Solutions to non cash payment improvement at agribank lang ha branch,graduation thesis

THE STATE BANK OF VIETNAM BANKING ACADEMY Foreign Language Faculty - - GRADUATION THESIS SOLUTIONS TO NON-CASH PAYMENT IMPROVEMENT AT AGRIBANK LANG HA BRANCH Lecturer Student Class Student Code : Can Thuy Lien (M.A) : Le Phuong Anh : K15-ATCB : 15A7510004 THE STATE BANK OF VIETNAM BANKING ACADEMY Foreign Language Faculty - - GRADUATION THESIS SOLUTIONS TO NON-CASH PAYMENT IMPROVEMENT AT AGRIBANK LANG HA BRANCH Lecturer Student Class Student Code : Can Thuy Lien (M.A) : Le Phuong Anh : K15-ATCB : 15A7510004 Hanoi, May 2016 ACKNOWLEDGEMENTS This graduation thesis would not be completed without any assistance Therefore, the author who conducted this research gratefully gives acknowledgement to their support and motivation during the time of doing this research as a requirement of completing my Degree of English for Finance and Banking First and foremost, I would like to express my endless thanks and gratefulness to my supervisor Ms Can Thuy Lien Her kindly support and continuous advices went through the process of completion of my thesis Her encouragement and comments had significantly enriched and improved my work Without her motivation and instructions, the thesis would have been impossible to be done My special thanks approve to my parents for their endless love, care and have most assistances and motivation for the whole of my life I also would like to explain my thanks to my sisters and brother for their support and care me all the time Last but not least, I would like to thank to the staff of Agribank- Lang Ha branch supporting me during my internship and provided me with valuable information about non-cash payments Le Phuong Anh-K15ATCB Page i DECLARATION I declare that this thesis is my own work and has not been submitted in any form for another degree or diploma at any university Information derived from published or unpublished work of others has been acknowledged in the text and a list of references is given Le Phuong Anh-K15ATCB Page ii ABSTRACT Nowadays, non-cash payment plays an integral role in economy development not only in Vietnam but also all over the world Despite many researches on developing noncash payment in Vietnamese commercial banks, there has not been a specific research on non-cash payment at Agribank Lang Ha branch This graduation thesis will give an insight into non-cash payments at the branch through techniques such as comparison and analysis of internal reports The results show that the payment order appears to be more popular than other different types of non-cash payments mainly due to simple procedures and time saving The thesis also provides some solutions to improving noncash payments at Agribank Lang Ha branch Le Phuong Anh-K15ATCB Page iii TABLE OF CONTENTS ACKNOWLEDGEMENTS I DECLARATION LV ABSTRACT .LVI TABLE OF CONTENTSLIST OF REFERENCES LVII LIST OF REFERENCES LIX LIST OF ABBREVIATIONS LIX LIST OF FIGURES AND TABLES LX CHAPTER 1: INTRODUCTION 1.1 1.2 1.3 1.4 1.5 1.6 Rationale Research Objectives Scope and Subject of the study Research Methodology Research Question Research Structure CHAPTER 2: THEORETICAL FRAMEWORK OF NON-CASH PAYMENT 2.1 Definition 2.2 Characteristics of non-cash payment 2.3 Roles of non-cash payment 2.3.1 To the central bank 2.3.2 To commercial banks 2.3.3 To clients 2.3.4 To economy 2.4 Types of Non-cash payment 2.4.1 Cheque 2.4.2 Payment order 2.4.3 Collection Order 2.4.4 Letter of credit/ Documentary credit 10 2.4.5 Payment Card 11 2.4.6 Electronic banking 13 Le Phuong Anh-K15ATCB Page iv CHAPTER 3: CURRENT BACKGROUND OF NON-CASH PAYMENT AT AGRIBANK LANG HA BRANCH 14 3.1 Overview of Agribank 14 3.1.1 Foundation and development of Agribank 14 3.1.2 Organizational Structure of Agribank 15 3.1.3 Business outcomes of Agribank in the period from 2013 to 2015 17 3.2 Non-cash payment at Agribank in the period 2011-2015 23 3.2.1 Payment services at Agribank, Lang Ha 23 3.2.2 Non-cash payment services 25 3.3 Evaluation about operation of developing non-cash payment at Agribank 36 3.3.1 Achievements 36 3.3.2 Limitations 37 3.3.3 Causes 37 CHAPTER 4: SUGGESTED SOLUTIONS TO IMPROVING NON-CASH PAYMENTS AT AGRIBANK LANG HA BRANCH 40 4.1 General solutions 40 4.1.1 Enhancing the quality of human resources to ensure profession in business 40 4.1.2 Improving Effectiveness in Marketing and Advertisement of products and services 42 4.1.3 Modernizing banking technologies and renovating payment techniques and technology 44 4.1.4 Enhancing competitiveness of products and services 45 4.2 Solutions to main payment types 46 4.2.1 Payment order 46 4.2.2 Collection order 46 4.2.3 L/C 47 4.2.4 Cheque 47 4.2.5 Payment cards 47 4.3 Recommendations 48 4.3.1 Recommendations to the Government 48 4.3.2 Recommendations to SBV 49 4.4 Conclusions 50 Le Phuong Anh-K15ATCB Page v LIST OF ABBREVIATIONS Agribank Vietnam Bank for Agriculture and Rural Development SBV State