Problem Description
In the context of integration and globalization, International Payment (IP) activities have become increasingly vital for commercial banks (CBs), facilitating connections between global buyers and sellers and significantly enhancing foreign trade and national economic growth Consequently, commercial banks are continuously exploring ways to improve their IP services, with a primary focus on selecting an appropriate processing system In Vietnam, two distinct systems are commonly utilized by CBs, each offering varying levels of efficiency based on the specific conditions of the bank.
With nearly fifty years of experience, Vietcombank has established itself as Vietnam's premier bank, offering a comprehensive array of financial services for international trade Its long-standing presence in the market has fostered significant trust and loyalty among customers In response to this support and customer expectations, Vietcombank is committed to continuous development and improvement.
Vietcombank, with its substantial chartered capital exceeding VND 19,000 billion, currently operates two IP systems to meet growing demand Analyzing these systems provides valuable insights into their applications and capabilities, highlighting Vietcombank's position as a leader in the IP services sector.
During my five-week internship at the International Payment Department of Vietcombank's Operations Center, I had the opportunity to observe its decentralized processing system Additionally, I conducted research on the centralized processing systems utilized by other branches of Vietcombank, which I will present in this thesis.
Related Works
Before this thesis, several studies explored related topics, with the most significant being Ms Hoa Mai Dung's 2010 graduation thesis from the Foreign Trade University of Vietnam, titled "The Centralized International Payment System in Banks of Vietnam: Real Situation and Solution." In her research, she examined the current performance of the centralized international payment system in Vietnamese commercial banks and offered recommendations for its enhancement.
In Vietnam, both centralized and decentralized IP systems are commonly utilized in commercial banks (CBs), as demonstrated by the data presented in the table below.
Table 1: International Payment systems in major CBs in Vietnam
Joint Stock Commercial Bank for Foreign
Vietnam Joint Stock CB for Industry and
Bank for Investment and Development of
Vietnam Bank for Agriculture and Rural
This research aims to explore both centralized and decentralized IP systems, using Vietcombank as a case study Established in 1963, Vietcombank is the only bank in Vietnam that employs both types of systems, holding the largest market share in IP Its extensive experience with these systems makes it an ideal subject for analysis This thesis focuses on a single bank, allowing for a more in-depth comparison of IP systems under consistent conditions.
Objectives of Study
This article explores the intellectual property systems implemented at Vietcombank, focusing on their effectiveness in enhancing the bank's operational efficiency.
Research Questions
Three main questions were drawn to be answered in this writing They are:
1) How do the IP systems at Vietcombank perform?
2) How to improve the systems’ performance?
3) What factor determines the choice of system?
Research Methodologies
During my internship at Vietcombank’s Operations Center, I gathered essential primary and secondary data for my research through personal interviews and observations This qualitative analysis involved discussions with my internship supervisors and employees from various Vietcombank offices The qualitative approach was particularly beneficial due to the absence of a specific evaluation model for the IP systems After collecting the interview data, I conducted a thorough analysis to better understand the characteristics of the two IP systems.
Scope and Focus
The research examines the IP systems utilized in Vietcombank’s Operations Center and Head Office, emphasizing the implementation of the company's processing systems It is supported by statistical data collected over the past three years, providing a comprehensive analysis of the effectiveness and efficiency of these systems.
Structure of The Thesis
The main part of the paper is organized as follows
Chapter 1, “Theoretical Framework”, reviews related works and theoretical frameworks of the two IP systems: centralized and decentralized
Chapter 2, “The International Payment Systems in Vietcombank”, describes and analyzes the features of the processing systems used in Vietcombank, uncovering their advantages and disadvantages
Chapter 3, “General Assessment and Recommendations”, discuses factors influencing the choice of processing system and provides some suggestions to maximize the system’s efficacy.
Notion and Role of International Payment in Commercial Banks
Various theories have emerged to define and explain intellectual property (IP) and its related concepts, sharing common foundational ideas This thesis will present a concise overview of the fundamental notions of IP and its methodologies, with a primary focus on the two main IP systems For those interested in deeper exploration, additional information can be found in the sources listed in the references section at the end of this thesis.
