LV Thạc sỹ_Develop the credit card business activities in HSBC Vietnam

1 NATIONAL ECONOMICS UNIVERSITY ADVANCED EDUCATIONAL PROGRAM ***************************** BACHELOR THESIS DEVELOPING CREDIT CARD BUSINESS ACTIVITIES OF HSBC VIETNAM PREFACE The report is being made for the fulfillment of Internship course I would like to thank the following people at HSBC who provided me help to learn as much as possible during a short span of time The Internship Report is prepared under the supervision of Banking and Finance of National Economics University I would like to extend my gratitude’s to my teacher for her advice, encouragement and valuable suggestions which made it possible for me to complete my Internship Report ABSTRACT The purpose of research work is to analyze the real situation and find the solution to develop credit card activities of HSBC Vietnam from 2009 to 2011 The Internship Report contains Overview of Credit card, Real situations and Solutions In this report primary and secondary data is used In primary date the information is collected by getting briefings form Card center and in secondary data published literature of HSBC and the electronic data on HSBC’s website TABLE OF CONTENT PREFACE ABSTRACT TABLE OF CONTENT Chapter 1: Overview of credit card 1.1 Overview of Credit Card 1.1.1Definition 1.1.2History of credit card 1.1.3Classification 1.1.4Advantages and disadvantages of payment by credit card11 1.2 Procedure of issuing, using and payment credit card .13 1.2.1Issuing procedure 13 1.2.2Accepting and payment procedure of credit card 14 1.2.3Complaint and refund 17 1.3 International credit organization .18 1.3.1VISA 18 1.3.2MASTER 19 1.4 The facilities of credit card .21 1.4.1For customer 21 1.4.2For offices 22 1.4.3For bank 24 1.4.4 For economy 25 1.2 Factors influence developing credit card 27 1.2.1Customer behaviors 27 1.2.2Customer income 1.2.3Technical level 27 27 1.3 Risk and control risk 27 1.3.1Risk on issuing28 1.3.2Risk on currency and payment card 29 1.3.3Control risk 30 Chapter 2: Situation of Credit card in HSBC Viet Nam 32 2.1 Overview of HSBC Viet Nam 32 2.1.1Overview of HSBC Group 32 2.1.2Overview of HSBC Viet Nam 32 2.2 The real situation of issuing, using and paying credit card in VietNam 38 2.2.1Legal foundation 38 2.2.2Overview of the situation of issuing, using and paying credit card in HSBC Viet Nam 39 2.2.4Advantages and disadvantages of developing credit card operation in HSBC Vietnam 50 Chapter 3: Some solutions to develop the credit card business activities in Viet Nam 52 3.1 Business orientation of credit card in HSBC Viet Nam 52 3.2 Some solutions to develop credit market in HSBC Viet Nam 53 3.2.1Expand target customer who can use credit card 53 3.2.2Strengthen marketing strategy 53 3.2.3Invest technology and equipment 54 3.2.4Restrict risk 55 REFERENCE APPENDIX COMMENT Chapter 1: Overview of credit card 1.1 Overview of Credit Card 1.1.1 Definition Credit card is an alternate means for making payment This payment is made on credit, i.e the cardholder is not required to pay any money immediately for their purchases The credit card issuing bank first pays the merchant for the purchases and the cardholder settles the transaction amount on or before the payment due date Cardholders can also withdraw cash from the credit card account (cash advance) if they wish to A credit limit is assigned to each card within which cardholders can spend and perform cash advance A credit card also allows the customer to 'revolve' their balance, i.e not paying the statement balance as indicated in the credit card monthly statement in full However, the minimum payment amount stated in the credit card statement must be paid on or before the due date A credit card is different to a debit card in that the former does not remove money from the cardholder’s deposit account after every purchase or cash withdrawal It is also different from a charge card which requires the balance to be paid in full each month Credit card is a popular product in developed countries, but in Vietnam, it is still a very new concept with more than 95% of Vietnamese population According to some survey, due to local people’s habit of paying in cash, over 90 percent of amount paid in credit cards in Vietnam was by foreign visitors and Vietnamese card holders who spent money abroad The forecasts that there will be a major change in both the number and type of credit card users thanks to international banks and card organizations’ current programmes to expand their markets 1.1.2 History of credit card The first card in the world was issued by California Petro Company for their workers and customers in order to promote selling its products In 1949 an American businessman Mc Namara had dinner in a restaurant in New York He was embarrassed when he did not bring cash with After that time, he invented a payment tool which could replace with cash carrying He issued a card name “Dinner Card”, which its annual fee was USD These card holders could debit money when they had dinner in 27 restaurants in New York