products For the long-term strategy of the bank, determining the acceptable level of risk in the bank’s business

in general and card operations in particular will govern all card risk management activities of the bank

If the strategy is not correctly determined at the beginning, it will lead to unforeseen losses, the remediation takes a lot of time and effort

1.4.1.5 Risk management organization

Risk is inevitable in any business activity Therefore, we must recognize and know how to minimize risks Card business is also no exception, being aware of this, commercial banks need to organize risk management effectively in order to recognize and limit risks in the best way Risk management will greatly affect the level of risks in commercial banks’ card business If this work is well organized, it will help the bank to know and measure accurately all kinds of risks From there, proposing measures to prevent and avoid those risks or can have optimal prevention

plans to actively deal with possible risks On the contrary, if this work is not well organized, the bank will always be in a situation of unexpected risks This not only affects the card business in particular but also can affect other operations of the bank, causing losses and even making the bank go bankrupt

1.4.2 The objective factors

1.4.2.1 Cardholder

Cardholder is the person directly using the card for payment Cardholder using the card correctly will ensure the successful and safe payment transaction If the cardholder is fully and accurately aware of the card and card payment as well as safety measures to use the card, it will limit the risks in payment activities and vice versa So in developed countries where bank cards are widely used, the risk of using and accepting cards will be lower than in countries that are just starting to get acquainted and develop non-cash payments

1.4.2.2 The development of e-commerce

The development of science and technology has paved the way for the development of e-commerce E-commerce development has created conditions for goods to be bought and sold easily Now we can buy goods without having to go to the door to sell, people in one country can buy goods in another

All purchases and sales of goods are done entirely through the internet and these transactions are mainly made via card payments To be able to pay online, the cardholder must provide all card information on the sales page This inadvertently brings risks to cardholders because cybercriminals can easily steal this information

to create fake cards This risk is very much hidden on the sites that are not reputable, with low security mode Therefore, the online payment means increasing risks for cardholders

1.4.2.3 Economic environment

An economy is a system of many interrelated economic activities Any fluctuation of one economic activity affects other activities The operation of commercial banks in the economy is like a bridge, so a change in the economy also has a certain impact on banking operations, including card payment The growth of the economy and the characteristics of the economy also bring potential risks in the

card business The recession cycle of the economy, instability, inflation fluctuations, price changes are also factors affecting card services

1.4.2.4 Regulatory environment

Apart from having to comply with the provisions of international card associations, all activities in card services operations in any country must comply with the legal system in that country Therefore, a legal environment with adequate and reasonable policies to ensure the interests of all parties involved in card issuance and payment will promote the card industry In the card service, there are many disputes and complaints related to card issuance and payment, so it is necessary to have a complete legal system to accurately and clearly identify the responsibilities of the related parties if having any issue

CHAPTER 2 SITUATION OF RISK IN CREDIT CARD BUSINESS ACTIVITIES AT BANK FOR INVESTMENT AND DEVELOPMENT OF

VIETNAM JSC- BIDV 2.1 An introduction of Bank for Investment and Development of Vietnam JSC - BIDV

2.1.1 The process of formation and development

BIDV is a state-owned commercial bank established under Decision No 177 / TTg dated April 26, 1957 by the Prime Minister and signed by the Governor of the State Bank of Vietnam on Decision No 287 / QD- NH dated September 21, 1996 established under the model of State Corporation BIDV is a special class state-owned enterprise according to Decision No 186 / TTg dated March 28, 1996 of the Prime Minister

The stage of construction and growth of the Bank for Investment and Development of Vietnam has always been associated with each historical period of the country, with the task of building and defending Viet Nam During that process, BIDV has always successfully completed the tasks assigned by the Party, the State and the people, contributing to building a social republic in the North, fighting to liberate the South and reunify the country, developing economic, building material for the Socialist Vietnam country

BIDV has had specific changes: On April 27, 2012: The Bank was equitized, officially became Joint Stock Commercial Bank for Investment and Development of Vietnam; January 24, 2014: Officially listed on the Ho Chi Minh City Stock Exchange; On May 25, 2015, BIDV signed the handover minutes of the whole system and announced the merger of the Mekong Housing Bank; On November 11,

2019, signed a strategic cooperation agreement and announced that KEB Hana Bank (a member unit of Hana Financial Group) is a foreign strategic shareholder of BIDV

BIDV has developed the network at domestic and abroad with the total number of network points as of December 31, 2019, including: 1,892 domestic

branches, 1 foreign branch in Myanmar, 871 transaction offices; 02 affiliated units (BIDV Training and Research Institute, Information Technology Center), 02 representative offices in Vietnam (Ho Chi Minh City and Da Nang); 05 overseas representative offices (Laos, Cambodia, Myanmar, Czech Republic and Taiwan)

The network of domestic operations distributed throughout the provinces / cities helps BIDV to reach a large number of customers nationwide and surrounding areas, provide diversified services to customers from individuals, from households

to various types of organizations and businesses

During the operation, BIDV paid great attention to the organization of staff, facilitated the reduction of the apparatus, reduced costs, contributed to the implementation of the bank’s financial plan December 31, 2019, the BIDV system has a total of 26,135 employees, of which the number of staff having master’s degree or higher is 22,4%, university level accounts for 69,1%, and college degree accounts for 2,4% and 6,1% have intermediate / other diplomas

