Payment cards in viet nam the case of acb,graduation thesis

BANKING ACADEMY Foreign Language Faculty - GRADUATION THESIS PAYMENT CARDS IN VIETNAM THE CASE OF ACB Instructor: Pham Thi Hoang Anh (Ph.D) Student: Le Thi Thanh Huyen Class: ATCC_K13 Hanoi, 2014 Le Thi Thanh Huyen - ATCC/K13 Page DEDICATION I dedicate this graduation thesis To my family And To Banking Academy of Vietnam ACKNOWLEDGEMENT I owe many thanks to many people who truly helped my progression and smoothness in my graduation thesis First of all, I would like to express my deep sense of gratitude to Ms Pham Thi Hoang Anh for giving me valuable guidance, great support, encouragement and constructive feedbacks to accomplish this research Her willingness to motivate me contributed tremendously to my graduation thesis as well as gave me aspiration to attain the targeted achievements Besides, words are inadequate to offer my thanks to all Banking Academy’s lecturers, especially Foreign Language Faculty’s, who have furnished me with sufficient knowledge about Banking - Finance and nurtured my passion for studying English Finally, I deeply appreciate my family who have been always by my side and supported me wholeheartedly ABBREVIATIONS Abbreviations ACB IT ATM POS EMV SWIFT Meaning Asia Commercial Bank Information Technology Automated Teller Machine Point of sale Europay, MasterCard, Visa Society for Worldwide International Telecommunication Financial LIST OF TABLES, CHARTS AND DIAGRAMS Table 3.1: Profit before tax and Total assets of ACB in the period 2009- 2013 Table 3.2: The development of bank cards’ total number in the period 2009 – 2013 Table 3.3: The number of ACB’s cardholders Table 3.4: Revenue of payment cards at ACB in the period 2009 – 2013 Table 3.5: The number of ATMs of ACB Chart 3.1: The number of cards issued and card growth rate in the period 2009 – 2013 Chart 3.2: The number of credit cards issued in the period 2009 – 2013 Chart 3.3: The number of prepaid cards issued in the period 2009 – 2013 Chart 3.4: The number of debit cards issued in the period 2009 – 2013 Chart 3.5: Structure of debit cards in the period 2009 – 2013 Chart 3.6: Growth rate of international and domestic debit cards Chart 3.7: Sales of card payment in the period 2009 – 2013 Chart 3.8: Sales of card payment via ATMs Chart 3.9: Revenue of payment cards at ACB in the period 2009 – 2013 Chart 3.10: The number of POS and Merchants of ACB Chart 3.11: Banks having prestige card services and customers’ reliability Diagram 3.1: Organizational structure of ACB Diagram 3.2: Types of cards ACB issues TABLE OF CONTENTS Chapter 1: INTRODUCTION 1.1 Rationale 1.2 Research Objectives 1.3 Scope and Subject of the study 1.4 Research Methods .3 1.5 Research Questions 1.6 Research Structure Chapter 2: THEORETICAL FRAMEWORK OF PAYMENT CARDS 2.1 Definition 2.2 Classification .4 2.3 Characteristics 2.4 Functions and Benefits Chapter 3: CURRENT BACKGROUND OF PAYMENT CARDS AT ACB 3.1 Overview of ACB 3.1.1 Foundations and Development of ACB .9 3.1.2 Organizational Structure of ACB .13 3.2 Current background of card payment at ACB in the period 2009 – 2013 14 3.2.1 Types of payment cards 15 3.2.2 Card issuance 19 3.2.2 Card payment 26 3.3 Evaluations about the operation of developing card payment services at ACB .31 3.3.1 Achievements 31 3.2.2 Limitations and Causes 34 Chapter 4: SOLUTIONS AND RECOMMENDATIONS TO ENHANCE PAYMENT CARD SERVICES AT ACB 38 4.1 Some solutions to enhance card payment services at ACB 38 4.2 Recommendations to expand card payment at ACB .42 Chapter 5: CONCLUSION 45 PAYMENT CARDS IN VIETNAM – THE CASE OF ACB CHAPTER 1: INTRODUCTION 1.1 Rationale “A key factor to sustainable development of a bank is the application of Information Technology to banking operations In the context of rapid development of science and technology, banks have to offer certain solutions to not only promote banks’ growth but also facilitate the best services to customers”, stated by Nguyen Van Giau, the former governor of State Bank of Vietnam In recent years, along with the development of science and technology, payment cards have, so far, become more and more ubiquitous and indispensable in modern society Payment cards have two important distinguishing features First, they exhibit network externalities as payment cards are more valuable to customers when more merchants accept them Secondly, thousands of banks and other firms worldwide provide payment card services to millions of card holders and millions of merchants who accept cards Cards are now not merely a means of withdrawing money They gradually become a multi- purpose instrument that enables cardholders to easily get access to various banking services The basic utility services of cards are: payment for goods, cash withdrawals, bank transfer, bill payment, purchase of goods and services online, etc In order to satisfy customers’ demand, service providers, particularly banks, are paying greater attention to the development of the bank’s services, especially utilities associated with card services Along with the implementation of traditional services, banking operations have a tendency towards the powerful development of modern products and services, in an Le Thi