002 trương ngọc diệu an báo cáo

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<b>UNIVERSITY OF ECONOMICS – THE UNIVERSITY OF DANANG FACULTY OF INTERNATIONAL BUSINESS </b>

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STATUTORY DECLARATION

I would like to state that I wrote the Graduate Report named ―Studying the service quality of letter of credit service of Ban Viet Joint Stock Commercial Bank - Da Nang Branch - Song Han transaction office‖ by myself and independently. The study reflects my effort to incorporate my knowledge and additional research on the topic. The similarity rate is 3% after it has been tested by Turnitin software. Thus, this report has met the requirement related to plagiarism.

Truong Ngoc Dieu An

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<b>ACKNOWLEDGEMENT </b>

First and foremost, I would like to thank all of the lecturers at Danang University of Economics, especially the Faculty of International Business, for their contributions. I would not have been able to extend my horizons and gain deep academic knowledge without the instructions from them. I also want to thank Dr. Nguyen Thi Thuy for giving me a lot of useful advice and dedicated support. The guidance Dr.Thuy derived not only from heart but also from a brilliant intellect.

This acknowledgement also pays tribute to Ban Viet Joint Stock Commercial Bank, especially Mr. Phan Xuan Phuoc, who is my senior, for the help and support during the internship period. It’s my pleasure to accompany BV Bank Song Han. The experience at BV Bank Song Han provided me with a broader perspective on the realities of the workplace and gave me a glimpse into the corporate environment.

Finally, I would like to express my sincere gratitude to my family and friends for their unwavering support and encouragement throughout my journey. Their presence in my life has been a constant source of motivation.

Sincerely, Truong Ngoc Dieu An

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1.1.2. The history of formation and development ... 4

1.1.3. Vision, Mission and Core Value ... 7

1.2. About Ban Viet Joint Stock Commercial Bank – Da Nang Branch – Song Han transaction office (BV Bank Song Han) ... 8

1.2.1. Formation ... 8

1.2.2. Function and Duty of BV Bank Song Han ... 8

1.2.3. Organizational structure, functions, and responsibilities of departments ... 9

1.2.4. Business performance of BV Bank Song Han ... 13

1.3. Brief overview of responsibilities BV Bank in the Letter of credit service ... 14

CHAPTER 2. THEORITICAL FRAMEWORK ... 17

2.1. Overview of international payment ... 17

2.1.1. International payment definition ... 17

2.1.2. Characteristics of international payment ... 17

2.1.3. Methods of international payment ... 18

2.2. Overview of Letter of credit ... 19

2.2.1. Letter of credit definition ... 19

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2.3.2. Roles of services ... 26

2.3.3. Characteristics of services ... 26

2.4. Overview of service quality ... 27

2.4.1. Service quality definition ... 27

2.4.2. Models of service quality ... 28

CHAPTER 3. RESEARCH METHOD ... 33

3.1. Measurement and questionaire ... 33

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KPIs Key Performance Indicators

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<b>LIST OF FIGURES </b>

Figure 1.1. Logo of BV Bank ... 5

Figure 1.2. Organizational structure of BV Bank – Song Han ... 9

<b>LIST OF TABLES </b>Table 1.1. Business performance of BV Bank Song Han ... 13

Table 3.1. Measurements of Customers’ Expectation ... 33

Table 3.2. Measurements of Perception ... 36

Table 4.1. Demographic characteristics of respondents ... 41

Table 4.2. Score of Reliability dimension ... 42

Table 4.3. Score of Responsiveness dimension ... 43

Table 4.4. Score of Assurance dimension ... 44

Table 4.5. Score of Empathy dimension ... 46

Table 4.6. Score of Tangibles dimension ... 47

Table 4.7: Average gap score of each dimension... 48

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<b>INTRODUCTION </b>

<b>Research context </b>

Services are a major part of the global economy, generating more than two-thirds of global gross domestic product (GDP), attracting over three-quarters of foreign direct investment in advanced economies, employing a large number of workers, and creating most new jobs globally (Services Trade in the Global Economy, n.d). Nowadays, due to some factors like market saturation, globalization, technological advancements, high customers’ expectation, the service industry is like a battlefield in which enterprises constantly vying for customer attention and loyalty.