Over the past 55 years, the system of BIDV has always made efforts, unite and unified, proactively, creatively find new ways to survive steadily and grow more and more, to become a leading commercial bank of Vietnam BIDV is the choice and credibility of economic organizations, businesses and individuals in accessing banking and financial services Known and recognized by the domestic and international community as one of the largest banking brands in Vietnam BIDV has always been the pride of generations, employees and of the banking and finance industry with traditional careers serving national development and investment

2.1.2 Organizational structure

The management of BIDV is arranged according to Appendix 1

The Board of Directors is the administrative council of BIDV, has full authority on behalf of BIDV to decide and exercise the rights and obligations of BIDV which are not within the authority of the General Meeting of Shareholders The Board of Directors is also responsible for defining and developing plans and policies such as business management policy, business strategy and general

development plans of BIDV

The Board of Management is responsible for the day-to-day management of BIDV in accordance with the Charter of BIDV The Board of Management is subject to the supervision of the Board of Directors

The Supervisory Board is an agency elected by the General Meeting of Shareholders, performs internal audit, controls and assesses the compliance with laws, internal regulations, the Charter, Resolutions, and Decisions of the General Meeting of Shareholders, Board of Directors

2.1.3 Business performance

2.1.3.1 Capital mobilization

Capital plays an important role determining the scale, scope of operations as well as business efficiency of commercial banks Therefore, BIDV is always looking for ways to increase capital in a competitive environment by expanding forms of capital mobilization, diversifying deposit products and related services, innovating transaction styles, so that the mobilized capital can reach the highest quality, has the lowest cost and is suitable for the needs

In the context that the domestic economy as well as the world is experiencing many strong fluctuations, there always exist uncertainties that adversely affect the business and capital mobilization of the banking system, BIDV still gain the satisfactory results Thereby showing that the customer base and the Bank's ability

to raise capital are quite good, BIDV is always a reliable address for all classes of people and economic - financial organizations

The results of capital mobilization of BIDV at the end of 2017 - 2019 are shown in details in Appendix 2, 3

In recent years, BIDV’s capital mobilization has been developed and diversified with many different types of mobilization products Therefore, BIDV’s mobilized capital has continuously grown over the years Previously, BIDV’s capital mobilization was mainly through conventional deposit products with a number of terms, now has expanded and deployed various forms of capital

mobilization with very diverse products such as accumulative deposits, bonus savings, certificates of deposit, flexible interest payment methods To attract customers, BIDV has implemented promotional programs such as giving insurance cards, gifts, the cash is proportional to the proportion of the deposit amount with the depositing customer In addition, BIDV has increased the introduction of capital mobilization programs and products to organizations and the population

The data in Appendix 2, 3 show that the Bank’s capital mobilization in recent years has always grown In 2018, BIDV’s total mobilized capital reached VND 989,671,155 million, increase 15.08% compared to 2017 In 2019, the total mobilized capital of BIDV reached 1,114,162,624 million VND, increase of 12.58% compared to 2018

In terms of currency, the source of capital mobilization of BIDV is mainly in the local currency, the proportion of domestic currency capital accounts for 94% or more of the total mobilized resources Every year, the capital mobilized in the Vietnamese dong (VND) is still increasing higher than the growth rate of the foreign currency, the main reason is due to the less competitive foreign currency interest rate against the VND

In terms of capital mobilization terms: Funds mobilized by BIDV is mainly time deposits with the proportion of over 80% over the years and tends to increase

In terms of customers: Customers raising capital of BIDV include: Economic organizations; Business households, individuals and some other customers In particular, capital mobilization from the group of Business households and individuals accounts for more than 50% of total mobilization of BIDV and has always grown over the years, otherwise group of other customers account for a small proportion and has unstable growth

With the annual capital mobilization results reaching over 10%, it has helped BIDV to have a solid capital source to ensure its business activities

2.1.3.2 Credit operations

Over the past years, BIDV has continued to focus on developing a diversified

range of credit products with appropriate, specific service packages for each customer group, deploying products for small and medium enterprises, Developing regulations on analyzing the overall profitability efficiency on an enterprise to apply customer policies

The result of the credit outstanding balance in 2017 - 2019 of BIDV always exceeds the planned target, the detailed data are shown in Appendix 4, 5

Appendix 4, 5 show that the credit balance of BIDV has continuously grown over the years Specifically:

- Regarding total outstanding loans: In 2018, total outstanding loans reached 1,010,993 billion VND and increased 12.91% compared to 2017 In 2019, total outstanding loans reached 1,134,503 billion VND, increased 123,510 billion VND compared to 2018 with the growth rate of 12.22%

- Debt balance structure:

Outstanding credit balance by currency: At BIDV, the local currency dominated with a large proportion and has continuously increased over the years This is completely reasonable when the State Bank of Vietnam (SBV) introduces policies and measures to tighten foreign exchange management With the main thought of contributing to limiting foreign currency transactions in the territory of Vietnam, attracting foreign currency sources into the State budget, so trading transactions and borrowing foreign currency loans in recent years is very difficult It can be seen that in 2018, foreign currency outstanding loans increased slightly, only

up 0.27% compared to 2017 and in 2019 increased by 11.06% compared to 2018

Outstanding credit balance by term: Most of BIDV’s credit balance focuses

on term lending For demand loan in 2018, it increased by 17.87%, while in 2019 decreased to only 5.99% compared to 2018 Business and production activities were boosted, the need to expand production has arisen has made the demand for long-term loans significantly increased over the years and the development rate is quite stable, maintained at over 12% over the years

- Customers: There is a shift towards increasing the proportion of individual