OVERVIEW OF BANKCARD

General introduction about bankcard

CHAPTER ONE: OVERVIEW OF BANKCARD 1.1. General introduction about bankcard 1.1.1 History of bankcard Bankcard history began when individual retail merchants extended credit to their customers, allowing them to charge purchases to an account held by the merchant. In 1730, Christopher Thompson, a furniture merchant, created the first advertisement for credit by offering furniture that could be paid off weekly. However, 1950 marked the real beginning of the credit card most of us are familiar with today. Diner’s Club, Inc. introduced the first credit card that could be used at a variety of stores and businesses. Advantages of this card immediately took notice of many people. In 1960, Bank of American introduced its own bankcard, the BankAmericard. In 1966, fourteen United States banks formed Interbank, a new association with the ability to exchange information on credit card transactions. The following year, 1967, four California banks changed their named from the California Bankcard Association to the Western States Bankcard Association (WSBA). The new WSBA licensed Interbank to use the MasterCharge name and logo. In the late 1960s, numerous financial institutions became MasterCharge (Interbank) members to compete with BankAmericard. Eventually, financial institutions interested in issuing cards in the U.S. became members of either BankAmericard or MasterCharge. In 1977, BankAmericard became Visa USA/ Visa International. In 1979, MasterCharge changed its name to MasterCard to reflect its expanded services. At the present time, the leaders in the bankcard systems are Visa, Master Card, Amex and JCB. Payment by bankcard quickly become popularity in other countries. In 1960, the first plastic card was used in Japan marked the beginning of bankcard in Asia. The first plastic card of Barcaly Bank issued in 1966 also highlighted a new period of development of bankcard in Europe. In Vietnam, the first card was accepted in 1990. It was the starting point for card’s products and services in Vietnam. Nowadays, bankcard presents all over the world in diversified forms which meet every demand of cardholders. Banks and financial institutions always try to improve bankcard to reach a friendly and convenient payment method for customers. 1.1.2. Concept and classification Everyday millions of people all around the globe are using bankcards for making credit card payments for their purchases. However, the fact that not every cardholders know concept of a bankcard * Concept: .In simple terms: A bankcard can be described as a plastic card issued by a bank or a financial institution, using which, the cardholder can gain access to the financial resources of the bank as a line of credit. * Classification: There are many types of cards that can be used as alternative forms of payment. Financial institutions issue some and banks issues others. Many allow the balance to be paid in full each month. Some take the payment directly from the cardholder’s bank account while others require that the cardholder send payment to the issuer. Herein, I list some popular ways to divide bankcards. Figure 1. - Types of bankcards Source: Developed for the report * Payment method: - Debit card: A plastic card used to initiate a debit transaction. In general, these transactions are used primarily to purchase goods and services and to obtain cash, for which the cardholder's asset account is debited by the issuer Debit card consist two basic types: + On-line debit card: An online-debit card deducts funds from the bank account immediately, as soon as the card is used. There is no delay for processing the transaction + Off-line debit card: An off-line debit card does not deduct funds from the checking account immediately. Transactions are processed like a regular credit card and the funds are not deducted for 24-72 hours. D e b i t c a r d Payment method Area of Using card I n t e r n a t i o n a l c a r d Technical Feature Issuer C r e d i t c a r d M a g n e t i c s t r i p e c a r d S m a r t c a r d B a n k c a r d s T r a v e l a n d E n t e r t a i n m e n t c a r d s D o m e s t i c c a r d C a s h c a r d Cards Most issuers of debit cards are moving to this type of card rather than on-line debit card - Credit card: A plastic card bearing an account number assigned to a cardholder with a credit limit that can be used to purchase goods and services and to obtain cash disbursements on credit, for which a cardholder is subsequently billed by an issuer for repayment of the credit extended at once or on an installment basis - Cash card: Cash cards are similar to pre-paid phone cards. The card is worth a certain amount of cash and the retailer must use a special cash card reader to debit the card. Each purchase is deducted from the value left on the card until the pre-paid amount is spent. These cards are just like cash – if lost or stolen, there is no way to retrieve the money on the card. * Technical feature: - Magnetic stripe card: The magnetically encoded stripe on the bankcard plastic that contains information pertinent to the cardholder account - Smart card: The smart card, also known as the chip card, contains a computer chip embedded in the plastic. When read by a special terminal designed to interact with the embedded chip, the card can perform a number of functions or access data stored in the chip. These cards can be used as cash cards or as credit cards with a preset credit limit. * Issuer: - Bankcards: Banks, financial institutions around the world distribute cards. A cardholder borrows money against a credit line and repays those funds with interest if the balance is carried over from month to month. These cards are used all around the world, such as: Visa USA, MasterCard… - Travel and entertainment cards: travel and entertainment corporations distribute their own cards so they are not considered bankcards since they are not issued by a financial institution. These cards are widely used by business for their travel and entertainment expenses, such as American Express (AMEX), Dinners Club… * Area of using card: - Domestic card: Card is used in domestic only with legal tender of that nation. - International card: Card is used around the world, used strong currencies in transactions. 