Development of credit card services the case of vietnam,graduation thesis

INTRODUCTION

Rationale

Humanity has made remarkable strides in technology, significantly impacting all facets of life and reshaping the global economy and society One notable example is the evolution of banking, particularly through bank card technology As non-cash payment methods gain popularity, credit cards serve as a key indicator of a society's level of civilization.

Credit cards are a groundbreaking banking service that offers a modern alternative to cash transactions They have revolutionized the banking system by leveraging advanced information technology for seamless payment solutions.

Since its introduction in the 1950s, the credit card has gained widespread popularity due to its flexibility and numerous advantages, effectively meeting the needs of even the most discerning customers and solidifying its role in the banking payment landscape.

The 1990s were pivotal for Vietnam's economy, particularly in the banking and finance sectors, as numerous new services, including credit card offerings, were introduced This evolution not only opened up new business opportunities but also generated significant momentum for the banking industry.

The credit card serves as a pivotal tool for advancing industrialization and modernizing the banking system in Vietnam, while also facilitating the country's economic integration into regional and global markets.

The credit card industry in Vietnam, while established, has not yet fully replaced cash transactions The growth of the credit card market in this developing country faces significant challenges that necessitate prompt and effective solutions from Vietnamese banks.

Graduation thesis Banking Academy of Vietnam

Van Thi Thanh Hien ATCA- Course 12 Page 2

This thesis titled "Development of Credit Card Services: The Case of Vietnam" aims to evaluate the evolution of credit card services in Vietnam, identify existing limitations, and propose effective solutions The goal is to contribute positively to the advancement of credit card services in Vietnam during this new era.

1.2 The Aim and Scope of the Study

The primary aim of this thesis is to establish a comprehensive theoretical framework regarding the history, types, and functions of credit cards, as well as the factors influencing the development of credit card services within Vietnamese commercial banks.

Secondly, the research focuses on analyzing the credit card market in Vietnam over the period from 31 st December 2010 to 31 st 2012 and then shows author‟s assessment of this market

This study offers valuable insights and recommendations for enhancing credit card services in Vietnam from 2013 to 2015, focusing on effective marketing strategies and risk management As such, it serves as a crucial resource for banks aiming to improve their credit card offerings.

The thesis focuses on researching and analyzing case of the Vietnamese commercial banks

Thus, in order to achieve the research target, the researcher endeavors to find answers to the following questions:

RQ1: What is the current situation of credit card services in the Vietnamese commercial banks?

RQ2: What are the strengths, weaknesses, potentials and threats of credit card market in Vietnam?

RQ3: How could the Vietnamese commercial banks improve credit card services?

Two main sources have been employed to write this thesis One is from external sources such as national and international papers, articles, relevant studies and

In the evaluation of the credit card market in Vietnam, the author utilized various resources, including websites, textbooks, and library documents The research involved observation, analysis, and comparison of data and statistics A SWOT analysis model was specifically employed to provide a comprehensive assessment of the market dynamics.

The structure of the study is as follows:

Chapter II presents theoretical background of credit card services

Chapter III describes the current situation of credit card services in the Vietnamese commercial banks in recent years as well as present findings about this market in order to create a firm base for suggestions in the next section

Chapter IV proposes solutions and recommendations so as to develop credit card services in Vietnam.

Research methodology

Two main sources have been employed to write this thesis One is from external sources such as national and international papers, articles, relevant studies and

In the evaluation of the credit card market in Vietnam, various resources were utilized, including websites, textbooks, and library documents The research involved the author's observation and analysis, employing a SWOT analysis model to compare data and statistics effectively.

Organization of the Study

The structure of the study is as follows:

Chapter II presents theoretical background of credit card services

Chapter III describes the current situation of credit card services in the Vietnamese commercial banks in recent years as well as present findings about this market in order to create a firm base for suggestions in the next section

Chapter IV proposes solutions and recommendations so as to develop credit card services in Vietnam

THEORETICAL FRAMEWORK

Overview of credit card

2.1.1 History and development of credit card

Since the late 1800s, the exchange of goods between consumers and merchants has relied on credit, utilizing credit coins and charge plates as forms of currency However, it was only about fifty years ago that plastic payments emerged as a fundamental and unavoidable aspect of modern society.

In the early 1900s, proprietary cards were issued by oil companies and department stores, as noted by Stan Sienkiewicz in his Philadelphia Federal Reserve paper "Credit Cards and Payment Efficiency." These cards were only accepted at the issuing business and select locations Unlike today's credit cards, which prioritize convenience, these early cards aimed to foster customer loyalty and enhance service quality.

In 1946, John Biggins, a banker from Brooklyn, introduced the first bank card called "Charge-It," according to MasterCard When customers used the card for purchases, the transaction bill was sent to Biggins' bank, which then reimbursed the merchant and collected payment from the customer.