Thanh Huyen - ATCC/K13 Page effort to furnish customers with the best utilities However, they have to be exposed to acute competition with their foreign counterparts who have not only strong financial ability but also experience in banking services This requires banks to provide appropriate strategies and certain solutions so as to enhance its competitiveness and consolidate its standing in the domestic financial market, as well as step–by–step expanding to the regional and international markets It is undeniable that Asia Commercial Bank (ACB) is not excluded from this indispensable trend Therefore, the strategies of ACB focus mainly on providing diverse, professional and convenient products to meet customers’ requirements, with an aim to build up a high quality, safe and efficient card payment system In order to acquire that target and to compete to other banks, ACB is expanding its network, diversifying types of payment cards, improving their quality of services and enhancing the serving manner of staff They strive to achieve the goal of being in top retail banks in Vietnam as well as to develop further to other countries in the area Besides, the bank is gradually boosting its competitiveness, prestige and reputation in international financial market For this above reality, it is necessary to assess the quality and current background of bank card payment at ACB as well as recommend appropriate solutions to improve the quality’s services in order to gain customers’ satisfaction Therefore, I made a decision to research on “PAYMENT CARDS IN VIETNAM – THE CASE OF ACB” as my graduation thesis 1.2 Research Objectives The main objectives of the study are (1) to point out the theoretical issues of payment cards, in particular the performance of payment card services at ACB; (2) to analyse business operations of payment cards; and (3) to provide suggested solutions and recommendations to further promote payment card services at this bank Le Thi Thanh Huyen – ATCC /K13 Page 1.3 Scope and Subject of the study Subject of the study: theoretical and practical issues related to developing card payment services at ACB Scope of the study: Due to the time and conditions are limited, this study mainly focuses on researching the development of card payment services at ACB in the period 2009 – 2013 as well as recommending certain solutions 1.4 Research Methods The thesis has been applied some research methods, including Systematization, Synthesis, Comprehensive analysis, Comparison, Statistics and Interpretation, determined to shed light on the issues raised in this research 1.5 Research Questions To achieve the above objectives, three research questions are addressed in this study as follows: Question 1: What are characteristics, classifications, functions and benefits of payment cards? Question 2: What is the current background of payment card services at ACB? Question 3: What are possible solutions to improve payment card services at ACB? 1.6 Research Structure In addition to lists of abbreviations, tables, figures, references, the main content of the thesis includes chapters as follows: Chapter 1: Introduction Chapter 2: Theoretical framework of payment cards Chapter 3: Current background of payment cards at ACB Chapter 4: Suggested solutions and recommendations to enhance payment card services at ACB Chapter 5: Conclusion Le Thi Thanh Huyen – ATCC/K13 Page CHAPTER 2: THEORETICAL FRAMEWORK OF PAYMENT CARDS 2.1 DEFINITION A payment card is a means of non-cash payment issued by banks or credit institutions and provided to customers Customers can use it to withdraw cash at merchants, ATMs or make payment for goods and services 2.2 CLASSIFICATION Based on different criteria, cards are classified into different types: a In terms of technical characteristics - Magnetic Stripe card: is produced based on a magnetic tape technique with a tape containing information on the back of the card This species is widely used for over 20 years - Smart card: This is the latest generation of payment cards which are based on microprocessor attached to an electronic chip b In terms of issuers - Cards issued by banks: A type of card enables customers to use their account flexibly at the bank, or use a line of credit granted by banks - Cards issued by non –banking institutions: A type of Travel and Entertainment card issued by big business groups such as: Dinner Cub, Amex, etc This could also be issued by petroleum companies or large stores, etc c In terms of the nature of payment - Credit Card: This is the most popular type of card Credit cards offer consumers and businesses short – term lines of credit and a variety of repayment options Having a line of credit gives cardholders the ability to cover unexpected or large Le Thi Thanh Huyen – ATCC /K13 Page (4) Effective risk management Risks in business are indispensable issues, but ACB has carried out effective measures to prevent and mitigate risks For the existing risks, ACB strives to find ways to overcome the damage, recover money loss, fix loopholes in card management and well-coordinate with the competent authorities in preventing and dealing with criminal situations related to cards (fake cards, card thefts ) 3.3.2 LIMITATIONS