One of the service industries that are currently under fierce competition is the banking industry. In the competitive market, the survival and development of a bank is determined by the provision of service quality to clients. The better service quality the bank gives, the more likely loyal customers will be. In order to achieve this, discovering what clients expect and how they perceive after using service is really essential. Thus, firms can determine whether their service quality is good or bad and make some needed improvements.

When it comes to international payment, the growing interdependence between countries necessitates a robust framework for international economic relations, which in turn relies on efficient international trade finance and payment mechanisms. In recent years, thanks to the convenience of international payment service, international trade becomes more efficient and safe. Within the realm of commercial banks’ business performance, international payment service - specifically letter of credit (L/C) service, is not only a lucrative service, but it is also a focal point for other trade activities. Import and export businesses are the bank's primary customers for letter of credit services. Banks play the role as payment intermediates, assisting firms in committing payments for international trade contracts, completing transactions and providing a level of trust and assurance to both importers and exporters.

<b>Research rationale </b>

Ban Viet Joint Stock Commercial Bank – Da Nang branch – Song Han transaction office (BV Bank Song Han) is not a strong player in the international payment landscape nor is it among the most renowned banks in this field. Its international

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payment operations are primarily confined to a modest clientele within the Da Nang market. However, BV Bank Song Han has cultivated long-term relationships with these customers. Consequently, this study aims to evaluate the quality of BV Bank's letter of credit service. Specifically, it will examine how this bank's performance aligns with customer expectation in maintaining customer loyalty over many years.

<b>Research objectives </b>

This study consists of three objectives:

<b>Firstly, this study aims to measure customers’ expectation and perceived performance </b>

of L/C service of BV Bank Song Han, then evaluating the gap scores acquired between the clients’ expectation and perception of the service they received.

<b>Secondly, the study attempts to pinpoint which dimension of letter of credit service </b>

has highest average service quality gap and vice versa. From that, advantages and shortcomings of L/C service of BV Bank Song Han will be determined.

<b>Finally, from the above analysis, some recommendations which improve letter of </b>

credit service quality will be proposed.

<b>Research structure </b>

This study consists of four chapters, which are:

<b>Chapter 1: Overview of Ban Viet Joint Stock Commercial Bank </b>

This chapter describes basic information about parent company of Ban Viet Joint Stock Commercial Bank and BV Bank Song Han.

<b>Chapter 2: Theoretical Framework </b>

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This chapter provides theoretical foundation of international payment, letter of credit, service and service quality as well as models of service quality.

<b>Chapter 3: Research methods </b>

This chapter illustrates the measuring scales and questionnaire, as well as data collection strategy.

<b>Chapter 4: Result discussion of L/C service quality of BV Bank Song Han </b>

This chapter analyses results collected from survey to assess the service quality of L/C service at BV Bank and gives some recommendations.

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<b>CHAPTER 1. OVERVIEW OF BAN VIET JOINT STOCK COMMERCIAL BANK </b>

<b>1.1. About Parent Company of Ban Viet Joint Stock Commercial Bank 1.1.1. General information </b>

Full name: Ban Viet Joint Stock Commercial Bank English abbreviated name: BV Bank

Address: 412 Nguyen Thi Minh Khai Street, Ward 5, District 3, Ho Chi Minh City. Established date: August 22^nd, 1992

Tax code: 0301378892

Phone number: 028-62679679 Website: www.bvbank.net.vn Business area:

 For Personal customers: Savings and investments, accounts and services, cards, loans, insurance and digital banking.

 For Corporate customers: Deposits, business loans, guarantees, trade finance, cash management, digital banking for business

<b>1.1.2. The history of formation and development </b>

Ban Viet Joint Stock Commercial Bank, formerly known as Gia Dinh Commercial Joint Stock Bank, established in 1992, is one of the oldest commercial banks in Vietnam. On December 13^rd, 2011, the State Bank of Vietnam approved the change of the bank's name to Ban Viet Joint Stock Commercial Bank as of today, with the English abbreviation name is Viet Capital Bank. On May 26^th, 2023, the State Bank of Vietnam issued a decision to change the English abbreviation name into BV Bank, which became the official one replacing the previous ―Viet Capital Bank‖.