1.2. Cards’ activities in commercial banks 1.2.1. Entities join card activities Figure 2. - Participants in bankcard transactions Source: Developed for the report The figure shows 5 entities joining a bankcard transaction. * International card organizations: (ICO) For example MasterCard or Visa International/Visa USA, they are worldwide payment service organization composed of member institutions. They set and enforce rules and regulations governing operational procedures, interchange procedures, and graphic design approval of their cards… These organizations do not have a direct relationship with cardholders and merchants. Any bank has international card must be a member of an ICO The issuing members International card organization The acquiring members Merchant Cardholders * The issuing members: The cardholder’s financial institution (usually called the issuing member, or issuer) is a licensed member of an ICO. The issuer directly issues the card to the approved cardholder. The issuer may also benefit from services of a third party processor and/or association in processing information and payments. * The acquiring members: The acquiring members, or acquirer, solicits, screens and accepts merchants into its bankcard program. The acquirer is also a member of an ICO, and holds a written agreement with the merchant to: - accept the merchant sales drafts - provide the merchant with credit card authorization terminals, instructions, and contracted support services - handle and process the credit card transactions The acquirer usually charges the merchant a merchant discount for handling the transactions. The acquirer is licensed by an ICO agrees to follow the operating rules and regulations of the two associations. In fact, many banks and financial institutions are both issuers and acquirers. As issuers, they maintain the cardholder relationship. As acquirers, they maintain the merchant relationship. * Cardholders: The customer to whom a card has been issued or the individual authorized to use the card . The cardholder uses the bankcard either to purchase goods and services from a merchant, or to obtain a cash advance from a member for which the cardholder receives a monthly bill from the issuer. * Merchant: The merchant can be virtually any company which meets the qualification standards of an ICO and an acquirer. The ICO usually require that the merchant be financially responsible and good repute. The merchant has a written agreement with the acquirer to accept the bankcards as a payment and to abide by the terms of the agreement. 1.2.2. Transaction process * Issuing: Figure 3.- Procedure of issuing bankcard Source. Developed for the report + Customer - Customers fulfill and sign on the application and credit card agreement - Required documents: photograph 3x4 or 4x6, Copies of Identity card, copies of passport, visa or residence permit… - Types of guarantee for card payment. + Issuing banks - Checking customer’s application, then decide to approve or not - Approval: send customer’s request of opening card to card centre - Receiving new card and personal identity number (PIN) from card centre - Handing card and PIN over customer Customer Application Approval Guide of using Handing card and PIN over Receiving new card and PIN from centre Registration of issuing - Guiding customer to use card + Card centre - In responsibility of receiving information of customer from issuing banks - Produce new card - Deliver card to issuing banks * Acquiring: Figure 4.- Procedure of acquiring cards Source. Developed for the report The acquiring procedure beginning with the cardholder: (1) - The cardholder purchases goods or services from the merchant (2), (3) - The merchant, in effect, sells the transaction to the acquire and is reimbursed the amount of the sales ticket by the acquirer (4) - The acquirer then summits the ticket to the issuer for payment, via the ICO interchange and settlement system. (4) (3) (2) (1) Cardholder Issuing members International card organization Merchant Acquiring members (5) (6) (5) - The issuer bills the cardholder (6) - Finally, the cardholder repays the issuer for the goods or services originally purchased from the merchant. ICO are at the centre of the transaction process, maintaining the flow of funds and information between issuing and acquiring members. The exchange of financial information is called clearing. The exchange of the actual funds for the transaction and the fees associated with them is called settlement. The term used to refer to the clearing and settlement system as a whole is interchange. CHAPTER TWO. THE ROLE OF MARKETING ACTIVITIES TO BANKCARD AND ACTUAL STATE OF AGRIBANK CARDS 2.1. Introduction of Vietnam Bank for Agriculture and Rural Development (Agribank) - Thanh Xuan branch 2.1.1. Foundation and development of Agribank Thanh Xuan In 2007, Vietnam Bank for Agriculture Development - Thanh Xuan branch was founded under Decision No 1292/QĐ/HĐQT/TCCB dated November 29th, 2007 by the Board of Directors of Agribank with the primary