AND CAUSES 3.3.2.1 Limitations It is undeniable that ACB has obtained a lot of achievements in operating card business and attracting customers, particularly in terms of card quality, customer service quality and quickly building up a banking union Besides those good results, ACB still faces some problems that need tackling by flexible measures First, insufficient investment in technology Despite many efforts in technology investments, this investment is rather small compared to foreign banks Therefore, there are still some problems in mechanical systems damaging both time and money of banks, merchants and customers Take the leakage power in a number of ATMs in 2010 as an example, this incident not only caused losses, but also led to the deterioration of bank’s prestige Second, the rate of “death cards” is still high The fierce competition in the banking sector has led to the race of issuing cards as a channel to promote the brand Banks, however, has just raced under the tip of the iceberg, increasing the number of issued cards but not paying attention to the use of cards after being brought to customers Therefore, many cards, especially ATM cards, have become "junk", which maybe reach up to 30 to 50% ACB is not an exception Third, in terms of marketing activities to attract customers Le Thi Thanh Huyen – ATCC/K13 Page 33 The promotion activities to attract customers as well as merchants for the product have not been paid attention to This leads to the fact that although card products are known through various communication channels, it is not easy for banks to boost their attractiveness Chart 3.11: Channels help customers get access to ACB’s payment cards 32.0% 36.5% Internet Newspapers 26.5% 48.5% Friends and relatives Leaflets 23.0% Media Bank staff 56.3% Source: Business Report – ACB’s Card Centre Forth, price competitiveness of bank services Price competitiveness of bank services is not high, as the excess limit fee of ACB is the highest level in banks today, with 0.075% / day The fee for each cardholder's transaction ranged from to 1.45%, while that of Eximbank ranges from to 1.1% or Vietcombank is to 1% Moreover, the annual fee of the ACB is applied separately for each type of card: 100,000 VND for domestic cards, 200,000 to 300,000 for international credit cards, which are higher than most counterparts According to a survey recently, transaction fees difference is one of the reasons that makes customers not choose ACB’s card products after finding out card procedures Thus, this is probably a considerable limitation for attracting customers that ACB needs to solve Le Thi Thanh Huyen – ATCC /K13 Page 34 3.3.2.2 Causes First, cash consumption habit of people In Vietnam, the biggest reason why the number of payment cards is low is that cash consumption habit of people is still very popular Vietnamese people’s cultural and technological level is not high (especially the elderly and those who live in rural areas), they have difficulties and psychological barriers when accessing to banking services The habit of using cash is a root limiting the development of non-cash methods of payment In addition, it is a common knowledge that people prefer dealing directly in the branches or transaction points because technology is considered as unreliable That is the reason why high-tech services, including payment cards in Vietnam, has not developed effectively as expected This is a major challenge requiring banks to make more effort in advertising and marketing cards Second, the legal environment has not completed yet Currently Vietnam's Criminal Code has not specified penalties for irregularities in payment of international credit cards The crime prevention needs the coordination of many different countries However, there is a big gap between the law about high technology of Vietnam and that of other countries, which hinders Vietnam from coordinate with them Third, difficulties in the development of POS, ATM and Merchant network Technical infrastructure for settlement is not synchronized: ATM and POS systems were mainly in urban areas and industrial zones Moreover, ACB get a lot of difficulties in expanding the merchants’ network Because most Vietnamese clients are familiar with using cash in payment, using non- cash means of payment, including card payment, seems to be limited This is the main reason that the development of POS networks has not obtained the expected results Le Thi Thanh Huyen – ATCC/K13 Page 35 Costs of procurement, technology investment, installation and maintenance of ATMs are also obstacles for banks Forth, the fierce competition among banks By 2013, Vietnam's card market has nearly 40 participating banks, and each bank has built up their own policies and attractive incentives to increase market share in cards Therefore, competition among these banks becomes increasingly fierce and intense The competitiveness puts pressure on ACB to maintain and develop the market share It is more problematic when an increasing number of foreign banks with great potentials participate in the market This requires ACB to strive for diversifying products, giving customers more choices with flexible incentives Fifth, costs of enhancing technology