On December 1^st, 2023, BVBank officially launched a new logo to synchronize its brand identity with the new English name "BVBank", while aiming at the goal of "Becoming a multi-functional, modern, retail bank which target at individual customers as well as small and medium business customers‖.

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<i>Figure 1.1. Logo of BV Bank </i>

Over 32 years of establishment and development, Ban Viet Joint Stock Commercial Bank has achieved remarkable milestones:

 <b>From 1992 to 2010: Oriented development and maintenance of stable growth </b>

With an authorized capital of 2,000 billion VND, BV Bank established a solid foundation for future growth during this period. Its operational network comprised 28 operating points, including one head office, seven branches, and 20 transaction offices. This network ensured accessibility for its customers and supported its initial operations.

A significant milestone for BV Bank in this period was the signing of an ―Investment and Strategic Cooperation Agreement‖ with the Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) in 2007. This partnership provided BV Bank with valuable resources and expertise, propelling its development in the Vietnamese banking sector.

 <b>From 2011 to 2015: Completing basic development steps, improving competitiveness and marking a strong transformation by changing the name </b>

With an authorized capital of 3.000 billion VND, BV Bank boasted a well-established network of 39 operating points, including one head office, 17 branches, 20 transaction offices, and one savings fund.

During this period, BV Bank actively pursued several key initiatives, including implementing the Core Banking project, launching electronic banking services, introducing a mobile banking application, and signing a cooperation agreement with Komtek Joint Stock Company and FircoSoft to develop Anti-Money Laundering

<b>solutions. </b>

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 <b>From 2016 to 2020: Implementing the operating strategy for becoming a modern, multi-functional retail bank targeting personal customers, small and medium enterprise customers </b>

BV Bank boasted a significant authorized capital of 3.000 billion VND and a developed network of 70 operating points, including one head office, 25 branches, and 44 transaction offices. This period also marked a series of outstanding achievements:

well-- BV Bank partnered with International Card organizations like Visa and JCB (Japan Credit Bureau). Notably, it became one of the first 10 banks in Vietnam to achieve the prestigious PCI-DSS (Payment Card Industry Data Security Standard) certification, demonstrating its commitment to card security.

- BV Bank actively expanded its ecosystem by collaborating with leading Fintech partners like Zalo Pay, AirPay, GrabPay by Moca, enhancing its digital reach and service offerings.

- BV Bank diversified financial services by cooperating with Bao Long Insurance for non-life insurance and AIA Vietnam for life insurance, providing customers with comprehensive financial solutions.

- BV Bank stood out as one of the first banks in Vietnam to successfully implement all three pillars of Basel II, indicating its commitment to robust risk management practices.

- BV Bank conducted digital innovation by becoming a strategic partner for the Timo Plus digital bank platform, solidifying its position at the pioneer of the digital banking revolution.

<small> </small> <b>The 2021-2023 period: Adhering to the orientation of becoming a functional, modern, customer-oriented retail bank, while advancing swiftly with the plan for digitalization </b>

multi-BV Bank developed a solid financial foundation with an authorized capital of 3.671 billion VND. It extended operational network with 88 operating points, including one head office, 31 branches, and 56 transaction offices.

Additionally, BV Bank fostered a strong network of partners, including Fintech companies like Momo, ZaloPay, Moca, QR Pay, and AirPay. This collaboration

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<b>1.1.3. Vision, Mission and Core Value </b>

After more than 30 years of operation and development, BV Bank has experience in recognizing and fully serving the banking and financial service demands of all customers. Along with an enthusiastic workforce with high professional qualifications, BV Bank is aiming for obvious and consistent vision: ―Becoming a bank that partners, shareholders, and clients can trust. BV Bank's image will be the top choice of customers for future financial investment plans‖.

Aiming to build an increasingly developed image of BV Bank in Vietnam's banking sector, a reliable top choice for customers, BV Bank commits to realizing those goals through implementing missions:

- Providing banking services that ensure quality and professionalism, giving customers the highest satisfaction when choosing BV Bank.