Bank of Vietnam L/C Letter of credit ATMs Automated Teller Machines POS Points of Sale IPCAS Intra Payment and Customer Accounting System SMS banking Short Message Service Banking EDC Electronic Draft Capture IT Information Technology ACH Automated Clearing House Le Phuong Anh-K15ATCB Page vi LIST OF FIGURES AND TABLES LIST OF FIGURES Figure 1:Credit structure at Agribank Lang Ha from 2011 to 2015 21 Figure 2: Structure of payments by cheque at Agribank Lang Ha between 2011 and 2015 28 LIST OF TABLES Table 1: Fund mobilization at Agribank Lang Ha 18 Table 2: Lending at Agribank, Lang Ha Branch 20 Table 3: Bad debt ratio at Agribank Lang Ha Branch 22 Table 4: Main business outcomes at Agribank Lang Ha branch 22 Table 5: Lending over mobilizing fund rate 23 Table 6: Sales of payments at Agribank, Lang Ha between 2011 and 2015 24 Table 7: Sales of non-cash payments in the period from 2011 to 2015 at Agribank Lang Ha 25 Table 8: Payments by cheque at Agribank Lang Ha from 2011 to 2015 27 Table 9: Proportion of collection order 30 Table 10: L/C payment at Agribank Lang Ha 31 Table 11: Card services at Agribank Lang Ha in the period 2011 – 2015 33 Table 12: Mobile banking and Internet banking at Agribank Lang Ha in the period from 2011 to 2015 35 Le Phuong Anh-K15ATCB Page vii The bank has not established a department specializing in analyzing and exploiting market Officers involve in both marketing and conducting products and services These officers are not trained marketing skills professionally, did not understand thoroughly about products and services leading to give insufficient information to customers Customers, therefore, gain little knowledge of products or misunderstand services resulting in reducing popularity of non-cash payments - Lack of preferential policies for card acceptance points Business units not want to accept cards because they have to pay fee for bank and public their revenue Therefore, some card accepting points had signed contract on accepting cards with the bank but they limit payments by cards such as discount for payment in cash, charge the buyer paying by cards, etc Besides, Agribank Lang Ha has had no suitable policy to encourage card acceptance points to increase non-cash payments - Incomplete infrastructure and technology Agribank Lang Ha branch has been improving and strengthening application of advanced technology in the bank’s business operation Launching IPCAS is remarkably outstanding in the improvement of information technology system, which supports for developing modern services such as automated collection order, international payment and so on However, the software of developing products and services still does not meet customers’ various demands For the time being, there is a shortage of application software to carry out and manage products and services basing on modern technology Le Phuong Anh-K15ATCB Page 39 CHAPTER 4: SUGGESTED SOLUTIONS TO IMPROVING NON-CASH PAYMENTS AT AGRIBANK LANG HA BRANCH On the basis of evaluation presented in the previous chapter, despite remarkable achievements that the branch has gained over years, there are numerous limitations relating to non-cash payments that the branch is trapping in This chapter will mention some suggested solutions to improving non-cash payments at Agribank- Lang Ha branch 4.5 General solutions 4.5.1 Enhancing the quality of human resources to ensure profession in business Human resources play a very important role in the success and the business development It is necessary for the bank to enhance the quality of human resources to develop products and services and bring strategies into the reality as well One of the weaknesses at the branch is that staff’s profession is not sufficient and uniform, some leader are lack of managerial skills and experience Thus, the bank should implement synchronized solutions to improve the quality of human resources such as  Improving the quality of recruitment Currently, the bank hasn’t had a specific mechanism for recruitment which results in the fact that employment was mainly dependent on policies, relationships or allocation from Agribank without any official examinations Agribank has not basically had condition to select those who are full of necessary qualification and profession Meanwhile, joint-stock commercial banks set recruitments as an important task thereby selected candidates are all young, well-qualified, active and creative Such human resources help these banks move forward in the context of fierce competition and comprehensive integration The bank, therefore, should set up a strict recruitment process including standard system and phases of recruitment as following: Le Phuong Anh-K15ATCB Page 40 - Public recruitment on mass media to attract more potential candidates - Organize recruitment process strictly in accordance with process instead of pass-over implementation and formalism - Prefer young employees good at soft skills such as computer