and infrastructure for payment, diversifying products, training staff, improving the quality of service lead to increase the cost of card business This is the reason why ACB has to collect a variety of fees If not, the bank will get loss This obstacle requires strategic plan so as to make best use of resources, save costs and reduce services price Le Thi Thanh Huyen – ATCC /K13 Page 36 Summary – Chapter This chapter provides information and analyses current background of card issuance and payment at ACB in the period 2009 – 2013 Accordingly, it can be drawn that ACB has obtained certain achievements, making a considerable contribution to developing modern card payment methods in Vietnam However, existing problems needs addressing, thereby enhancing services’ quality and satisfy customers’ requirements to the best advantages Based on theoretical framework of payment cards provided in chapter 2, chapter introduces the results of ACB’s card payment operation before analyzing its achievements, limitations and causes for those drawbacks Therefore, in the next chapter, possible solutions will be suggested Accordingly, ACB’s limitations are hoped to be recovered and the strengths of ACB’s card payment will be further promoted Le Thi Thanh Huyen – ATCC/K13 Page 37 CHAPTER 4: SOLUTIONS AND RECOMMENDATIONS TO ENHANCE PAYMENT CARD SERVICES AT ACB 4.1 SOME SOLUTIONS TO ENHANCE CARD PAYMENT SERVICES AT ACB 4.1.1 Developing card services 4.1.1.1 Diversifying cards’ features of ACB Admittedly, with the passive of time, the increased level of living standard has, so far, made contribution to the highly demand of card diversification having ACB brand Introducing new types of products with desired functions will meet the requirements of different market segments Thus, the trend stimulates banks to research and introduce new card products, good examples are E-partner Pinkcard for ladies of Vietinbank or Vietcombank – MTV for showing personality and dynamism of the young generation 4.1.1.2 Investing in technology development It is a common knowledge that developing information technology is a key strategy of banks nowadays With the growing application of advanced science, technology is the foundation of business development and expansion of new types of services that allow online trading systems and catching up international banks in all fields Therefore, in the trend of global integration and the fierce competition, it is necessary for ACB to enhance investment in modern technology to promote card payment services a Improving the collaboration with domestic or overseas banks, economic institutions so as to take fully advantages of financial and technical support Hence, ACB should modernize banking technology, innovate the security technology and ensure the data safety Le Thi Thanh Huyen – ATCC /K13 Page 38 b Completing Core-banking program to upgrade the transmission line with large capacity, high speed, and a strong host system which processes transactions quickly and precisely Subsequently, payment services at ATM and POS will face with less congestion and transaction time will be improved, the most effective and safe products will be provided to users c Raising the level and knowledge of technology for the whole labor workforce, from leaders to inferior staff through regular and continuous training campaigns ACB should ensure personnel of all levels to gain a professional qualification if technology to be capable of accessing new technology and meeting the demand of network expansion and services development The application of modern IT will help ACB improve the quality of card services, safety of operations, capacity of management, competitiveness in the market, and prove that it is a leading retailer in Vietnam having enough confidence to participate in the regional and global economic integration 4.1.1.3 Cooperate with international card organizations Obviously, an outstanding strength of ACB is international payment cards, typically MasterCard and Visa There are, however, many other international card organizations like JBC, AMEX, DinnerClubs while ACB’s cards circulating in the world were just MasterCard and Visa Thus, expanding category of cards and scope of card payment is really urgent requirement In order to enhance competitiveness, ACB needs to negotiating and signing contracts with prestigious international card organizations like JBC, AMEX, DinnerClubs, etc 4.1.2 Perfecting and enhancing card services 4.1.2.1 Expanding the merchant network It is irrefutable that network is a bridge bringing customers to the banks, and with a widespread network, a stable infrastructure, banks can hold a large market share Le Thi Thanh Huyen – ATCC/K13 Page 39 Thus, ACB should pay more attention to building up a suitable working network via merchants accepting cards ACB should have specific strategies for expanding merchant network Depending on the region, each area has its own characteristics, business activities and shopping habits, so ACB should have appropriate strategies for them For example, in the area of potential tourism, people there have a high demand for consuming so it would require more extensive network than suburban areas 4.1.2.2 Training and