Intellectual Property (IP) involves fulfilling payment obligations and accessing financial benefits, leading to both economic and non-economic interactions among diverse organizations, individuals from various nationalities, or between a country and an international organization, facilitated through associated banking partners.
International payments (IPs) share similarities with domestic payments, as both involve a payer utilizing intermediaries to transfer value to a payee However, IPs introduce added complexities due to factors like geographical distance, varying time zones, and multiple currencies, necessitating additional intermediaries Consequently, this has spurred the creation of specialized banking services designed to meet the unique needs of IP users.
1 Dr Nguyễn Văn Tiến (2010), “International payment and Trade Financing” (4 th edition), Statistics Publications, Hanoi, p 294
The globalization of Vietnam's economy has significantly increased the demand for intellectual property (IP) services, as import and export businesses seek access to IP systems to facilitate direct consumer purchases from foreign suppliers Additionally, travelers visiting Vietnam for short-term holidays or long-term relocations also require IP access Consequently, it is evident that IP plays a crucial role in the operations of commercial businesses (CBs) in Vietnam.
In recent decades, Vietnam's commercial banks have experienced significant growth in intellectual property (IP) activities, driven by advancements in transportation networks, technological innovations in production, diverse media options, and a rising demand for international trade Furthermore, the government's provision of favorable conditions and incentives for foreign trade has created even more opportunities for the development of IP in the country.
Methods of Payment for International Transactions
IP activities can be conducted in CBs by one of the following main methods
Remittance is a payment method where the buyer directs their bank to transfer a specific amount of money to a designated beneficiary at a predetermined time The sending bank processes this request by using its correspondent bank located in the beneficiary's country to facilitate the transfer.
A prevalent practice in international trade, particularly among Vietnamese corporations and their overseas exporters, involves importers making payments after receiving goods or shipping documents The payment amount is determined by the commercial invoice, reflecting the quality and quantity of the goods Additionally, Vietnamese corporations frequently utilize this payment method for importing goods, overseas investments, and various other transactions.
Remittances can be categorized into two types based on the method of sending payment orders to correspondent banks: telegraphic transfers (T/T) and mail transfers (M/T) While telegraphic transfers are quicker and advantageous for exporters, they come with higher fees, which may be a disadvantage for importers.
The Collection of Payment process involves the seller directing their bank to send export-related documents to the buyer's bank, requesting that these documents be presented to the buyer for payment This process specifies the conditions and timing for the release of the documents to the buyer.
There are two types of Collection of Payment: clean collection and documentary collection 4
In clean collection, the exporter instructs its bank to collect bill of exchange payment without condition The relationship between the exporter and
3 World Trade Press (2008), “Documentary Collection”, http://www.worldtraderef.com/WTR_site/documentary_collections.html
4 See Appendix 2 for Documentary Collection process the importer should be close, and method of payment should be applied for transportation charges, insurance, commission and interests
In documentary collection, exporters can facilitate payment for goods and services by instructing their bank to collect payment on their behalf The bank will only release shipping documents and the bill of exchange to the importer once payment is made or accepted This method is categorized into two types: Documents against Payment (D/P), where payment is required before document release, and Documents against Acceptance (D/A), where the importer accepts the payment terms prior to receiving the documents.
In Documentary Credit, the buyer's bank issues a Letter of Credit (LC), which serves as a payment guarantee to the beneficiary If the buyer fails to fulfill their obligations, the buyer's bank is responsible for the payment Additionally, the LC can facilitate the repayment of the transaction, ensuring that the exporter receives payment upon the redemption of the LC.
Letter of credit, without which the exporter will not make delivery, is the most important document in documentary credit Letters of credit can be revocable, irrevocable or confirmed irrevocable
A revocable letter of credit (L/C) can be modified or revoked at any time without prior notification to the beneficiary Due to its nature as a mere promise to pay rather than a firm obligation, this type of L/C is infrequently utilized in financial transactions.