skills, language skills, high-qualified, experienced and enthusiastic The bank should have a preferential mechanism for officers working in remote areas to attract local human resources Besides, it is advisable for the bank to implement training profession in line with real application in business and create a good work environment in order that the whole staff can perform their strengths The bank also set up a regime of award and punishment to encourage staff’s contribution and creativity  Change awareness and perception of modern bank The branch should regularly organize training sessions for officers and staff to convey new policies, modern products and services so that they can comprehensively aware of the potential of products and services amid high competition Only if understanding fully products and services, and realizing the bank’s strength and weaknesses in comparison with other banks, the staff will be more active to improve and develop products and services tailored to customers’ requirements  Enhance staff’s qualification and profession Firstly, the branch should proactively coordinate with training center of Agribank to introduce carefully and timely new products and services to officers and solve arising questions and difficulties together in order to support customers effectively This aims at ensuring that officers have ability to conduct and advise modern banking services such as Internet banking, Visa, Master Card, etc Le Phuong Anh-K15ATCB Page 41 Besides, communication and negotiation skills are of great important to develop business If the staff has an excellent communication skill, customer will feel satisfied with her enthusiasm and be interested in the bank’s products and services However, some departments at the branch have been lacking communication skills to satisfy customers Therefore, the bank should invite psychological experts to help them improve communication and interpersonal skills Officers should be allocated to suitable position to push up their strengths Thus, the bank should always keep track of staff’s progress and organize online professional tests to confirm and evaluate each person’s capability, promote creativity and listen to staff’s ideas and initiatives  Change award regime for staff The bank should have a good award regime to encourage staff’s creativity and effort As a state owned commercial bank, officers at Lang Ha branch are now paid under egalitarianism instead of paid basing on capability and work effectiveness Setting up a suitable salary regime is essential to attract more the talent and promote productivity, effectiveness to ensure high competiveness with other banks 4.5.2 Improving Effectiveness in Marketing and Advertisement of products and services  Promote propaganda and advertisement of services and products In the present market scenario advertising is experiencing a period of rapid economic growth worldwide Like many other marketing tools, advertising is among one of them which try to draw the attention of prospective customers and try to quench their thrust for products and services by presenting them in a favorable manner If an advertising campaign proves effective then it invites more and more customers with greater frequency The bank, therefore, is advised to promote advertising via mass media and social networks to approach and appeal more customers Le Phuong Anh-K15ATCB Page 42 - Carrying out direct marketing strategies such as sending email and leaflets to customers, directly consulting or organizing customer seminars,…, or social activities to propaganda AGRIBANK’s services - Public promotion programs on mass media to draw customers’ attention to modern products and services of the bank - Upgrade and modernize website of Agribank on the basis of modern technology advancement in order that customer can be easy to find out and update new products and services  Develop the brand of bank The branch had better synchronously implement contents including brand identifying systems, corporate culture handbook, regulations on dress, bank teller’s etiquette and behavior, marketing process and customer care to each officer, each transaction in order to enhance professionalism in providing services The branch had better supervise continuously its transaction offices about equipment and facilities, decoration in accordance with brand identifying system of Agribank to find out and surmount timely substandard transaction offices Besides, ATM sytem should be put in places to ensure convenience for customers using cards ATM should be placed in populated area and convenient transportation to make transactions Moreover, ATM should be sure to operate 24/24 and checked to deal with issues such as running out of money and paper timely To enhance the quality of service, ATM points need to have clear and detail signs to catch customer’s eyes The transaction offices should be decorated formally and spaciously and have reception