developing human resources to expertise in card operations Staff of ACB are mostly young, enthusiastic, energetic and highly appreciated It is believed that the important task is to maintain and develop skilled staff and simultaneously, training for new work force Only by that way can ACB achieve customer satisfaction when using cards To accomplish this task, ACB should pay attention to two solutions as follows:  Training and educating staff ACB should regularly organize basic training courses for staff on card operations and communication skills with customers They should also cooperate with other banks to organize training courses, practical classes, thereby helping staff to apply practical knowledge and update changes in card issuance and payment In addition, it is advisable for ACB to regularly send staff to study abroad so that they can broaden their horizon of knowledge and experience about cards, or ACB may invite experts from organizations to train and educate its staff  Enhancing the quality of human resources Human resource is considered one of the most important parts of the banking operations and reasonable recruitment, training and treatment policies are basis for banks to exploit employees effectively Besides, the bank needs to offer appropriate Le Thi Thanh Huyen – ATCC /K13 Page 40 incentive policies and rewards for employees, thus ACB can further promote the relationship between staff and the bank and stimulate the staff’s working spirits Consequently, improving the quality of personnel is a strategic mission in order to meet the long-term development need of banks 4.1.2.3 Strengthening the customers’ care Customers’ satisfaction plays a crucial role in the survival of a bank In the context of fierce and intense competition as today, that role becomes much more important than ever If customers are satisfied, they will come back to the bank and recommend it to other users Therefore, they are those who help the bank to increase sales, market share, and profit as well as build up fame in customers’ eyes It is believed that bringing satisfaction to users means retaining them and expanding the revenue 4.1.3 Promoting marketing activities Besides solutions for improving products, technology and personnel as well as expanding network, another measure suggested for card services is giving a boost to marketing activities First, they should train staff in charge of marketing cards These staff must have not only a full understanding of card operations but also knowledge about society so that they can make up statistics, forecasts and analysis of customers’ demand By that way, they could build up marketing strategies with impressive and unique activities to develop card products in an appropriate and effective way Second, promotional and advertising activities could be strengthen by: Advertising activities Advertising is one of the most common ways to attract customers Thanks to mass media, ACB can spread the news about its products, services or banking operations to customers Depending on customers’ psychology, ACB should choose the suitable way of advertising for making best use of advertisements Le Thi Thanh Huyen – ATCC/K13 Page 41 Promotions and after-sales services: This is a means to express the bank’s care for their customers, which should be done regularly in a long time during the operation Only by that way customers believe in ACB and they become faithful partners of the bank Building up close relationship with customers For ACB, in order to develop and retain customers effectively, they need to focus on develop and make close relationship with their traditional customers, turning new customers to become regular customers, and especially attract more and more customers to use card products and services Providing information directly to customers To attract customers, it is very necessary to provide market information and bank services, which makes customers understanding more about card products and services ACB may provide information directly to customers via the following channels: - Organizing customer conferences - Workshops - Exhibitions Providing auxiliary services Seemingly not important, but it has a far-reaching impacts on attracting customers to a bank A massive bank with full amenities and convenient transaction places cannot attract customers without a safe parking place In addition, preparing a few small services for customers while waiting is also an effective and easy way to attract customers, which can absolutely perform well at ACB Le Thi Thanh Huyen – ATCC /K13 Page 42 4.2 RECOMMENDATIONS TO EXPAND CARD PAYMENT AT ACB 4.2.1 Recommendations to the Government The attention of the government occupies a very crucial role in the development of all economic sectors because they can create a great support with tax, laws and socio-economic policies Therefore, the Government should provide appropriate management policies to facilitate banks to develop modern payment methods They are as follows:  Promulgating legal documents to complete the legal basis for card business activities and protect the rights of cardholders Simultaneously, providing a framework of penalties for criminals relating to cards such as producing