The Diners Club Card marked a significant evolution in the credit card industry, originating from an incident in 1949 when Frank McNamara forgot his wallet during a business dinner in New York This experience inspired him and his partner, Ralph Schneider, to create an alternative to cash, leading to the introduction of the Diners Club Card in February 1950, primarily for travel and entertainment By 1951, the card had gained 20,000 users, and a decade later, it transitioned to a plastic format, facilitating credit purchases.

Van Thi Thanh Hien ATCA- Course 12 Page 5 but it was technically a charge card, meaning the bill had to be paid in full at the end of each month

In 1959, American Express revolutionized the credit card industry by introducing the first plastic card, moving away from the traditional cardboard and celluloid materials The company quickly expanded its offerings to include local currency credit cards in various countries, resulting in approximately 1 million cards being utilized at around 85,000 establishments within the first five years By the 1990s, American Express evolved into an all-purpose card provider Now, as it approaches the 50th anniversary of its credit card innovation, Amex continues to be a significant player in the financial services sector.

Diners Club and American Express operate within a 'closed-loop' system, where the card issuer manages the entire transaction process, including authorization and settlement, directly connecting both the consumer and the merchant.

In 1959, MasterCard introduced the option for cardholders to maintain a revolving balance, allowing them to avoid paying their full bills at the end of each cycle This innovation provided customers with increased flexibility in managing their finances, despite the potential risk of accumulating finance charges Both Visa and MasterCard issue credit cards through member banks and establish the rules for processing transactions.

Credit cards have emerged as a civilized, convenient, and efficient payment method, particularly in developing countries The rapid advancement of technology has significantly enhanced the features of credit cards, making them a fast and secure option for transactions.

2.1.2 Definition and Characteristics of credit card

There have been many definitions of credit card so far Here are some from different sources:

 According to http://en.wikipedia.org

A credit card is a payment card that enables users to purchase goods and services based on their promise to repay It operates through a revolving account established by the card issuer, which provides a line of credit that allows users to borrow money for transactions or cash advances.

A credit card is a plastic card with a magnetic strip, issued by a bank or a business authorizing the holder to buy goods or services on credit

 According to http://www.investopedia.com

A credit card is a financial tool that allows holders to borrow funds, typically at the point of sale These cards incur interest charges and are mainly intended for short-term financing Interest typically starts accruing one month after a purchase, and borrowing limits are established based on the individual's credit rating.

A credit card is a plastic card with a magnetic strip, issued by a bank or business, that allows the holder to purchase goods or services on credit and access cash advances.

Despite the variety of credit card types available in Vietnam, they have common physical features (size, shape, materials) as specified by ISO 7810 standard

The author takes a VISA card as a specific example for illustrating physical features of a credit card

The Visa dove image should have a three-dimensional effect, creating an illusion of movement when the card is tilted in light Additionally, the final set of embossed digits should seamlessly integrate into the hologram.

All Visa account numbers begin with a 4 while Discover, Master, and Amex account numbers start with 6, 5 and 3 respectively The embossing should be clear and uniform in size and spacing

3) Expiry date or valid through

Merchants must check for the validity of the card before accepting

Encoded with embossed information and CVV

The 16-digit account number indent printed in reverse italics on the signature panel is followed by a 3-digit card verification value (CVV2)

The VISA logo is displayed in light blue or blue and gold at a 45-degree angle on a tamper-evident panel If the card is tampered with, the word "VOID" will appear beneath the signature panel To ensure the card's validity, it must be signed, and the signature on the panel should match the one on the sales draft.

Credit cards have become an important part of our economy They serve two main functions, each of which has benefits for consumers

Credit cards serve as convenient payment instruments that streamline transactions compared to cash or checks With advancements in modern communication, ordering products via phone or online has become commonplace, yet cash and checks cannot be transmitted through these channels If you were to mail a check for every phone order, the process would be as slow as traditional mail orders By providing your credit card information over the phone, merchants can expedite shipping, eliminating the wait for check processing and allowing for immediate delivery of merchandise.

Credit-card lending offers consumers a convenient yet often more expensive form of credit compared to other loans It provides unparalleled flexibility for making purchases, allowing individuals to hire services, like a furnace repair, even when cash is not immediately available Additionally, consumers can extend their payments over several months, albeit with higher interest rates.

The classification of credit cards can be based on different criteria as follow:

Norms reflecting the development of credit card services

2.2.1 Operations related to credit card services

2.2.1.1 Parties involved in a credit card operation:

 Cardholder: The holder of card used to make a purchase; the consumer

A card-issuing bank is the financial institution responsible for providing credit cards to cardholders This bank manages the billing process for repayments and assumes the risk associated with potential fraudulent use of the card.