- Ensuring maximum profits along with improving operational efficiency, asset quality and implementing risk management according to international standards.

- Committing to make efforts in management and administration in order to increase values and maximize benefits for shareholders.

- Creating a positive working environment with professional training policies for employees and a place to nurture talents, bringing more career opportunities to those who are passionate about.

After a long period of development, BV Bank has summarized its own experiences and planned strategic visions for the future. To successfully implement those strategic goals, BV Bank must ensure core values such as:

- Trust: BV Bank always complies with Law and Bank regulations, works professionally to get the belief of customers, colleagues and shareholders.

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- Unity: BV Bank is dynamic, cohesive and responsible environment for the common goals of the Bank, the benefits of customers and shareholders.

- Creativity: BV Bank always innovates for development. BV Bank promotes the application of technology and digitalization, creating outstanding value and efficiency for the Bank.

<b>1.2. About Ban Viet Joint Stock Commercial Bank – Da Nang Branch – Song Han transaction office (BV Bank Song Han) </b>

<b>1.2.1. Formation </b>

BV Bank – Song Han transaction office was established on November 18^th, 2011 with the previous name was BV Bank – Chi Lang transaction office at 89 Nguyen Thi Minh Khai, Hai Chau 1 Ward, Hai Chau District, Da Nang City.

On July 18^th, 2022, BV Bank – Chi Lang changed its name to BV Bank – Song Han and moved its office to the address: 124-126 September 2 Street, Binh Thuan Ward, Hai Chau District, Da Nang City.

<b>1.2.2. Function and Duty of BV Bank Song Han 1.2.2.1. Function </b>

BV Bank Song Han's functions comprise calling for short-term, medium-term, and long-term capital from economic organizations and residents. In turn, the bank utilizes this capital to lend short-term, medium-term, and long-term loans to many clients and entities.

Additionally, BV Bank Song Han performs guarantee tasks, facilitates international payments, and offers services such as buying and selling foreign currencies and valuable papers, transferring money, and providing financial consultations.

Furthermore, BV Bank provide transaction services between customers and other banking services, while adhering to the regulations set by the State Bank of Vietnam.

<b>1.2.2.2. Duty </b>

BV Bank Song Han shoulders multiple duties. First and foremost, BV bank is responsible for planning and executing accounting activities that comply with state

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Moreover, BV Bank Song Han actively pursues continuous improvement. It conduct regular research to optimize operations, leverage advanced technologies in banking services and management processes, and ultimately develop the quality of their products and service capabilities.

Finally, a crucial aspect of BV Bank's duty involves implementing robust banking business security measures. These measures protect data on fund balances, bank liquidity, and bank accounts, safeguarding the financial well-being of both the bank and its customers.

<b>1.2.3. Organizational structure, functions, and responsibilities of departments 1.2.3.1. Diagram of Organizational structure of BV Bank Song Han </b>

<i>Figure 1.2. Organizational structure of BV Bank – Song Han </i>

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<b>1.2.3.2. Responsibilities of Departments of BV Bank Song Han </b>

<small> </small> <b>Board of managers </b>

Board of manangers are responsible for managing and operating the branch's operations. At the same time, they organize and control the activities of the entire branch, manage the branch's assets, and be responsible for the branch's operations to the General Director.

<small> </small> <b>Head of Personal Customer Relation Department </b>

Head of Personal Customer Relation Department is responsible for developing strong relationships with personal customers while simultaneously ensuring all short-term objectives are met. The Head will involve both planning and implementing the daily activities of the department. Additionally, he/she monitors the performance of each employee and ultimately be responsible for the department's KPIs. Furthermore, this person will play a key role in implementing effective credit management.

<small> </small> <b>Head of Corporate Customers Department </b>

Firsly, the Head crafts business plans, evaluates ongoing operations, and inspects performance metrics, all while ensuring statistical reporting adheres to regulations and organizes professional development training for their staff.

Additionally, the Head analyses loan proposals and debt restructuring plans for corporate customers, submits recommendations for approval or rejection to branch leadership based on their appraisals.