and consuming counterfeit cards, stealing card codes, etc  Having policies to encourage card business activities and widely-used cards in Vietnam This means ministries and departments should actively collaborated with banking sector to promote bank card acceptance as a means of commercial business payment This would help to reduce the social costs, thereby bringing benefits for consumers Especially, the regulations should be executed so that salary for staff of State enterprises will be paid via card accounts  Paying attention to the construction of infrastructure, equipment and machinery for card issuance and payment activities, creating favorable conditions for banks to attract customers to use cards 4.2.2 Recommendations to the State Bank Undoubtedly, the State bank of Vietnam (SBV) is the leader of Vietnamese commercial banks It can be said that to make payment card services at ACB take off, SBV should carry out some solutions as follows: Le Thi Thanh Huyen – ATCC/K13 Page 43  Providing orientations towards card operations for commercial banks to build up their own orientations, so as to make use of the common merits, and be able to develop their services effectively  Creating favorable conditions to establish financial switching, simultaneously connecting card payment systems among banks across the country  Having policies on promotion of non-cash payments in general such as tightening cash management, collecting fees of using cash in order that people shift to another payment method Simultaneously, it is essential to offer incentives for forms of non-cash payments, etc Accordingly, these policies also need to synchronize with the policies of the government Le Thi Thanh Huyen – ATCC /K13 Page 44 Summary – Chapter Admittedly, payment card services in commercial banks nowadays are on a rise and develop in- depth The presence of big and experienced foreign banks increases the competitive pressure for domestic ones in general and for ACB in particular This is not only a challenge but also a motivation for them to expand the scale, acquire experience of administration and improve the quality of payment card services to satisfy the increased demand of customers ACB has strived for strengthening and enhancing the services’ quality, using it as a competitive tool to form a firm foundation, development as well as meet urgent requirements of the world economic integration On the basis of analyzing the actual situation of ACB’s payment card services, chapter suggests certain solutions to merchant expansion, distribution channels, IT improvement, human resources and customer care policies as well as marketing policies It is hoped that these measures will make a modest contribution to help ACB get over disadvantages, make use of opportunities to develop card services and raise its competitiveness in the current acute market Le Thi Thanh Huyen – ATCC/K13 Page 45 CHAPTER 5: CONCLUSION Obviously, the development of retail banking services is an inevitable trend for Vietnamese commercial banks to dominate the market Moreover, sustainable development is also a solution to meet the requirements to integrate into the world’s market Admittedly, it will be more competitive when Vietnam fully opens the financial market Therefore, the development of payment card services in the current period is an effective solution for Vietnam's commercial banks to diversify banking services, improve business efficiency as well as competitive capacity Based on general methods for scientific research from the theory to practice, the thesis topic entitled: "Payment cards in Vietnam – The case of ACB” focus on some certain issues Firstly, the thesis systematizes concepts of cards as well as card issuance and payment operations This is considered the very important basis knowledge for banks which implement card operations Secondly, it analyzes the actual payment card services at ACB in the period 2009 – 2013, including achievements, limitations as well as its causes Thirdly, based on the basis of current background at ACB, the thesis sets out appropriate measures as well as recommendations to the government and SBV, with an aim to improve the services quality in the near future Admittedly, the thesis still has certain inevitable restrictions I look forward to receiving contributions and feedbacks of teachers and other readers to help the content more comprehensive and completed Le Thi Thanh Huyen – ATCC /K13 Page 46 REFERENCES ACB’s annual reports in the years from 2009 to 2013 ACB’s financial reports in the years from 2009 to 2013 Card Business Report – ACB Card Centre in the years from 2009 to 2013 Documents on credit cards of International credit cards organizations (Visa, MasterCard) Dr Nguyen Van Tien (2012), “International Payment”, Banking Academy, Statistical publisher The Chargeback Guide, MasterCard International Website of ACB Website of SBV Website Wikipedia.org 10 Journals: Journal of Banking, Journal of banking Scientific and Research 11 Federal Reserve System (2013),“The 2013 Federal Reserve Payments Study” 12 Robert M Hunt(2013), “An introduction to the economics of payment card networks”, Federal reserve bank of Philadelphia Le Thi Thanh Huyen – ATCC/K13 Page 47