Till 1951, there was billion USD had been debited from these cards and more and more cards rose up The Diner Card issuing company gained much benefit from its job Mc Namara sold all share for two others collective name Ralph Schneider and Alfred Bloomingdale in 1953 because he could not have foreseen he could earn billions USD of this new job (issue Dinner Card) In the Dinner Club development system of Schineider, retail agents would gain 5% commission per each product Retail agents satisfied with benefit because they hoped would sell to a lot of people by this channel These first credit Cards were issued for high-ranking and rich person in New York, event that they could use them to pay among 27 restaurants at that time To go along with Dinner Club’s tendency, American Express Company also issued American Express Card But because of their limited in restaurant and travel usage only, so Credit Card was not popular to large of people and it also was not as The Magic Card In the World War (WW2), all Credit card and Charge Card were forbidden to use till the end of WW2 Banks were interested in Cards’ benefit so they took part in this field However, card still use in local areas and in retail stores Till 1970 when the telegraphic developed and the raising of basic system of “The Standards for Magnetic Strip”, the technique of Credit Card have extremely developed and became a part of the information period In 1966 Bank of America cooperated with different banks in other States to over the right to issued of American Card for banks by their agents contract, which speeded up the development of card Till 1977 Bank of America’s Credit Card was accepted all over the world The Visa, which its main color were turquoise, white and yellow, replaced for BankAmerica In the same year 1966, group of big banks in the East of USA agreed to set up private credit Business Corporation which named Interbank Card Association (ICA) After that, ICA changed to MasterCard ICA issued rules about balance transaction, marketing activities, security about legal issues in order to run the system effectively In 1968 ICA expanded its task in global by cooperating with Bancon National Bank of Mexico Then ICA continuous to fine partner in Europe market and issued Euro Card Still in the year 1968, in order to reach the EST Asia market, ICA had enlarged some members in Japan Beside the advantages the development of credit card also faced to the disadvantages such as in the Christmas Eve 1966, Banks in Chicago had delivered credit card to all families both people who had gone far away as well as babies A lot of them used credit card and some of them sold those cards It was certainly that the name of the people on the card had to take responsibility for those cards In Oct 1970, the President Richard Nixon signed a regulation which ruled that Banks could not deliver credit card to whom without demand and if card holders informed that they had lost or stolen their credit card, they would be not take responsibilities for their card payment since then After that, the legal tighten about Card issue Nowadays, card is developing and appeared all over the world, and it becomes a popular payment tool in the developed countries Companies and banks coordinate with others to develop such a much benefit field Card payment becomes an intelligent and convenient style Master, Visa, Dinner Club, JCB, American Express cards are used all over the world and they divide together the broad market 1.1.3 Classification a/ According to production technology  Magnetic Stripe Card bases on message technique with two magnetic tapes that are full of coded information on the back This card is popularly used in the past 20 years, but it is easy to be exploited because the card information is narrow and fixed, security cryptographic technique can not be put into application Thus the information can be easily attached by minute mechanism  Smart Card As the latest generation of credit card, security is very high Smart card based on informatics technology through attaching an electronic chip which has structure like a perfect computer However due to new technology, high cost make accepting payment this card only prevalent in developed countries b/ According to issuing subject  Bank Card The card issued by the bank gives customers to use flexibly their accounts at the bank, or use a amount of cash  Non-bank Card It is travel and entertainment card of the big business groups released by the petro companies, telephone companies, and large stores c/ According to payment property of card  Credit Card Credit card allows holders to pay for goods and services with specific spending limit that bank accepted base on financial ability, the amount of collateral or mortgaged property of cardholder Credit card is form of spending first, paying later with grace period no interest rate (from 10 to 45 days) Cardholders can pay a part or full of amount spent in the end of each monthly credit statement period  Debit Card Debit cards issued by banks for deposit accounts opened at