 Merchant: The individual or business accepting credit card payment for products or services sold to the cardholder

 Acquiring bank: The financial institution accepting payment for the products or services on behalf of the merchant

 Credit Card Association: An association of card-issuing banks such as Discover, Visa, MasterCard and Amex that set transaction terms for merchants, card-issuing banks, and acquiring banks

To obtain a credit card, customers must complete a form provided by the issuing bank, ensuring they fulfill all necessary requirements and include the required information.

After reviewing the documents, banks will determine the appropriate type of credit card and its corresponding credit limit Concurrently, customer profile information and financial status will be entered into a computer system, which is then sent to the card center for processing.

In Step 3, customer information is updated and compared at the center, followed by the transfer of this data to a central database This process includes coding the information, which involves printing data on the back of credit or chip cards, as well as embossing and covering them.

 Step 4: After credit card personalization, card center sends PIN number to cardholders via reference or a specific safely-sealed envelope in case cardholders cannot receive directly

1 Merchant calculates the amount of purchase and asks buyer for payment

2 Buyer presents merchant with a credit card

3 Merchant runs credit card through the POS unit

4 Merchant transmits the credit card data and sales amount with a request for authorization of the sale to their acquiring bank

5 The acquiring bank that processes the transaction, routes the authorization request to the card-issuing bank The credit card number identifies type of card, issuing bank, and the cardholder's account

6 If the cardholder has enough credit in their account to cover the sale, the issuing bank authorizes the transaction and generates an authorization code This code is sent back to the acquiring bank The issuing bank puts a hold on the cardholder's account for the amount of the sale Note that the cardholder's account has not been actually charged yet

7 The acquiring bank processes the transaction, and then sends the approval or denial code to the merchant's POS unit Each POS has a separate terminal ID for credit card processors to be able to route data back to that particular unit

8 A sales draft, or slip, is printed out by the POS unit or cash register The merchant asks the buyer to sign the sales draft, which obligates them to reimburse the card-issuing bank for the amount of the sale

9 When all the credit card authorizations have been verified to match the actual sales drafts, the merchant will capture, or transmit, the data on each authorized credit card transaction to the acquiring bank for deposit This is in lieu of depositing the actual signed paper drafts with the bank

10 The acquiring bank performs an interchange for each sales draft, with the appropriate card-issuing bank The card-issuing bank transfers the amount of the sales draft, minus an interchange fee to the acquiring bank

11 The acquiring bank then deposits the amount of the all the sales drafts submitted by the merchant, less a discount fee, into the merchant's bank account

2.2.1.3.1Risks in credit card services

Cardholders default on debt by failing to make required payments, which poses a risk to banks that issue credit cards When a bank provides a credit card, it commits to lending money to the cardholder Consequently, if the cardholder does not make full payments or defaults, the bank faces potential losses on its capital.

Careless customer appraisal poses significant risks, as insufficient information in the bank's database makes it challenging to accurately identify good versus bad risk customers Additionally, the lack of necessary security measures further exacerbates these vulnerabilities.

Frauds can happen at any process of credit card business (from issuance to payment)

The two most common types of fraud in the world as well as in Vietnam are:

 Fishing: Thieves try to steal personal information by launching promotion, prize winning and then requiring them to provide their information

Thieves engage in skimming by stealing data to create counterfeit magnetic strips, often using hidden cameras to monitor cardholders' activities They exploit transactions without requiring physical cards, such as through cyber transactions and faxes This occurs because cardholders may unknowingly disclose their information, or their personal data can be compromised during electronic transactions, making them vulnerable to fraud.

Credit card management systems face various risks, including internet outages, information processing issues, and security breaches When these risks materialize, they can lead to severe consequences that impact not only customers and banks but also the entire card ecosystem.

The primary risks associated with card systems stem from outdated infrastructure and insufficient investment in security measures Additionally, a lack of serious attention to security and regular updates allows thieves to easily infiltrate the system and steal sensitive data.

Bank officials abuse their job position, knowledge about credit card business and shortcomings in operating procedures to forge, which leads to severe consequences for banks

The unqualified bank staff and inadequate interbank check are cited as main culprits of this risk

 Risk of stolen or lost cards:

CREDIT CARD SERVICES – THE CASE OF VIETNAM

Overview of current credit card market in Vietnam

3.1.1 Legal framework of credit card business:

To facilitate the growth of bank cards, especially credit cards, in Vietnam, the National Assembly, Government, and State Bank of Vietnam (SBV) have introduced various legal regulations governing the card business The table below offers a concise summary of these legal documents associated with card operations.