and advisory department to welcome customers Bank tellers and all staff should keep polite, friendly manner to maintain and develop firm relationship between the bank and customers Le Phuong Anh-K15ATCB Page 43 Carrying out numerous sponsor programs and social security programs in hospitals and schools is one of effective method to propaganda the image of bank and promote supplying services either propaganda brand or supply more services to customers 4.5.3 Modernizing banking technologies and renovating payment techniques and technology  Promoting application of information and technology In the digital age with the rapid development of information technology, banks all actively develop modern banking services on the basis of innovative technology Agribank Lang Ha branch, therefore, should invest more in modern technology especially, card facilities and cards acceptance network and simultaneously ensure smooth and safe operation of system The branch also should research and develop types of cards and features of services The branch should place more ATM and expand cards acceptance network This costs a great deal of capital, but gives long-term benefit to the bank such as enhancing the prestige and developing non-cash payments of the bank Also, this contributes to changing customers’ cash using habit Along with the increase in ATM places, the bank has to ensure their continuous operation in order that customers can withdraw money at anytime and anywhere Moreover, cards should be diversified utilities to serve tailored services to customers  Simplifying procedures for products and services The complicated procedure is a substantial obstacle to both customers and the bank Customers make a decision to use products and services basing on interest rate, safety, convenience and of course simple and quick procedure Only if the bank simplifies transaction process but ensures safety, more customers will be willing to use non-cash payments Besides, the bank should offer automated online registry so that customers Le Phuong Anh-K15ATCB Page 44 will be more active and easier to register services and stop services without travelling to the offices This will bring customers close to non-cash payments because of convenience and saving time 4.5.4 Enhancing competitiveness of products and services  Offering a suitable table of fee for all payment types Price is one of the factors influencing substantially on customers’ psychology In the context of high competition, with appearance of numerous banks, customers have more options and become more sensitive to price than before Therefore, Agribank Lang Ha should build up a competitive table of fees A suitable table of fees needs to meet the following rules: - Table of fee is built basing on the priority of competitive factor - It ensures benefits to both customers and the bank - It ensures flexibility and variety of products - It follows up the bank’s criteria in specific period The bank is advised to make survey on prevailing fee table of other banks and make market research to build up a competitive table of fee  Improving the quality of customer care Customer care plays a crucial role in the development of services Catching psychology and desires of customers is a key element to a successful customer care strategy via research and analysis: - Implement customer relation management projects (CRM) to approach and carry out care customers, offer and introduce products and services combining with selling other products and services - Build up Contact center system which allows customers to receive advice in distance and helps the bank to collect customer data Since then, the bank can Le Phuong Anh-K15ATCB Page 45 research customer’s psychology to offer the best customer care services such as tailored products and services, attractive promotion programs, thanks letter or greeting cards on the special occasions Besides, the bank should invest in facilities of customer care department in order to enhance the image of the bank in customer’s eyes Customer-care staff must always keep polite, friendly and enthusiastic attitude under any circumstances and strive to improve negotiation and communication skills to impress customers 4.6 Solutions to main payment types 4.6.1 Payment order Payment order is so far the most favorable types of payment at the branch which contributes a majority of the bank’s revenue from payments To develop this type, it is necessary to have a comprehensive and synchronous legal environment The bank should promote propaganda features and advantages of this type to raise awareness and appeal customers to make payment by payment order 4.6.2 Collection order It is the fact that collection order is now trapping in a lot of limitation The seller can take a risk if the buyer makes counterfeit documents On the other hand, the buyer has to ship goods before submitting collection order to the bank which results in decreasing working capital for