staff of 36 people. Located in 90 Lang Street, Thanh Xuan District, a vast residential area with many convenient economic conditions, Agribank Thanh Xuan has many advantages to do business effectively. Thanh Xuan branch operates its business mainly on Thanh Xuan District and other Districts in Hanoi. Being in the strategy of organization network development of Agribank, Agribank Thanh Xuan has played an important part in improvimg business performance of Agribank, as well as contributed to shift economic structure, promoted the further economic-social development of Thanh Xuan District in a comprehensive and sustainable way. Since establishment, Agribank Thanh Xuan has continuously extended trading networks, diversified items of business, currency, and credit, promoted capital sources. The branch is also focusing on improving the qualification of staff both in professional knowledge and skills as well as foreign languages, concerning about stabilizing and raising the networking and living conditions of employees. Facilities are modernized, especially information technology, to serve the business better. From establishment, the branch always makes profits, the revenue is higher year after year, contributing to State budgets increasingly, creating credibility with customers. [...]... Department in three month and accumulation of 12 months Figures are given in VND million As can be seen in the table, the total profit of services had steadily increased in all period In particular, the total profit of November and December went up sharply, at 35,3% and 35,4% respectively, contributed directly to big accumulation of 12 months The growth of total profit showed that the Department has continuously... 52,8% (1,892 cards) compared with December 31st, 2008 Average rate of issuing card was 230 card per month, profit of transactions was nearly VND 7 billion, balance of call deposit account was VND 1,425 million Collected service fee of the last quarter of the year was zero because of free issuing card in this period However, accumulate of 12 months was VND 147.7 million, still increased 44,4% (VND 102,3... secure This shows profession of providing card products and services * Acquiring cards Beside issuing card, acquiring card operation plays an important part in success of card business of the bank Agribank has advantage of network nation-wide, so acquiring operation has been developed, gained good result and brought significant profit to the bank Table 3.- Devices of Acquiring card of Agribank Devices... application….Speed of card growth has always been higher than average speed of card growth in the card market of Vietnam Especially, in 2009, the speed of Agribank card growth was 3 times higher than the rate of Vietnam card market At the present time, Agribank issued over 4.2 million cards, ranked 2nd in card market Besides developing quantity of cards, Agribank always concern to enhance quality of products... certain success: Table 1.- Total profit of services (VND million) Operation October Novemb er Decemb er Accumulati on of 12 months 1 Guarantee 119.5 208 290.2 3,465 2 Payment 192 213.4 280.4 2,376.9 311.5 421.4 570.6 5,841.9 services Total Source Report on performance of Services and Marketing Department 4th quarter, 2009 The table shows the total profit from operation of services in Services and Marketing...Source Secondary data of Administration Department of Agribank Thanh Xuan The pie chart shows the education degree of staff in the branch Staff and employee in the branch has high education degree 86% of bachelor, major in economics, banking or financial field With a skillful and high education degree of work force, it is one of the most important advantages to build a strong... payment at any ATM/POS bearing logo of Agribank, Visa and Banknet in both domestic and overseas Connecting to Visa, Banknet is the perforce development step of Agribank in the process of integration to enhance Agribank competition capacity and its position in Vietnam bankcard market At the present time, Agribank Thanh Xuan provides following types of cards: Figure 9.- Types of Agribank Card Types International... payment by China Union Pay card on Banknet at 100% ATM Diagram 1.- Quantity of ATM, EDC Source Report on result of 2009 card products and services The graph shows the quantity of ATM, EDC changing over period of four years In 2007, the quantity of EDC is lesser than ATM, however, it then increased dramatically and followings of 3 years, EDC has passed ATM in quantity At the branch, and each dealing... trademark of Agribank as well as branch Thirdly, price and customer policy was still not flexible.The branch follows the rules of Agibank The bank has not had specific strategy and programme to calculate exactly fee for each types of card products and services Therefore, defining fee of services did not evaluate exactly core, effectiveness and quality of services and products Defining fee of services... network of card products and services of the bank distributed basically at counters of branch Whereas some commercial bank began distributing their products and services by modern way such as: on Internet, issuing agencies, restaurants, shops, etc Last but not least, comprehension, knowledge, degree, and many skills of marketing staff Average age of marketing staff is quite young, this is a strong point of . CHAPTER ONE: OVERVIEW OF BANKCARD 1.1. General introduction about bankcard 1.1.1 History of bankcard Bankcard history began when individual. the beginning of bankcard in Asia. The first plastic card of Barcaly Bank issued in 1966 also highlighted a new period of development of bankcard in Europe.