Table 1: Legal framework of card business

On April 1, 1997, Decision 196/TTg established the legal framework for recognizing electronic documents in Vietnam This decision allows banks and financial institutions to utilize information and data from various electronic sources, including magnetic discs, magnetic tapes, and electronic cards, as valid financial documents for accounting and settlement purposes.

16/06/2010 No 3, Article 98/2010 in “Laws on credit institutions” indicates the right of commercial banks in providing credit in the form of issuing credit cards

15/05/2007 Decision 20/2007/QĐ-NHNN states that commercial banks have the right of supporting issuance, payment, usage services supplement of bank cards

8/3/2007 Decree 35/2007/ND-CPP reveals that commercial banks provide credit card services based on the regulations about e-transaction in banking activities

15/05/2007 Decision 20/2007 issued by Governor of SBV regulates the necessity of sending application for releasing PIN numbers in case commercial banks want to be provided card services

Legal documents are crucial for the smooth operation of card businesses under State regulations, as they provide essential safeguards that foster customer trust in non-payment methods, especially credit cards.

3.1.2 Real situation of credit services in Vietnam

 The quantity of credit cards

Since 2010, both bank card market in general and credit card market in particular have enjoyed a significant development

Table 2: List of types of credit card issued by the Vietnamese commercial banks on 31 st December 2012

19/06/2009 Article 19 /2009 in the amended Penal Code details specific criminals relating to high-tech It creates favorable conditions for fighting against crime in card settlement

Bank Types of credit cards

VISA MASTER JCB AMEX DOMESTIC

Source: Offical websites of all Vietnamese commercial banks

In recent years, the credit card market in Vietnam has garnered significant attention from banks, with 16 out of 39 commercial banks issuing VISA credit cards and 11 offering MasterCard credit cards Notably, Vietcombank stands out as the sole issuer of JCB cards, while Vietinbank is the exclusive provider of American Express cards Additionally, several banks, including Sacombank, BIDV, VietABank, Trust Bank, ACB, and Vietcombank, have ventured into the domestic credit card segment This growing participation from various banks is driving further development in the credit card market.

Table 3: Growth of bank cards in Vietnam from 2010 to 2012

Year Number of bank cards

Source: Annual report of SBV

Source: Vietnam Bank Card Association

The data presented in the table and bar chart indicates that issued credit cards constituted just over 4% of all bank cards, yet showed steady growth over the analyzed period Additionally, it is noteworthy that the quantity of international credit cards consistently surpassed that of domestic credit cards.

In 2010, 567,000 credit cards were issued, with over half being international cards This number increased by 228,000 in the following year By 2012, the total number of credit cards had nearly tripled compared to two years earlier, peaking at 1.5 million.

Figure 1: Growth of credit card in Vietnam from 2010 to 2012

Source: Vietnam Bank Card Association and annual report of banks in 2012

Vietcombank holds the largest market share in international credit cards, exceeding 37%, thanks to its extensive experience and exclusive partnership with renowned card issuer Amex ACB follows as the second-largest player, controlling over 10% of the market, while Vietinbank and Sacombank closely trail with 10% and 7.5%, respectively These leading banks have been early adopters of this payment method, heavily investing in technology and infrastructure while fostering strong relationships with major international card issuers Consequently, it is essential for other banks to continuously upgrade their technology to remain competitive with these industry leaders.

Despite the rise of international credit cards, domestic credit cards have experienced consistent growth, although they account for only 2% of the total card market share This indicates a limited consumer demand for domestic credit cards.

In recent years, product diversification has gained significant attention, particularly in the credit card sector Numerous new credit cards featuring a variety of additional services have been introduced, enhancing the traditional functions of funds withdrawal and transfers Banking institutions are increasingly collaborating with new partners to provide both regular and unique facilities to their customers.

Figure 2: International credit card market share in 2012

VietinbankSacombankEximbankOther banks

In Vietnam, various banks are enhancing their credit card offerings to provide customers with valuable benefits For instance, Vietcombank has partnered with Vietnam Airlines and American Express to issue cards that offer travel insurance up to $5,000 and coverage for lost luggage up to $1,000 ACB has introduced a global medical insurance program with coverage of $10,000 for Golden cardholders and $5,000 for Standard cardholders Additionally, BIDV collaborates with BIC insurance to provide insurance values of 30 million VND and 50 million VND for credit lines around 100 million VND Smaller banks like DongA Bank, VIB, and Maritime Bank are also competing by offering credit cards with attractive discounts and promotions at various merchants.