Furthermore, this person manages loan customer verification and information within the system according to BV Bank's procedures, ensuring data accuracy for informed decisions. Finally, the Head fosters effective communication with relevant departments, guarantees timely and completes credit collection, which ultimately supports the bank's financial goals.

<small> </small> <b>Head of Customer Service Department </b>

The Head of the Customer Service Department plays a crucial role in ensuring customer satisfaction and loyalty by identifying and addressing customer dissatisfaction. This involves gathering and analysing feedback, pinpointing root

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<small> </small> <b>Customer relationship specialists/employees (Personal and Corporate Customers) </b>

Customer relationship specialists/employees directly contact and engage with customers to provide consultation and sell the bank's products such as loans, savings deposits, and cards.

In addition, they assess the creditworthiness of clients to protect the bank's interests, based on criteria such as credit history, financial capacity, business performance, ability to repay principal and interest, and collateral.

Moreover, they monitor the utilization of loan proceeds in accordance with bank regulations and track the repayment of principal and interest as per the customer's loan agreement.

<small> </small> <b>VIP Customer relationship specialists/employees </b>

VIP Customer relationship specialists/employees play a leading role in formulating large-scale policies, strategies, and guidelines for the bank. They actively participate in research on scientific topics in the banking sector to identify shortcomings and innovate the management system for the most suitable and optimal results. Furthermore, recognizing the importance of a skilled workforce, they organize training courses for other employees.

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<small> </small> <b>Bank tellers </b>

Bank tellers act as the frontline for a bank, handling a wide range of customer requests at the counter. From processing deposits, withdrawals, and transfers to authorizing payments, collections, and disbursements, they ensure seamless transactions.

They also play a role in account management, handling account openings, processing account information, and meticulously recording all transaction details. Additionally, they are responsible for effectively managing and adhering to assigned cash limits, ensuring the bank's financial security.

<small> </small> <b>Consultants </b>

Consultants provide in-depth consultations on the bank's offerings, ensuring customers understand the available services and products. They serve as a dedicated resource for handling and resolving customer complaints and inquiries related to their banking experiences.

In addition, they actively cultivate relationships with potential customers, attracting them to the bank's offerings. They guide customers through the application process, ensuring that forms and transactions are completed accurately and in accordance with bank regulations. Through this multifaceted role, consultants play a crucial part in fostering customer satisfaction and driving business growth for the bank.

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<b>1.2.4. Business performance of BV Bank Song Han </b>

<i>Table 1.1. Business performance of BV Bank Song Han Unit: Million VND </i>

<b>CRITERIA </b>

<b>Figure Percentage (%) </b>

<b>Figure Percentage (%) </b>

<b>Figure Percentage (%) Total income 115.278 100 130.247 100 142.295 100 </b>

Interest income

111.302 96.55 125.338 96.23 135.210 95.02

Service income

3.330 2.89 4.140 3.18 6.132 4.31

<b>Total Expense 106.644 100 110.868 100 120.314 100 </b>

Interest expense

89.909 84.31 92.556 83.48 98.120 81.55

Service expense

Operating expense

16.099 15.10 17.748 16.01 21.142 17.57

Other expenses

<b>Profit before risk reserves </b>

<b>Pre-tax profit 7.803 6.8% 17.223 13% 13.671 10% </b>

<i> Source: Annual Report of BV Bank Song Han </i>

Based on the tables and charts on the bank's revenue, expenses, and profits for the period 2021-2023, we can observe that the bank has achieved significant profit growth during this period:

In terms of revenue, BV Bank Song Han's primary revenue stream is derived from interest on loans. Overall, the branch's revenue has exhibited an upward trend from

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2021 to 2023. Total revenue in 2022 reached over 130.247 billion VND, representing an increase of approximately 15 billion VND (equivalent to a 12.9% growth) compared to 2021 (115.278 billion VND). Total revenue in 2023 also witnessed a significant increase compared to 2022, reaching 142.295 billion VND, an increase of approximately 12 billion VND, equivalent to a 9% growth compared to 2022.