other investments Besides, collection order is mainly used in case the buyer and the seller have a good relationship and mutual trust Therefore, this type attracts a few customers because of potential risks To promote this service, the bank needs to have specific regulations on obligation and responsibility of relevant parties to reduce partly risks Moreover, the bank should invest in modern equipment to make payment process quick, timely and accurate Le Phuong Anh-K15ATCB Page 46 4.6.3 L/C L/C is a kind of strict and complicated payment type due to application in import and export relations Almost every buyer and seller in Viet Nam lack knowledge relating to obligation and duty in L/C payment Besides, the bank has not put more weight on the development of this type so the competitiveness is quite low in comparison with other commercial banks like Vietcombank The bank, therefore, has to improve the quality of L/C payment, carry out advertisement strategies to approach and advise customers to use this type more in import-export activities 4.6.4 Cheque To promote payment by cheque, the bank should actively propagate cheque in line with other payment types to raise residents’ awareness of this type Despite its convenience, customers are quite cautious to crossed cheque because they will be fined if writing cheque exceeding the balance To tackle this shortcoming, the bank should provide customers who have written cheque exceeding their balance with a short-term loan The bank initially apply this regulation to high reputation customers and then keep going on researching and deciding on the subjects and appropriate limit This will benefit both parties and enhance the bank’s prestige and brand 4.6.5 Payment cards The bank should continue to diversify types of cards and improve features of cards The bank should expand and develop payment by cards through intermediary organizations such as supermarket, commercial centers or recreation centers Besides, the bank should invest in installing more ATM, POS in places which is suitable for customers to make transactions and convenient to repair ATM timely to avoid the loss of money and reduce customers’ trust Le Phuong Anh-K15ATCB Page 47 The bank should continue to cooperate with telecommunications sector to develop technology of cards payment, integrate new utilities to benefit to customers Foremost is to ensure smooth operation of ATM system, especially in rush hour 4.7 Recommendations 4.7.1 Recommendations to the Government The government should focus more on researching and completing legal framework which defines clearly the powers and responsibilities of non-cash payment Related parties thereby controls legal risks in an appropriate manner In addition, legal framework is required to ensure compliance with international standards and practice recommended by international financial and monetary institutions or commonly applied in many other countries aiming at creating a fair competitive environment, ensuring market and service accessibility for parties with similar functions An appropriate and standardized legal framework will lead to create effective mechanisms for protecting customers, ensure effective and objective procedures for settling disputes as well as restrict cash payments made by users of state budget in order to increase controllability of the use of budget sources Enterprise sectors are viewed as potential market for the development of non-cash payments due to enormous volumes of payment transactions as well as high-educated level More policies should be implemented to encourage enterprises’ engagement in payment system via accounts Besides, the government needs to have strict decision on limit of cash that an enterprise can legally remain counted on its size and field of business Moreover, the government also accelerates equitization of enterprises and takes steps to promote stock market’s operation Almost every transaction on stock market is of great value and mainly made through account transferring The development of stock Le Phuong Anh-K15ATCB Page 48 market is therefore a contributor to the development of non-cash payments On the other hand, stock market is a potential market to mobilize fund at an enormous volume 4.7.2 Recommendations to SBV SBV needs to focus on modernizing and upgrading payment technology Keeping up with global trend of modern payment types seems to be impossible unless SBV has policies and strategies to research and apply the advanced technology to payment system aiming at offering smooth, synchronous and quick payment service Advertisement and propaganda are most likely to have substantial impacts on people’s psychology SBV should cooperate with communication agent to propaganda features and advantages of non-cash payments through mass media such as internet, television in order to pay more people’s attention to non-cash payments These propagandas are believed to spread knowledge and provide complete