banks allow cardholders to pay for owners a part or full of account balance The payment is performed by transferring money from the cardholder's account to the seller's account Cardholders are spent within their ability, but in order to increase the competitiveness of this card, bank can grant an overdraft leel There are two basic types: Card online: is a debit card that transaction value is deducted immediately on account 10 Card offline: is a debit card that transaction value will be deducted on account after few days  Cash card Cash card has specialized functions to withdrawal at ATMs or at banks Only cardholders who have deposit or are granted credit in account can use cash card The amount of withdrawn each time will be subtracted from the deposit Cash Card with the following categories: - Automatic Teller Machine - Check Guarantee Card - The types of Debit card with brands such as Circus, IDPLUS of VISA; Mastro of Master Card  Stored Value Card Card is issued by submitting a certain amount to buy, each time using the amount on card is deducted This tag is often used to purchase goods with relatively little value such as petrol in automatic stations, phones, road charges d/ According to territory  Domestic card A card is limited within a national territory, so the currency used in purchasing goods and services or withdrawing cash is local currency  International card It is a worldwide card due to use foreign currencies for payment International card is supported and managed by financial VISA or operating companies such as AMEX, under a unified and integrated system e/ According to acceptable use policy  Business Card institutions such JCB, Diners Club , as MasterCard, and operate 44 consecutive year they has won the prize which aims to highlight the top banking partners' contribution to developing the credit card market in Vietnam through innovative products which reflect customer demand However HSBC are not the leading bank which has the most payment volume by credit card They have just issued two types of credit: Visa and Master for premier, while others have many kinds such as: Dinner Club, Amex, JCB, CUP, so on Particularly, in recent years, Amex which is the high card for successful business and high status people in society is developing in the market 2.2.3.5 Developing technologic infrastructure system In recent years, HSBC always focus on investing to improve system, creating technologic infrastructure to improve payment and using card of customers which will be convenience, easy, and effective Table 1.4: Technologic infrastructure which supports HSBC cards’ service from 2009 to 2011 Technologic infrastructure ATM POS Unit Machinery Machinery 2009 100 1200 2010 700 9800 2011 1000 15000 In 2011, HSBC continuously expands ATM system (1000 units) which is essentially installed at shopping centers, the convenience transaction places in Viet Nam With 24 hour banking and multi-payment utilities, HSBC provided the best and stalest automatic transaction system which ensures the quality of it service In 2010, it imported 10 multifunction ATMs from abroad which customers can deposit cash or pay credit card directly Nowadays, the number of these ATMs is nearly 50 units However, due to this function needs to be protected and kept an eye on; these ATMs are only at the major bank agencies or branches which always have guards 24 hour a week It also linked all ATMs of Techcombank with HSBC system in this year, cardholders can withdraw freely at ATMs of Techcombank 45 Particularly, because of a foreign bank, HSBC card is accepted 15000 places in Vietnam and 25 million in the world It is easy to withdraw and pay anywhere in the world In Vietnam, after have the strategy investment in Techcombank, customers of HSBC can withdraw cash a lot of places In addition, HSBC cards have PLUS function; customers can withdraw any ATMs in the world, although the fee is still too high HSBC has attached special importance to security and safety of ATM system Although, in the end of 2010, criminal destroyed cash register to steal ATMs’ money recklessly and brazenly, this phenomenon continuously occurs with many banks in the market, it is difficult for not only HSBC but also others to ensure security and safety of cash and machine of ATMs That requires timely and drastically intervention of the public authorities such as: State Bank, Ministry of Public Security, so on 46 2.2.3.6 Competitive Landscape Table 1.5: Competitive Landscape HSBC ANZ Citibank ACB Sacombank Techcombank Market share Privilege Programme Rewards Programme Mileage Programme Red weekend Moblie Banking ( SMS Banking) Internet banking e-statement Instalement Plan Credit limit (Statistics of Visa 2011) According to the statistics of Visa, they compared HSBC with the others bank: ANZ, ACB, Citibank, Sacombank and Techcombank In the credit card market, HSBC, ANZ, Sacombank and Techcombank have the good market share Only HSBC also has full of programs that evaluated very well, such as: privilege programme, rewards programme, mileage programs and