Total expenses exhibited an upward trend during the period from 2021 to 2023. In 2021, the branch's total expenses amounted to over 106 billion VND. By 2022, total expenses had increased by approximately 4 billion VND, reaching 110.868 billion VND, representing a 3.96% growth. In 2023, total expenses continued to rise, reaching approximately 120 billion VND, an increase of approximately 8.52% compared to 2022. This rapid increase in expenses suggests that the Bank has yet to make significant improvements in cost management.

Regarding profits, through the dedicated efforts of its entire staff, the Song Han Transaction office has consistently achieved positive profits over the years. However, the level of profitability has fluctuated. Specifically, in 2021, the branch's profit reached nearly 8 billion VND. By 2022, total profit continued to rise to 17.223 billion VND. However, the profit level declined again to 13.671 billion VND in 2023. While overall pre-tax profit remains positive, this decline indicates that the bank's business operations are showing signs of slowing down.

<b>1.3. Brief overview of responsibilities BV Bank in the Letter of credit service </b>

L/C transactions at Ban Viet Joint Stock Commercial Bank are characterized by close coordination and clear division of responsibilities among the Payment Department (in parent company), the Credit Management Center (in parent company), and the Transaction Offices.

<small> </small> <b>Responsibility of transaction offices </b>

- Assessing customer credit and performing credit granting procedures (if any) in accordance with BV Bank's regulations on products and credit granting for each period.

- Verifying the customer's signature and seal (if any) on the documents submitted by the customer to BV Bank: the signature and seal must align with the authority of the customer, consistent with the information registered for account

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opening at BV Bank; performing customer identification procedures in accordance with BV Bank's current regulations on Anti-Money Laundering. - Ensuring that the types and quantities of documents submitted by the customer

comply with BV Bank's current regulations before forwarding the L/C transaction documents to Payment Department; taking responsibility for the legality and content of the L/C documents as well as for the requirements and information provided to the Payment Department.

- Monitoring the customer's commitment to transfer money for payment of L/C, checking the customer's account to ensure sufficient fees; Accounting for foreign currency sales (if any) and/or debiting money from the customer's account to the Payment Department’s account at parent company to fulfill the customer's request.

- Checking and monitoring the balance of the customer's escrow account or blocking of escrow account throughout the process, from issuance to payment and closure of the L/C.

- Performing the necessary procedures related to mandatory lending (if applicable) in accordance with BV Bank's regulations on credit granting and credit management.

- Monitoring and requesting customer to provide complete and timely customs declarations and other documents (if any) as committed in L/C issuance transactions.

- Serving as a bridge between the customer and the Payment Department to resolve any issues related to the processing of the Customer's L/C transactions. - Conducting all requests from the Payment Department during the processing of

L/C transactions to safeguard the interests of both customer and BV Bank. <small> </small> <b>Responsibility of Payment Department </b>

- Receiving requests for processing L/C transactions and documentation from entities, foreign banks, or other banks; conduct inspections, provide consultation, and guide the completion of L/C transaction documentation in accordance with legal regulations, international practices, and BV Bank's current regulations.

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- Screening all parties involved in L/C transactions against sanctions lists and restricted entities lists maintained by organizations such as OFAC (Office of Foreign Assets Control), EU (European Union), UN (United Nations), and others, as well as against lists from Vietnamese government authorities that prohibit transactions with certain customers; Ensuring that none of the parties are on BV Bank's own sanctions list according to Anti-money Laundering regulation.

- Accurately and comprehensively entering L/C transaction details into the data entry system and SWIFT system; Processing L/C transactions promptly and securely, and informing the transaction office and/or other parties involved of the processing results promptly. Preparing and submitting L/C-related data reports accurately and on time in accordance with regulations.

- Serving as a central point of contact and collaborate closely with the entity and relevant departments/offices/centers to resolve any issues that arise during the processing of L/C transactions.

<small> </small> <b>Responsibility of Credit Management Center </b>

- Confirming the fulfillment of conditions as approved by the entity's credit department for the following import L/C transactions: issuance, amendment, signing of bills of lading, issuance of delivery guarantees, and authorization for cargo receipt, in accordance with L/C procedures.