The past few years have seen a significant expansion in the ATM network in Vietnam

Table 4: Growth of ATM system in Vietnam in the period of 2010-2012

Source: Report of Vietnam Bank Card Association

In 2010, there were about 11, 700 ATM machines brought into operation in marketplace This figure rose by around 17% in the next year, reaching more than 13,

300 ATM machines available It was in 2012 that a marginal growth in the number of ATM machines was recorded which pushed up to 13, 1700 machines

In terms of ATM network, Agribank hold the leading position in the Vietnamese card market with 2, 100 ATM machines, making up more than 15% of total market

In the competitive landscape of the ATM network market, Vietinbank secured the second position with a market share of 13.4%, while Vietcombank followed closely in third place, holding a market share of 12.5%.

Table 5: Growth of POS system in Vietnam in the period of 2010-2012

Source: Report of Vietnam Bank Card Association

POS network has also achieved an impressive growth in volume in recent years In

2011, the figure reached nearly 70,000 POS, increasing by approximately 35% in comparison with 2010 Its infrastructure was continuously upgraded with nearly 83,000 POS in 2012, 1.6 times higher than those by the end of 2011

Vietcombank leads the Vietnamese commercial banking sector with the largest POS system, boasting 32,178 POS terminals and capturing nearly one-third of the total market share Following closely is Vietinbank, which operates 19,875 POS terminals, securing over 25% of the market In contrast, Agribank, while recognized for having the largest ATM network, holds a market share of only 6.8%.

However, this figure is still extremely modest in comparison with a huge population of Vietnam (nearly 90 million)

 Return on credit card settlement

Recent expansions in ATM and POS networks have led commercial banks to see a significant increase in the return on card settlements According to the SBV's annual report, the return on international card payments surged from just over 1,300 million in 2010 to nearly 6,000 million in 2012.

Figure 3: Growth of return on payment by international card in Vietnam from

Source: Annual report of SBV

 The usage of EMV chip card

The EMV chip card is a cutting-edge solution that offers cardholders enhanced convenience and speed for both online and offline transactions, while significantly improving credit card security and reducing fraud Vietnam is currently transitioning from magnetic credit cards to EMV chip cards, with nearly two-thirds of domestic commercial banks successfully implementing this technology in their credit card offerings.

 Risks in credit card services

The credit card market in Vietnam has expanded with more banks and diverse products, but this growth has also led to a rise in sophisticated credit card crimes Initially limited to card theft and stolen passwords, criminals now exploit credit cards for various offenses Over the past three years, there has been a significant increase in scams, credit card fraud, and card cloning activities.

Return of international card payment

Findings

Findings about credit card services among home commercial banks in the past three years are shown in this part under the SWOT model

The credit card market in Vietnam has experienced significant growth, with 23 out of 39 commercial banks actively participating in credit card issuance in recent years This surge has led to an increase in both bank cards and credit cards, reaching over 53 million and 1.5 million, respectively, in 2012 Consequently, the variety of credit card products available to customers has expanded, offering enhanced facilities and options.

The credit card market in Vietnam has experienced significant growth due to the widespread expansion of ATM and POS networks Notably, the country’s credit card payment infrastructure is equipped to accept major international card brands, including Visa, MasterCard, American Express, Diners Club, CUP, and Discover.

In recent years, the collaboration between banks and their partners has significantly contributed to the expansion of Card Acceptance Units (CAUs) nationwide Notably, in May 2010, major local card operators—Vietnam National Financial Switching JSC, Smartlink Card Services JSC, and Vietnam Bank Card JSC—successfully interconnected their networks By 2012, 14 Vietnamese banks had officially adopted Smartlink's switch services, integrating with Banknet and VNBC A pivotal cooperative agreement signed in January 2012 between the Metro supermarket chain, Vietinbank, and Visa Worldwide Pte Limited enabled customers to use credit cards for payments at all Metro retail locations across the country, enhancing the accessibility of credit card transactions at POS terminals nationwide.

Vietnam is currently transitioning from magnetic credit cards to EMV chip technology, with 16 banks already issuing international credit cards equipped with EMV chips Additionally, banks like Vietcombank and Vpbank are implementing the Payment Card Industry Data Security Standard (PCIDSS) to enhance data security in the Vietnamese credit card market.

Besides remarkable achievements that Vietnam‟s credit card market has gained in recent years, there still remain a lot of limitations impeding its development

Despite the increase in credit card issuance, over half of these cards remain inactive, with reputable banks seeing this figure drop to 30% Many banks focus on the quantity of credit cards issued rather than the quality, treating it primarily as a marketing strategy to enhance their brand To capture more market share, banks have implemented initiatives like “Fee-free credit card openings” and personalized offers For example, ACB and Sacombank have established dedicated card centers in Hanoi and Ho Chi Minh City, employing numerous staff to provide telephonic consultations about credit card accounts.

Many customers, often lacking a genuine need or understanding of credit cards, are opening accounts simply to follow trends It’s common for individuals to possess multiple credit cards from various banks, sometimes owning five or six while using only one or none at all This behavior leads to a significant waste of resources for both individuals and banks.