red weekend Thus it is attractive for customers to follow their 47 product For example, sending 1,000VND is counted point, and 36 points are mile which redeem for air-tickets from 20 airlines partners It is encourage spending money to take air-tickets which they can travel or be on business After that, they continuously spend more money and use more products of bank Although their internet banking is evaluated very well, they not have SMS banking that many customers request for their jobs It is inconvenient to check any transaction which has just process, HSBC’s customers only call to center or inspect by internet banking Moreover, the quality of e-statement is estimated well, customers can read their balance sheet within six months However, if they request more information or their statement with bank chop, they must accept 55,000VND per month fee which is too high than the other banks As this table, only two banks that are HSBC and ANZ provide installment plan Installment plan is the plan with 0% interest rate, buying now and paying later over a period of 3, 6, or 12 months, no additional costs, no additional documents required The transaction amount will be divided by installment amounts in tenor, which will be listed together with other card transactions in monthly statement Customers only fill the registration form, and make their payment by credit cards as normal For example, if you bought a premium Smartphone valued VND 12 million as an illustration, instead of paying the total amount in 45 days, you can choose to repay this amount over a period of 3, 6, or 12-month Repayment Period 3-month 6-month 9-month 12-month Monthly Repayment Amount (VND) 4,000,000 2,000,000 1,333,000 1,000,000 It is popular in foreign countries, but in Vietnam, only two foreign banks are practicing this plan, however installment plan of ANZ is approbated more highly than its HSBC 48 There is the credit card comparison: According to this comparative table, credit limit of HSBC is quite good, however there are many banks which credit limit is more better than its HSBC Nevertheless, with this limit, HSBC can control risk better, if credit risk occurs, it also restrains loss 2.2.4 Advantages and disadvantages of developing credit card operation in HSBC Viet Nam 2.2.4.1 Advantages 49 - First, HSBC is the famous bank in the world, with the slogan “the world’s local bank”, they existed more 100 countries and have many successes Thus, their reputation is the first advantage of developing credit card operation in Vietnam People who choose to use their card can feel assured about quality and service in the world In another way, with HSBC credit card, people can travel anywhere without cash - Second, HSBC is the first bank that use chip card technology in Vietnam Smart card is more safety than Magnetic Stripe Although this new technology has high cost, it has reduced counterfeit card and lay off using card - Third, HSBC has the multifunction ATMs which can deposit cash directly With this function, instead of only depositing cash over the counter, customers can deposit cash any when, 24 hours a day, and days a week This feature also gives support for customers who are using credit cards and loan products when they can not go to bank to pay monthly fee on office hours - Four, according to Visa International, only 384,000 of 89mil people in Vietnam (4%) are using Visa credit cards with the transaction turnover of $2billions Meanwhile, the percentages of populations using Visa cards are much higher in other countries: 68.5% in Singapore, 10.6% in Thailand, 20.3% in Malaysia Vietnam card market sees a very high growth rate in recent years There are 40 banks operating in this market with 120 brand names of cards Breakdown by scope of use, 71 are of domestic card type (59%); 49 are of 14 international card type (41%); by functions, 73 are of debit card type (61%) and 44 are of credit card type (37%) Vietnam card market is still very potential to develop - Last, HSBC has the staffs that are young, enthusiasm, and trained professionally 2.2.4.2 Disadvantages - First, due to be a foreign bank, HSBC is restrained the number of ATMs and agencies, particularly the number of multifunction ATMs The amount of money which can be withdrawn is limited, maximum 5,6 million a batch, and 40 million a day It is quite smaller than its other banks - Second, because of no SMS banking service, customers can not know transactions through their cards immediately, thus counterfeit transactions can be detected punctually And it is also inconvenient for customers to check their account if they have no time to call 50 center or sign in their internet banking However, with the large transactions, customers will be confirmed about it to ensure security for cardholders - Third, most credit card of HSBC is of VISA, Master card is only for premier, while other banks are very diverse At the moment, there are many types of credit card, such as: AMEX, Dinner club, JCB, CUP… Many domestic banks, particularly Vietcombank, have many types Therefore, developing