Irrevocable letter of credit is the type of L/C which cannot be amended or cancelled during its valid period, unless the related parties agree
A confirmed irrevocable letter of credit (L/C) is backed by a Confirming Bank, which guarantees payment at maturity if the Issuing Bank fails to do so This arrangement places a greater responsibility on the Confirming Bank, leading the Issuing Bank to incur high fees, sometimes reaching up to 1%, and requiring a deposit of up to 100% of the L/C value Such letters of credit are typically utilized when exporters lack full trust in the Issuing Bank, especially for large transaction values.
International Payment Systems
Globally, various models of IP systems have been established and utilized in commercial banks (CBs) In Vietnam, the predominant processing systems are centralized and decentralized, which will be further explored and analyzed in the following sections.
1.3.1 The Centralized System in International Payment
In this organizational model, when a customer submits an application at a regional bank branch, the branch forwards it to the head office for payment processing This process is effectively illustrated through a management pyramid that outlines the hierarchical structure involved.
7 See Appendix 3 for an example of a Fee Schedule
Diagram 1.1: Management pyramid in a centralized system
Regional branches function as service satellites, focusing on customer attraction and consultation, while the head office centralizes essential tasks such as issuing letters of credit, processing payments, document verification, and accounting.
This system effectively divides the three key functions of intellectual property—marketing, risk management, and processing—allowing each department to focus on their specialized tasks This approach not only facilitates clear assignment of responsibilities but also minimizes risks and optimizes the strengths of individual employees within the bank.
Moreover, the centralized system makes management easy and timely Data and work process are controlled and directed with tight protection, which makes access to them secured but still convenient
This system ensures consistent high-quality service across the network, meeting customer expectations effectively Additionally, it motivates bank staff to enhance their performance in alignment with the overall system standards However, there are certain disadvantages to consider.
Building and maintaining a robust centralized system to support high volumes of activities across various branches demands significant time and effort The bank must invest in technology, facilities, and comprehensive training and supervision to ensure staff are skilled and experienced.
Certain factors have to be satisfied to apply the centralized system:
1.3.2 The Decentralized System in International Payment
In a decentralized system, regional branches handle customer applications, process payments, and communicate outcomes directly to Headquarters, as illustrated in the accompanying management structure diagram.
Diagram 1.2: Management pyramid in a decentralized system
Historically, the interbank payment system relied on traditional methods, where payment applications were processed in hard copy and sent via mail, followed by the introduction of telephone and telex communications These transactions often had a lengthy processing time, ranging from 1 to 15 days, prompting banks to establish an interbank payment network However, with the advent of computers and advanced technology, transactions can now be completed instantly, revolutionizing the payment processing landscape.
The decentralized system features a straightforward structure where all tasks related to IP services are managed in one location, facilitating interaction among various departments within the organization This arrangement allows for direct, efficient, and timely monitoring of processes.
Smaller organizations often find centralized systems to be costly and challenging to manage Consequently, decentralized systems are generally more advantageous for small to medium-sized firms, offering greater flexibility and efficiency.
The firm's centralized approach to intellectual property management limits responsibility delegation and task specialization, potentially hindering its growth If employees lack the necessary qualifications, both service quality and profitability may decline Therefore, it is crucial for the firm to invest in enhancing staff skills and understanding customer needs to remain competitive in the market.
A firm might employ the decentralized system if the following conditions are met:
- Small or medium business scale
This chapter explores the concept and significance of intellectual property (IP) in commercial banking (CB), highlighting three primary methods of IP: Remittance, Collection of Payment, and Documentary Credit It also outlines the two processing systems—centralized and decentralized—providing fundamental concepts and explanations for each.
International Payment Performance
Vietcombank’s Head Office business results from 2009 to 2011 are presented in the table below
Table 2.2: International payment revenue in Vietcombank’s Head Office
Table 2.2 illustrates significant fluctuations in revenues over the years, reflecting the unpredictable nature of the economy Despite these variations, the profits generated from intellectual property (IP) activities at Vietcombank’s Head Office consistently represent the largest share of such profits in Vietnam.