A 2011 Nielsen Research survey revealed that nearly 20% of participants found credit cards to be inconvenient and complicated, while about 10% cited high fees as a significant barrier The legal framework for issuing credit cards involves numerous procedures, including providing a proof of income statement, which many consider burdensome Additionally, obtaining a domestic credit card requires paying an annual fee ranging from 300,000 to 1,200,000 VND and having collateral such as savings accounts or deposit balances.

Vietnam's credit card settlement system faces significant challenges, with recent statistics indicating a high rate of unsuccessful transactions In 2012, 33% of transactions via Banknet's POS were unsuccessful, while Smartlink and VNBC reported failure rates of 23% and 21%, respectively These figures highlight ongoing issues in information processing during settlements, ultimately undermining customer confidence in the system.

Nguyen Thu Ha, President of VNBCA, highlighted that many banks have recently competed to lower or eliminate discounting fees in CAUs, resulting in ineffective growth of the POS network This trend has left banks unable to generate sufficient profits to cover the costs of equipment and personnel needed for merchant development, ultimately leading to a decline in service quality over time.

The development of payment networks at CAUs has been asynchronous, with many banks focusing primarily on large shopping malls, supermarkets, and hotels This narrow concentration has led to a lack of research and exploration into expanding services for other types of CAUs.

Van Thi Thanh Hien ATCA- Course 12 Page 30 highlights the need for expanding the distribution network Consequently, customers in small restaurants and downtown shopping centers often rely on alternative payment methods due to the absence of POS systems in these locations.

A significant challenge in the banking sector arises from the lack of cooperation among banks and between banks and Credit Acceptance Units (CAUs) This disconnection often forces customers to maintain multiple credit cards from different banks Additionally, many CAUs resist the installation of Point of Sale (POS) systems due to concerns about revenue oversight and a preference for tax evasion.

In Vietnam, cash transactions continue to dominate, with only 10% of purchases made using cards, despite over 53 million cards issued One significant factor contributing to this trend is the extra fees retailers impose on credit card payments, which discourage consumers For instance, a mobile phone priced at 10 million VND incurs a credit card fee of 180,000 VND, while other payment methods only charge around 50,000 VND Additionally, a salesman from Nhat Cuong Limited Company noted that credit card payments attract a fee of 1.8% of the total amount, compared to just 0.5% for ATM cards High interest rates, averaging between 22% and 28% at various banks, further hinder the adoption of credit card payments.

Many retail staff remain inadequately trained in processing credit card transactions, leading to frequent errors and consumer frustration.

It is a must to say that home commercial banks have not paid as much attention to the quality of credit card payment as the expansion of the payment system

Some limitations have been identified in the risk management of credit card market in Vietnam over the last three years

Currently, Vietnam lacks comprehensive written guidelines for ensuring safety and security in credit card service delivery, particularly regarding the establishment of risk management reserve funds The existing legal framework and regulations governing risk management for credit card products and services are not yet fully developed, clear, or professional.

Summary

An analysis of the Vietnamese credit card market reveals its strengths, weaknesses, opportunities, and threats through the examination of three key operations: issuance, payment, and risk management Despite a notable increase in issued credit cards, ATMs, and POS systems, the quality of credit card services in Vietnam remains in its infancy, highlighting the need for improvements in these critical areas.

The tourism industry's growth, coupled with a favorable demographic structure and supportive government policies, is creating significant opportunities for the expansion of Vietnam's credit card market However, challenges such as intense competition, fragmented legal frameworks, a narrow target customer base, and security concerns necessitate that banks strategically adapt to navigate these obstacles effectively.

SOLUTIONS AND RECOMMENDATIONS

Solutions

Based on an analysis of the current landscape, including opportunities and threats, the author proposes two sets of solutions and recommendations aimed at enhancing credit card services in Vietnam.

4.1.1.1 Developing marketing policy (4Ps model)

The mixed marketing strategy encompasses all elements that influence the demand for a bank's products, ensuring that the 4Ps align seamlessly with the overarching competitive strategy.

In order to improve the quality of product, it is of necessity for credit card services to meet the need of diversifying products and enhancing their quality

Collaborating with strategic partners to launch co-branded cards is an effective strategy for banks Successful examples include the partnership between Big C and Techcombank, which enables cardholders to make purchases at Big C using Techcombank cards, as well as the collaboration between VIB and Language Link, allowing tuition payments to be made via VIB cards By focusing on co-branded cards that address everyday needs, banks can enhance convenience for cardholders, ultimately increasing their preference and loyalty.

Continuous enhancement of credit card features by introducing new utilities transforms their role beyond mere payment tools, enabling them to facilitate various transactions, including lending and mobilization services.