types of credit card will help HSBC to improve card market in Vietnam - Next, withdrawn cash fee and exchange cost are higher more than other banks Many people who used credit cards of HSBC complained that their fees are too high, so some of them had cancelled card and convert to its another bank Withdrawn cash fee of HSBC is 4% of the amount of money which they draw, and interest rate counted immediately after that is 2,15% per month While in other banks, this fee is about from 2,5% to 3%, and their interest rate is lower than its - Last, the challenge facing the credit card market in Vietnam is that customers prefer payment by cash because credit cards can only be used at shopping centers or highend shops Moreover, credit card holders have been advised not to withdraw cash from their card because they will be charged with a high cost As with all countries, HSBC will have to win over both merchants and customers to grow the market 51 Chapter 3: Some solutions to develop the credit card business activities in Viet Nam 3.1 Business orientation of credit card in HSBC Viet Nam At the moment, HSBC is restructuring its activities in the world In there, they will focus on investing more personal financial services that effectively worked at the emerging market like Vietnam The new chief executive of HSBC Vietnam, Mr Sumit Dutta, said that he will center upon developing and making Vietnam to become one of strategy market of group Accordingly, HSBC will expand activities in Vietnam as well as offer new products, increase quality of service, customer numbers In addition, Bank will continuously improve on both ways: intrinsically development, and development of strategy cooperative relationship with Bao Viet insurance and Techcombank With competitive advantage on international network and powerful support from the Group, HSBC Vietnam will keep on concentrating growth targets in many fields, from corporate financial service to personal financial service and serve clients who have international financial needs Moreover, HSBC also expands the list of products and service leader for small and medium enterprises It has introduced a new solution called IRS to customers in Vietnam This solution applies leading technologies in payment and cash management It is designed to support HSBC’s customers to manage account receivable efficiently through improving transparency and legibility of transactions as well as information management of revenue source In 2012, HSBC Vietnam will continuously develop personal financial service and improve the facilities for its customers through expanding network to 14 transaction offices and 150 ATM, and continuously increase number of credit cards used 52 3.2 Some solutions to develop credit market in HSBC Viet Nam 3.2.1 Expand target customer who can use credit card HSBC should have adjusting fee policy suitably, flexibly and competitively to attract customer, and easing the procedure for issuing credit card for customer without collateral Currently, HSBC only applies for people who are paid salary on account However, with the regulation salary about minimum million per month is too high with State employees who have many other incomes It is restraining protential customer number of HSBC Nevertheless, HSBC also need verify well, avoid bad dedts which customers are unable to pay 3.2.2 Strengthen marketing strategy For HSBC VIETNAM strategy to this issue, the PR and marketing programs should be focused to bring the detailed information about credit cards to the people, help them to understand carefully and thoroughly the benefits of credit card usage Currently, credit card is a new relatively payment method in Vietnam Hence, the advertisements, marketing for products are necessary towards the different kinds of customer The marketing strategy of HSBC Vietnam has been effective but it is not enough yet Major of customers and utility and service providers have not been familiar with the payment method by credit card instead of cash The credit card is just populated to a minor group of people who are mostly bank staffs, government officials, persons who have relatives studying and living in overseas and a few intel lecturers The more marketing action should be taken promptly to improve this matter: - To strengthen the approach, promotion to advertise about usage of credit cards for the potential customers such as big companies, joint venture, foreign representative offices in Vietnam, etc., cooperate with them to issue the large amount of credit cards for their staffs with the priority conditions - To invest into the advertisements on the publics such as newspapers, radio broadcast, television etc or advertised panels on the streets To organize the programs on the television to introduce and answer the questions related to the credit cards 53 Simultaneously, HSBC VIETNAM should sponsor for the competitions of knowledge, economic games etc to propagate credit cards and other services as well - To extend and deploy more promotion programmes for customers such as: reward