Currently, most of Vietcombank’s branches are conducting their IP services under the centralized system monitored by the Head Office This system is analyzed below.
Analysis of The Centralized System
By centralizing all operations at a single head office, overlapping duties are eliminated, ensuring a streamlined process for customer service requests When a customer seeks assistance at a branch, their application is forwarded to the Head Office, where document verification, decision-making, advisory services, and payment processing occur in a seamless and continuous flow This centralized approach offers a significant advantage over decentralized systems, contributing to overall stability and efficiency.
The centralized system at the Head Office ensures continuity and reliability by utilizing an advanced automatic computer system for processing payment requests This technology guarantees instant and thorough processing while maintaining confidentiality in a secure environment, resulting in professional and stable performance.
8 Bank for Foreign Trade of Vietnam (2012), “Annual Report 2011”
Effective record retention allows the Head Office to manage and control data from all branches efficiently The computer system ensures that branches can easily access and verify information from the Head Office or other locations This centralized approach enhances consistency in data management across the organization.
Centralizing payment requests at the Head Office facilitates easy and consistent control This approach ensures that customer and transaction information is meticulously stored and monitored, significantly reducing risks and errors Additionally, files undergo rigorous checks and are managed through multiple levels of supervision, maintaining high standards of confidentiality and accuracy, which guarantees quality service.
Customers expect consistent service quality at all branches, similar to what they receive at the Head Office In case of technical issues or inquiries, specialists from the Head Office are readily available to provide immediate answers and advice.
As a result, customers are satisfied with such prompt and precise performance e Economy of Scale
The Head Office's centralized system is designed for large-scale operations, allowing for significant cost savings on labor and enhanced processing speed through efficient internet utilization Additionally, system upgrades are streamlined, as the Head Office only needs to manage a single centralized system.
The Head Office is outfitted with advanced technology to implement a centralized system, while regional branches also require sufficient facilities for their operations These modern machines and software entail significant initial investments, along with ongoing costs for updates and maintenance Additionally, the rapid pace of technological change can render facilities outdated, necessitating expensive upgrades and increasing the risk of system crashes.
Relying on a single central system for all operations poses a significant risk, as a potential collapse of this central computer could lead to complete data corruption and operational blockage across both the Head Office and its associated branches Such an incident could severely damage customer trust and loyalty, highlighting the importance of diversifying operational systems to mitigate risks.
The Decentralized International Payment System in The Operations Center
Since its official separation from Vietcombank's Head Office in 2006, the Operations Center has evolved into an independent branch of Vietcombank The International Payment Department is responsible for managing international payment activities and trade financing related to imports, exports, and associated foreign services.
The figures below show the results in IP activities in Operations Center of Vietcombank from 2009 to 2011
Table 2.3: International payment revenue in Vietcombank’s Operations
(Unit: Amount in thousand Volume in $USD billion)
(Source: The Operations Center’s report of IP for 2011)
Diagram 2.1: Percentage of International Payment activities in overall profits of Vietcombank's Operations Center (2009-2011)
Percentage of Profits from International Payment
In the context of a declining economy, decreasing turnovers are understandable; however, the significance of intellectual property (IP) profits is increasing In 2010, IP accounted for 67.78% of the Center's total profit, marking a 2.3% rise from 2009 This upward trend continued in 2011, with IP contributing 71.23% to the overall profit.
On the whole, in 2011, the Operations Center’s total revenue is USD 264.2 million (USD 13.3 million more than in 2010) Profit before tax was USD 42.4 million (USD 3.9 million higher than in 2010) 9
The Operations Center employs a decentralized system for its International Payment Department Below is an analysis of this system’s effectiveness
2.3.2 Analysis of The Decentralized System
This system necessitates a lower initial investment and technology compared to centralized systems, as it focuses solely on its own operations rather than managing multiple branches Its simplified organizational structure leads to reduced periodic costs by employing fewer human resources Additionally, the highly qualified staff at the Operations Center ensures prompt, convenient, and effective services, which is crucial given the high volume of daily customer visits Flexibility is a key advantage of this approach.