To enhance customer experience, it is essential to improve post-issuance services, including account opening consultations and assistance with utilizing all available services Additionally, establishing a 24/7 call center is crucial for addressing customer inquiries and feedback effectively.

Pricing poses a significant challenge for marketers in commercial banks, as it is crucial to establish a reasonable price that meets revenue targets and captures market share without undermining the perceived value of their services Implementing advanced operational systems to enhance customer service often leads to higher service fees, which can negatively impact competitiveness Consequently, banks must find a balance between maintaining quality service and managing pricing strategies effectively.

To attract long-term customers, banks should reduce service fees while increasing the number of cardholders Continuous technological advancements are crucial for maintaining customer interest Additionally, banks should negotiate with merchants to implement a cash rebate scheme, providing cardholders with exclusive discounts at designated points of sale, benefiting both parties.

For the purpose of optimizing its distribution channel in meeting customers

„needs, the bank should not only choose suitable ATM and POS installation site but also create the goodwill of card acceptance merchants

To ensure optimal functionality, ATMs and POS systems must be accessible on demand, anytime and anywhere This necessitates the installation of ATMs and the establishment of POS systems in every merchant area, including small restaurants and downtown shopping malls Ultimately, enhanced convenience leads to increased customer loyalty.

To enhance the effectiveness of its initial measure, the bank should focus on building goodwill among CAUs by promoting the significance of card services to retail outlets and recreational centers This includes clearly outlining the rewards and penalties in the authorized contracts, installing high-quality POS systems at designated locations, and offering ongoing technical support.

To strengthen relationships between issuers and merchants, offering favorable discount rates and organizing contests among Point of Sale (POS) partners are effective strategies For instance, VPBank annually rewards its top-performing merchants based on various criteria, including credit card payment revenue and cardholder satisfaction levels.

To enhance their advertising strategy, commercial banks should adopt a customer-centered approach by leveraging personal channels, such as word of mouth, in addition to non-personal ones Engaging celebrities, including singers, composers, and actors, can be an effective way to promote services By offering special incentives to this influential group, banks can encourage initial purchases Once these celebrities are satisfied with the service quality, they can spread positive recommendations within their networks, enabling banks to convey a convincing message to potential customers without incurring additional costs.

The bank should consider assigning sales representatives to reach out to businesses with employees interested in its credit card services, facilitating presentations to showcase these offerings.

By doing this, each bank is more active in approaching its customers Instead of waiting for customers going to bank, the bank makes it available to the customers

To enhance customer relationships and foster goodwill, banks should recognize the value of every customer by implementing thoughtful reminder methods One effective strategy is to send personalized postcards or small gifts to cardholders on their birthdays, reinforcing the message that each customer is equally valued and contributing to long-term loyalty.

To effectively promote high-class financial products like credit cards, it is essential to target specific groups such as educated students and reliable farmers Students, who are increasingly engaged with globalization and online shopping, represent a prime audience for credit card offerings Similarly, good-risk farmers are an important demographic, as agriculture serves as a sustainable backbone of our economy; providing credit cards to farmers can enhance their short-term capital and support their financial growth.

Risks in credit card services arise from various parties, including banks, customers, and credit card issuers, making it challenging for banks to accurately predict when these risks will occur To effectively minimize these risks, it is essential to implement specific measures tailored to address the complexities involved.

Banks have to face different risks during the whole process from choosing customers, printing to sending cards and managing account during usage process

To correct these mistakes from banks, it is of necessity to improve degree of security and accuracy throughout card issuance

To minimize risks resulting from customers, here are several approaches that the banks should consider:

Recommendations

For the Government, the author would like to give some general suggestions as follows:

The stability and sustainable growth of the macro economy are closely linked to financial markets; when the economy experiences steady growth and inflation remains controlled, it creates favorable conditions for the development of bank card payment operations.

 Improving the legal framework for the operation of card payment

The legal framework governing card payment operations in Vietnam is currently inadequate, necessitating a comprehensive system of written regulations to enhance retail operations As global integration accelerates, it is essential for lawmakers to swiftly adapt banking services, including credit card services, to meet evolving demands These regulations must align with both Vietnamese laws and socio-economic conditions while adhering to international practices However, achieving this alignment is challenging due to significant differences between Vietnam's banking activities and those of foreign banks, requiring a careful and time-consuming process of legal reconciliation and trial implementation.

Modernizing banking technology requires significant government support and investment, as it is a crucial long-term strategy that greatly influences the overall economy The government's involvement is essential for ensuring the successful implementation of these advancements.

To ensure efficient management and oversight of investment programs and overseas equipment sales contracts, it is crucial to avoid wasting national financial resources Additionally, the State and relevant Ministries should establish regulations that set standards for information technology infrastructure in card payment services, promoting market synchronization and operational effectiveness.