- Serving as the primary contact for identifying and contacting funding banks, verifying L/Cs, and confirming the type, fees, and interest rates of relevant banks involved in L/C issuance transactions.

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<b>CHAPTER 2. THEORITICAL FRAMEWORK </b>

<b>2.1. Overview of international payment </b>

<b>2.1.1. International payment definition </b>

International payment is the payment of monetary obligations arising in connection with economic, trade and other relationships between organizations, companies and different entities between countries (Dinh, 2006).

International payment is also defined as the payment relationship (payment, receipt, beneficiary) between subjects of this country with subjects of other countries and with international organizations (Vo, 2011).

<b>2.1.2. Characteristics of international payment </b>

International payments are characterized by the following key features:

Firstly, international payments take place on a global scale, serving trade, investment, and international cooperation transactions through the world banking network (Grath, 2016). Unlike domestic payments within a single country, international payments involve moving money across borders. This necessitates a global network of financial institutions, primarily banks, working together to facilitate the transfer. Banks play a crucial role. These are banks that have established relationships with each other, allowing them to transfer funds on behalf of their clients to accounts in other countries. Secondly, international payments are linked to the exchange of currencies between countries. Since countries have their own currencies, international payments necessitate converting the payer's currency (the currency they hold) into the beneficiary's currency (the currency they need to receive).

In addition, currencies in international payments exist in the form of payment instruments: money transfers, telegraphic transfers, bills of exchange, drafts, checks, etc. These instruments provide a secure and reliable way to initiate, transmit, and settle international payments. They ensure that the buyer fulfills their payment obligation and the seller receives the agreed-upon amount in their local currency.

Furthermore, payments between countries are made through banks and do not use cash (Grath, 2016). Large amounts of cash are vulnerable to theft and inconvenient during

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transport across borders. Physically transporting cash across borders can be a slow process, involving customs checks and security procedures. This delays the settlement of payments and hinders business efficiency. Besides, cash transactions are difficult to trace, making it challenging to prevent money laundering and other financial crimes. Moreover, international payments are made on the basis of international law and trade practices (Grath, 2016). International law provides a framework for conducting international business and resolving disputes. It establishes a set of principles and rules that govern the behaviour of countries and their citizens in the international arena. Alongside international law, established trade practices play a vital role in facilitating international payments. These practices are often codified in international trade agreements or developed through international organizations.

<b>2.1.3. Methods of international payment </b>

<small> </small> <b>Advanced payment </b>

Advance method is an international payment method whereby the buyer accepts the seller's price with a firm (irrevocable) order and at the same time transfers partial or full payment to the seller, meaning is payment that occurs before the goods are transferred by the seller to the buyer (Tran, 2013a).

This is the safest way for an exporter to receive payment for goods shipped abroad because the funds are received before the goods are released (Bhogal & Trivedi, 2019c). Full or significant partial payment is required, usually via telegraphic transfer (T/T) or mail transfer (M/T) through bank, before the ownership of the goods is transferred. The risk has been transferred to the importer who must trust the exporter to actually deliver the goods paid for.

<small> </small> <b>Open account </b>

An open account transaction in international trade is a sale where the goods are shipped and delivered before payment is due, which is typically in 30, 60 or 90 days (Tran, 2013b).

It is advantageous to the importer in terms of cash flow and cost, but it is consequently a risky option for an exporter (Bhogal & Trivedi, 2019c). The goods, along with all the

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 Clean collection is a payment method in which documents only include financial documents, while commercial documents are sent directly to the importer without going through a bank.

 Documentary collection is a transaction where by the exporters entrusts the collection of payment to the exporter’s bank (remitting bank), which sends documents to the importer’s bank (collecting bank), along which instruction for payment.

<small> </small> <b>Documentary credit </b>

Documentary credit (D/C) is an arrangement in which a bank (issuing bank) acting on behalf of its customer (applicant) undertakes to pay or authorize another bank to pay or accept drafts drawn by the beneficiary (exporter) upon presentation of documents complying with the terms and conditions specified in the credit (Tran, 2013d).

