CHAPTER 2: OVERVIEW OF CARD SERVICE BUSINESS
2.1. Concept, nature, role of card service business in commercial bank
2.1.1.1 Concept of card
Bank card is one of non-cash payment methods, which was born from the purchase method of retail goods and associated with the development of information technology applications in the banking sector. Bank card is payment instrument issued by issuing banks to the customers to use payment for goods and services, or withdraw cash within their cash deposit balance or granted credit limitation. Bank card is also used to perform the service through the automatic trading system, known as self-service ATM systems (Dr. Nguyen Minh Kieu, 2008)
2.1.1.2 Classification of card
There are a lot of classifications of card now. But in general, cards are divided into different groups based on their own functions. Following the classification of Dr. Nguyen Minh Kieu, there are three ways to classify cards:
Based on manufacturing technology
-Embossed card: it is a card with necessary information embossed in the surface of the card. Nowadays, this type of card is rarely used because of the primitive technology and counterfeiting potential.
-Magnetic card: it is a card that the cardholder's information is not only embossed on the front of the card, but also encoded in the magnetic stripe on the back of the card. The information must be accurate and fit together. Magnetic cards are now dominating the total number of cards in use on the market.
-Smart card: This is the latest generation of cards, with high security and safety features. It is based on computing processing technology: the card is attached with an electronic chip which has a structure like a perfect computer. Typically, a chip is used to replace the magnetic stripe on the card.
Based on paying property
-Credit card: It is the non-cash payment method, providing the users with the ability to buy thing first and pay later. At the time the customers pay for goods or services, the bank will stand in the customers to pay for goods and service providers and then to salvage this amount of money from the customer after a certain time, following the agreement between the bank and the cardholder.
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-Debit card: Like the credit card, the debit card is the non-cash payment method. It allows customers to access their account balance via the online connection to pay for goods or services at card-accepting units, or carry on transactions related to account at ATM systems. Cardholder's expenditure depends mostly on the account balance. The bank pays a role in providing services to cardholders and charge service fees.
Based on the scope of card usage
-Local card: it is issued by banks or credit institutions to replace cash to pay for goods and services and use to withdraw cash within country. Usually, it is the domestic debit card of the commercial bank, that is issued to use at ATM systems and card-accepting unit network of issuing banks, agent banks and banks associated with the issuing bank in that country.
-International card: The international cards are cards bearing the brand of international organizations, which the banks and credit institutions play a role as issuing agents. International card can be used locally and overseas, at any card- accepting units or ATM carrying symbols that accept these cards. To issue international card, card-issuing banks must register and be accepted as a member of the international card organization, also strictly observe the rules of the card issuance and payment. These rules are ordained by the international card organization.
2.1.2 Concept of card service business
Dr. Nguyen Minh Kieu said that business is an activity of a person or an organization to gain the benefit through a set of activities like Management, Marketing, Finance, Accounting and Manufacture.
She also emphasized that card service business is an activity of card-issuing organization in the marketing activities to introduce services to the card user with the aim of benefit increase.
Therefore, card service business development is management and marketing activities of the card-issuing organizations (Banks) to enhance a number of cards and to increase benefit.
2.1.3 Role of card service business in commercial bank 2.1.3.1 To the cardholder
First of all, card services offer the customer safety. Card is an electronic currency used to replace cash. The cards used in payment can limit risks from the use of cash such as the risk of being stolen. Moreover, cards are produced with the base on encrypting technology and the most modern technology, electronic circuit application; therefore it is hard to access the account without cardholder’s signature.
When purchasing goods and services, the cardholder must sign the bills and the seller will make the comparison with the specimen signature, so the encoded information will create the wall against the risk of crooks.
Secondly, using card services, customer can feel the fastness and convenience. When selecting bank card, the cardholder will not have to keep the large amounts of cash. Cardholders can actively manage their expense and purchase, also easily use bank card to make a payment in any service supplier accepting the card. With debit cards, customers can withdraw money or purchasing goods and services by doing transaction with the bank through ATMs instead of going directly to the bank. And with credit cards, the convenience is that the cardholder can use the money that bank advanced. This allows customer to extend the financial transaction beyond the income limitation.
Lastly, card services bring out flexibility and economy. To own a bank card, cardholder just has to pay a smaller fee than the utility that the card offers. In addition, transactions such as balance check, withdrawal or transfer are all free.
Besides, the banks always give the current fee and interest clearly and transparently.
Thus, the cardholder can personally control fees and interest of their transactions and that always brings satisfaction to both customers and banks.
2.1.3.2 To the bank
When participating in issuing card, the bank can benefit a lot:
First, with the card issuing activities, the bank can easily diversify its services, attract new customers and retain old customers. Also, with joining the international card organization, the bank will build business relationships with other banks and financial institutions in the world, increase foreign currency revenues and improve operational efficiency.
Second, through the card issuance, revenue from intermediary activities as well as fees from charging interest, card issuance reissuance, etc. will increase
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remarkably. Therefore, the more a number of cards are issued, the more a number of accounts will increase.
Thus, through the card issuing activities, reputation and credibility of the issuing bank can also be improved by the provision of full service.
2.1.3.3 To the economy
When the payment by card penetrates into the market, the habits of using money in the society will change; and from that, the amount of cash in circulation will decrease, and the inflation will partly be managed. Besides, the banking system will easily control the volume of money supply, that enabling the State Bank structure monetary policy and other macro policies effectively and contributing to the development and stability of the economy.