The State Bank of Vietnam (SBV) plays a crucial role in managing the banking system and ensuring its smooth and efficient operation To achieve this, the SBV must implement key measures that enhance oversight and regulatory frameworks, promote financial stability, and foster a conducive environment for banking operations.

 Completing laws and regulations of the central banks and credit institutions

The enhancement of laws and regulations by central banks and credit institutions is crucial for commercial banks to advance their modern banking services, particularly in credit card offerings Currently, many regulations issued by central banks are outdated and inflexible, resulting in a disconnect between legal frameworks and market practices This misalignment not only restricts banking operations but also allows for potential exploitation by unethical entities Therefore, it is essential to reform these regulations to align with the evolving landscape of the banking market.

To enhance credit card payment security, it is essential to establish a comprehensive legal framework governing the issuance and payment processes This framework should include strict penalties for the unauthorized disclosure or theft of client information, aimed at preventing credit card fraud and data breaches Furthermore, synchronized measures must be implemented to ensure that solutions promoting the growth of cashless payment systems are effectively realized.

 Improving information systems for the entire banking system

To enhance risk management in banking operations, comprehensive solutions for improving information systems have been implemented, focusing particularly on payment processes These advanced systems will create a robust database containing both direct and online customer information, equipped with effective tools for management and sharing.

Van Thi Thanh Hien ATCA- Course 12 Page 46 warning of risks, frauds to facilitate the sharing of information between all card- issuing banks in the country

Modernizing the banking information system is essential for operators to effectively navigate the banking sector This system relies heavily on information technology, which poses inherent technological and operational risks, including trading order errors and information leaks The State Bank of Vietnam (SBV) faces significant challenges in this modernization effort due to a shortage of qualified personnel and inadequate facilities Consequently, the development and enhancement of the banking information system will require considerable time and effort from both the SBV and the broader domestic banking community.

 Signature and Credit card account numbers:

Cardholders should immediately sign the back of their credit cards upon receipt to prevent unauthorized use Additionally, rewriting account numbers and securely storing the card can enhance security Memorizing credit card numbers is crucial for quickly reporting lost or stolen cards to the bank.

Credit cards are frequently lost or stolen in crowded public places like supermarkets, shopping malls, and airports, making these environments prime targets for thieves To protect themselves, cardholders should remain vigilant for suspicious individuals and securely handle their credit cards at all times.

Cardholders should keep receipts, check and compare monthly statements to realize whether or not there are mistakes from information system of banks.

Summary

Chapter 4 outlines solutions for Vietnamese commercial banks, along with recommendations for the government, the State Bank of Vietnam (SBV), and cardholders It emphasizes the need for banks to enhance their marketing strategies and risk management practices Additionally, banks should prioritize the modernization of banking technology to improve overall efficiency and service delivery.

Van Thi Thanh Hien ATCA- Course 12 Page 47 of staff Also, there should be wholehearted contributions from SBV, the Government and attentions from cardholders

Van Thi Thanh Hien ATCA- Course 12

Retail banking has become a crucial focus for banks worldwide, including Vietnamese commercial banks, with credit card services gaining significant attention The global integration has positively influenced the growth of Vietnam's credit card market in recent years By revisiting the theoretical framework of credit cards and analyzing the Vietnamese credit card market from 2010 to 2012, the author employs a SWOT analysis to provide a comprehensive assessment, ultimately offering solutions and recommendations for further development.

On the basis of various study method, theoretical knowledge and datum about credit card services in Vietnam, the graduation thesis has managed to complete three main tasks as follow:

This article provides a comprehensive overview of credit card services, covering the history, definitions, characteristics, and various types of credit cards It also examines the advantages and disadvantages of using credit cards, as well as the factors influencing the growth of the credit card market.

Secondly, the current situation of credit card services in Vietnam has been carefully examined Based on this, strengths, weaknesses, opportunities and threats are drawn out

Finally, the thesis has put forward some solutions and recommendations to the Government, the SBV and cardholders with the view to further development of credit card services in Vietnam

The thesis may have several flaws and limitations due to insufficient conditions and limited research time Therefore, I greatly appreciate the support and guidance from my lecturers and fellow students.

I do hope that my thesis will make a useful contribution to development of the Vietnamese credit card market in the future.

Tiêu đề	Development Of Credit Card Services The Case Of Vietnam
Tác giả	Van Thi Thanh Hien
Người hướng dẫn	MA. Nguyen Phuong Lan
Trường học	Banking Academy of Vietnam
Chuyên ngành	Foreign Language
Thể loại	graduation thesis
Năm xuất bản	2013
Thành phố	Hanoi

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