points, incentive scheme, free gift to customers in the special holidays, etc - Based on the customer behavior of buying the cheap goods, HSBC VIETNAM can sign a contract with some supermarkets, shops to make promotions or % discount to the customers that use the HSBC Vietnam’s cards in payment In exchange, HSBC VIETNAM will have incentives for them based on the percentage of money on the invoice that paid through HSBC Vietnam’s cards By this way, not only encouraging customers using cards but also helping the merchants increasing the turn over and card holders can get sale-off 3.2.3 Invest technology and equipment In the present period, when banks are keening competition, modern technology is one of the important factors to determine the success of them Firstly, Technology centers should research to solve the problem of their ATMs thoroughly For each ATM needs to study, select the suitable place to improve using machine effectively, increase transaction volume of ATMs system In addition, they should equipped more POS numbers installed at units to expand system However, it should be recognized that cost of equipment investment is huge Each ATM values 30.000USD and each multifunction ATM prices more than 100.000USD, operating cost of each is 80 million per year which is not included cost of installing terminal, software… however revenue source is limited because 70% of transactions are cash withdrawal but central bank does not allow net withdrawal fee Thus banks need to balance in new investment and arrangement, reorganization ATM system reasonably, safely, and efficiently; in line with investing to expand POS and card acceptance units system At the moment, HSBC is one of banks that have the most technology in Vietnam Their multifunction ATMs can automatically deposit cash without go to transaction office However, technology is more development with every passing day For example, in New 54 York, high-tech system of Citigroup can help customer to contact directly with customer service 24/24 through a video chat screen and six screen with interactive touch operation In this bank, clients can process every transaction without any document 3.2.4 Restrict risk Issuing and payment card are the business which contain many risks, and it is necessary to establish provident risk fund to improve safety, HSBC should regularly revalue pledge properties and make setting up risk reserve fund monthly In addition, regularly reviewing, improving business process, particularly the provision on security, confidentiality, safe system, frequently checking system access permission; and no crime can exploit or bank staff can access, control system; always comparing ATMs’ journal and account balance to detect errors punctually In order to limit risks of counterfeit information, Bank should check, update the change of cardholders’ information, besides, Bank must instruct customers how to use and protect their cards They need to understand thoroughly card acceptance units at individual, business situation, financial capability, and regularly check performance of the contact, found significant change of them In regard to units which derogated contract, bank refuse to accept payment or collect addition fee, they must have strictly sanctions Organize training; improve business and professional ethics of staff of units not to be abused or to collude with cardholders in payment Banks also need to coordinate with other banks, international card organizations in managing risk, resisting intrusion into payment system, simultaneously update card black list and inform units about its Banks should closely coordinate with the authorities, local management services and partner banks to have solution to control and protect ATMs as well as customers 55 REFERENCE Report of Card Center of HSBC Annual Report of HSBC 2012 Website: www.hsbc.com.vn Personal interview with Mr Ly Minh Phuong ( Manager of Cau Giay bank agency) and Mrs Bui Thi Thuy ( Teller of bank agency) 56 APPENDIX Table 1.1: The number of credit card issued from 2009 – 2011 Table 1.2: Classifying HSBC customer by age and educational background Table 1.3: The payment volume and the annual growth of credit card HSBC from 2009 to 2011 Table 1.3: Technologic infrastructure which supports HSBC cards’ service from 2009 to 2011 Table 1.5: Competitive Landscape And Diagram 1.1: Market share of credit card HSBC in 2011 57 COMMENTS 58 INTERSHIP REPORT ASSESSMENT Signature of supervisor ... develop the credit card business activities in Viet Nam 3.1 Business orientation of credit card in HSBC Viet Nam At the moment, HSBC is restructuring its activities in the world In there, they will... developing credit card operation in HSBC Vietnam 50 Chapter 3: Some solutions to develop the credit card business activities in Viet Nam 52 3.1 Business orientation of credit card in HSBC Viet Nam ... issuing, using and paying credit card in HSBC Viet Nam Launched in Vietnam in 1870, but HSBC only took part in the personal financial market in 2008, because in the first steps they only paid attention