The Operations Center is a well-equipped entity capable of managing all IP activities efficiently It receives numerous applications daily, including various special requests from customers By processing these applications internally, the Center enhances productivity and practicality, avoiding the lengthy 15-day wait for document verification at the Head Office This approach not only maintains high-quality standards but also saves both time and costs.
The Operations Center operates independently from the Headquarter and other branches within a decentralized system, allowing for quicker and more efficient adaptation to new strategies and policies As a result, the Operations Center has consistently led the way in implementing Vietcombank’s innovative policies and initiatives.
While the expenses for facilities and human resources may be reduced, customer management costs tend to increase with this system Therefore, it is essential for the Center to develop and sustain an efficient system for storing, analyzing, and updating client information to mitigate overlapping risks.
The potential for overlapping responsibilities remains a concern in decentralized systems, unlike centralized ones where decisions and data are streamlined from a single office This fragmentation can lead to internal conflicts, redundant tasks, and the risk of important information being overlooked Consequently, such inefficiencies not only disrupt operations but also result in increased costs.
The Operations Center operates as an independent division of Vietcombank, responsible for reporting its business results to the Head Office Despite its autonomy, the Center remains under the control and supervision of the Head Office.
This chapter provides an in-depth analysis of the two IP systems utilized at Vietcombank's Operations Center and Headquarters, highlighting their performance, benefits, and shortcomings.
The centralized system implemented at Vietcombank's Head Office ensures high consistency, reliability, and efficiency; however, it necessitates significant investment Conversely, a decentralized approach may offer flexibility but could compromise uniformity and control.
IP system in the Operations Center possesses a small size, simple structure and easy management However, when the Operations Center grows to an extent scale, the costs might constitute inefficiency.
General Assessment
Amidst the ongoing global economic downturn, Vietcombank has demonstrated remarkable resilience, solidifying its leadership in investment banking (IP) in Vietnam The bank achieved a record revenue of $38.8 billion from IP, reflecting a growth of over 30% since 2010 Notably, IP turnover now represents 19.2% of Vietnam's total import and export activities, underscoring its significant contribution to the country's economy.
Both systems in the entities demonstrate impressive performance and offer numerous benefits, despite some minor drawbacks Each system is optimized for its specific conditions and environment, leading to effective outcomes There are four key reasons supporting this success.
Vietcombank's Operations Center and Head Office are equipped with advanced technology and sophisticated facilities, ensuring high-quality service Regular maintenance and upgrades of their equipment enhance transaction accuracy, speed, and security, contributing to an efficient banking experience.
The board of management consistently delivers effective and timely policies and instructions, demonstrating their commitment to making practical decisions on critical issues.
10 Bank for Foreign Trade of Vietnam (2012), “Annual Report 2011”
Highly qualified, responsible, enthusiastic, and ethical staff are crucial for the effectiveness of IP systems, making them the most significant factor in the success of these systems within the two entities.
In recent years, Vietcombank has significantly enhanced its customer service, establishing itself as a trusted name in Vietnam's foreign trade sector Customers' preference for using the bank for their payment needs underscores its reputation for prestige, security, and quality.
Vietcombank's primary challenge in its IP operations is the absence of a suitable model for effectively assessing system efficiency Conducting thorough evaluations and revisions will provide the bank with valuable insights into its strengths and weaknesses This understanding will enable the bank to develop strategies and plans aimed at reinforcing weak areas and optimizing overall processes.
The rest of this chapter proposes some recommendations on what constitute a suitable choice of IP system and what support an effective one.
Recommendations
3.2.1 Ways to Choose a Suitable International Payment Systems
When selecting an IP system, banks must evaluate various factors, including costs, risks, quality, availability, customer preferences, location, and capital This article outlines key considerations to assist banks in making informed decisions regarding their IP system selection.