and essential information of benefits, costs and risks associated with each payment instrument or service This will draw customer’s attention to non-cash payment types instead of making payment by cash Furthermore, SBV has to boost application of advanced technology to connect ATM system amongst different banks Currently, ATM system has been connected but not synchronous and narrow in sphere to the small groups such as Smartlink or Banknet instead of central direction from a highly appropriate authority This is a beneficial solution to both commercial banks and the state bank due to saving costs of installment and repair This connection will ensure synchronous operation in the whole banking systems and tackle advantages of unreasonable placement of ATMs Currently, IBPS system is used to settle high value transactions Meanwhile, low value transactions are partly conducted via IBPS and mainly processed through interbank bilateral payment system With the international payment transactions, banks involve in connecting directly with the payment system of international financial institutions Le Phuong Anh-K15ATCB Page 49 such as SWIFT, MoneyGram, Western Union This means that each bank will have to remain separate connection to each global financial institution It also indicates that Vietnam’s payment system is now in the state of overlapping connection among the parties in which each bank or financial institution has to maintain multiple systems connected to the banks or other financial institutions to carry out payment activities SBV therefore has to closely coordinate with commercial banks to set up an automated clearing house (ACH) This payment system will serve customers in the group of automated and periodical services and simultaneously meet the requirements of handling large amounts of low-value transactions and upgrade non-cash payment facilities 4.8 Conclusions Payment is one of the most important functions in bank’s operation and has a substantial influence on the economic growth and development The bank, therefore, should strive to renovate and complete non-cash payment systems to keep up with the goal of national modernization and industrialization as well as international integration tendency The development of non-cash payment is currently considered the leading responsibility of the banking sector During 5-year period from 2011 to 2015, Agribank Lang Ha branch has taken various steps to develop and improve the quality of non-cash payments and gained optimistic achievements The branch has experienced a gradual growth in non-cash payments when total sales of non-cash payments consecutively increased to reach 67,099,746 million dongs in 2015, a rise of 4,935,419 million dongs compared with the previous year The branch has been offering full of non-cash payment types in which payment order is by far the most popular thanks to its convenience and simple procedure Besides, the branch is offering a wide range of products and services basing on advanced technology such as electronic banking Via actively coordinate with Le Phuong Anh-K15ATCB Page 50 international card institutions, the branch has provided customers with numerous features of VISA or MASTER card However, in comparison with potential of market and requirements of financial economy, the bank’s development is not comparable The branch has been in trouble with incomplete technology infrastructure, inadequate marketing and insufficient features of products and services On the basis of non-cash payment’s reality at the branch, there are some suggested solutions and recommendations to non-cash payment improvement presented in the last chapter Le Phuong Anh-K15ATCB Page 51 LIST OF REFERENCES 15 Agribank, Lang Ha branch, Consolidated Statements on products and services over years from 2011 to 2015 16 Agribank, Lang Ha Branch, Consolidated Statements on credit operation from 2011 to 2015 17 Agribank, Lang Ha Branch, Financial Analyzing Statements from 2011 to 2015 18 Agribank, Lang Ha Branch, Consolidated Statements on Businesses from 2011 to 2015 19 Dinh Duc Thinh, M.A.; Nguyen Hong Yen, M.A (2012) Kế toán ngân hàng 20 Edward G Hinkelman (2013) Short course in International Payments (2nd ed) 21 Bergman, M., Guibourg, G., and Segendorf, B (2007) The Costs of Paying – Private and Social Costs of Cash and Card Payments, Sveriges Riksbank Working Paper Series 212 22 Eastwood, G (2008) The Future of Payments Prepaid cards, contactless and mobile payments, Business Insights, Datamonitor, April 01 23 Decision 30/2006/QD – NHNN published by the Governor of State Bank of Vietnam in 11 July 2006, issuing regulations on supply and use of cheques 24 Decree 101/2012/ ND-CP (22 November 2012) by Government on noncash payment 25 Doan Thi Thu Huyen, Develop banking services at Agribank, Lang Ha branch 26 http://agribank.com.vn/ 27 http://tapchitaichinh.vn/ 28 http://cafef.vn/ Le Phuong Anh-K15ATCB Page 52 Le Phuong Anh-K15ATCB Page 53