A centralized system necessitates significant initial investment and ongoing expenses, yet it offers notable efficiency through time savings and enhanced accuracy Over time, this approach ensures consistent, continuous, and durable system performance, as the majority of costs are incurred upfront.
A decentralized banking system typically requires a smaller investment compared to a centralized one However, for moderately sized banks, the investment can still be substantial When a bank has adequate capacity and its headquarters is already operating at full capacity, adopting a decentralized system may be more advantageous.
While technology plays a vital role in the functionality of a system, the effectiveness of that system heavily relies on qualified human resources Employees must possess the necessary skills to provide clients with appropriate solutions and address any issues that may arise In particular, technicians within a centralized system often experience significant pressure and responsibility due to their demanding workloads Consequently, banks should carefully assess the roles and responsibilities of their staff to ensure they effectively support the technology they implement.
Banks depend on customers for their survival, making it essential for them to understand customer behavior and trading patterns to enhance their operations Ultimately, meeting customer demand is the key to generating profits for banks.
3.2.2 Ways to Improve the Efficiency of International Payment
To effectively manage an IP system, banks must prioritize the maintenance and support of their facilities Utilizing modern technology, such as the Scan-Imaging system, can significantly reduce time and costs while enhancing work quality management and evaluation Additionally, the Security Fax system proves to be a reliable method for securely transferring confidential information.
3.2.2.2 Expanding Range of Products and Services
To maintain profitability, banks must grasp customer expectations regarding their products and services In addition to enhancing current offerings, they should explore innovative strategies, such as factoring and refinancing, to attract and retain customers Convenience plays a crucial role in customer satisfaction, so banks should focus on creating a comfortable and trustworthy environment The rising popularity of Internet Banking exemplifies how banks can meet these demands effectively.
In today's fast-paced technological landscape, continuous training and retraining of bank staff is crucial Banks must provide access to the latest technology and equipment, fostering an environment that encourages employees to actively learn new skills This is particularly important for employees who interact directly with customers, as they need to possess both comprehensive knowledge and strong social and communication skills to enhance customer service.
The management team is of great importance because they have to
The system cannot perform well unless it has a good evaluating model
To determine the effectiveness of the system, it is crucial for managers to assess whether it is generating profit If profitable, they should explore avenues for further development; if not, they must consider necessary changes.
The management team is tasked with risk control, recognizing that all systems carry inherent risks It is more effective to prevent issues than to address them after they arise Consequently, managers must analyze potential risks, assess their significance, and develop strategies for prevention.
Combining all the research, management teams will build strategies to operate the system with maximized efficiency This includes incentives to stimulate staffs and encourage contributing ideas
Clearly defining and assigning the duties and responsibilities of each employee and department is essential to ensure accountability and streamline problem-solving Without this clarity, identifying the source of errors or issues becomes challenging For example, it is crucial to implement a double-check system for documents and foster collaboration between the International Payment Department and the Underwriting Department to enhance operational efficiency.
This chapter provides an overview of the IP systems utilized in the Operations Center and Head Office of Vietcombank, highlighting the factors contributing to their success It also offers recommendations for banks on selecting an appropriate IP system and enhancing its performance The chapter concludes with key insights summarizing the entire thesis.
This thesis examines the intellectual property systems at Vietcombank, highlighting the centralized system implemented at the Head Office and the decentralized system utilized at the Operations Center.
This article aims to deliver a balanced evaluation of various IP systems by examining their advantages and disadvantages, while offering practical recommendations for the implementation and enhancement of an effective intellectual property framework.
The thesis reveals that both centralized and decentralized systems are effectively employed by the two offices The centralized IP system at the Head Office enhances stability, reliability, and speed through specialization and computerization Conversely, the decentralized system's straightforward structure enables the Operations Center to quickly adapt to unique conditions, meet individual demands, and optimize time and cost, ultimately providing customers with convenience at lower expenses.