In this method, the parties involved will use a letter of credit, which is essentially a guarantee mechanism. Letter of credit is one of the most secure instruments available to international traders (International Trade Administration). And details regarding the letter of credit (L/C) will be discussed more specifically in the following section.

<b>2.2. Overview of Letter of credit 2.2.1. Letter of credit definition </b>

Letter of credit is a document issued by the bank at the request of the importer that undertakes to pay the exporter provided that the exporter presents a set of payment documents in accordance with the terms and conditions stated in the letter of credit (Tran, 2013d).

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<b>2.2.2. Legal basis </b>

<small> </small> <b>UCP600 - Uniform Customs and Practice for Documentary Credits </b>

UCP 600 (ICC Publication No. 600) is prepared by International Chamber of Commerce’s (ICC) Commission on Banking Technique and Practice (Tran, 2013d). The ICC Commission on Banking Technique and Practice approved UCP 600 on 25^thOctober 2006. The rules have been effective since 1 July 2007. First uniform rules published by ICC in 1933. Revised versions were issued in 1951, 1962, 1974, 1983 and 1993. Currently majority of letters of credit issued every day is subject to latest version of the UCP. This widely acceptance is the key sign that shows the importance of the UCP, which are the most successful private rules for trade ever developed.

<small> </small> <b>eUCP - Supplement to the UCP for Electronic Presentation </b>

eUCP is used for electronic paperless transactions, electronic and mixed presentations (Tran, 2013d). The eUCP is not a revision of the UCP, it is a supplement to the UCP that, when used in conjunction with the UCP, will provide the necessary rules for the presentation of the electronic equivalents of paper documents under letters of credit.

<small> </small> <b>ISBP 745 - International Standard Banking Practice for the examination of documents under documentary credits </b>

ISBP is the short and well-known name of the ICC publication No. 745 - International standard banking practice for the examination of documents under documentary letters of credit, was approved by ICC banking commission in October 2002. Because UCP rules are written in a general manner and not detailed enough to cover the day-to-day practice, ISBP was prepared in order to fill the gap between general principals of UCP and the daily practice. It is a supplement to the UCP.

In practice, when using the letter of credit method, in addition to the legal documents mentioned above, international trade practices and the business practices of each bank will also affect the choice of terms and conditions in the contract by the two parties (Tran, 2013d).

<b>2.2.3. Main Types of Letter of credit </b>

There are many types of L/Cs, and the following are the most common: <small> </small> <b>Revocable L/C </b>

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A revocable letter of credit can be amended or cancelled by the issuing bank at any moment and without prior notice or notification to the beneficiary (Bhogal & Trivedi, 2019b). The buyers (importers) has maximum flexibility as they are able to amend or cancel the credit without prior notice to the seller up to the moment of payment, acceptance or negotiation by the bank at which the issuing bank has made the credit available. The seller is at risk because the credit may be amended or cancelled while the goods are in transit and before the necessary documents have been presented. Since revocable letters of credit do not provide any protection to the beneficiary, they are not used frequently.

<small> </small> <b>Irrevocable L/C </b>

Irrevocable L/C cannot be amended or cancelled without the agreement of the credit parties including applicant, beneficiary, issuing bank and confirming bank (Bhogal & Trivedi, 2019b). An irrevocable credit constitutes a definite undertaking of the issuing

The advising bank may add its confirmation, if required by the beneficiary. The issuing bank may request the advising bank to add confirmation. If the advising bank is not prepared to add its confirmation it must inform the issuing bank without delay unless otherwise specified by the issuing bank. When the advising bank adds its confirmation to it, it is called ―Irrevocable Confirmed Letter of Credit‖.

<small> </small> <b>Confirm L/C </b>

Confirmed L/C is the L/C that a letter of credit's payment undertaking is guaranteed by a second bank, in addition to the bank originally issuing the credit (Bhogal & Trivedi, 2019b). The confirming bank agrees to pay or accept drafts against the credit even if the issuer refuses to do so. Only irrevocable credits can be confirmed.

<small> </small> <b>Advance payment (Red-Clause) L/C </b>

A red-clause letter of credit that carries a provision (traditionally written or typed in red ink) which allows a seller to draw up to a fixed sum from the advising or paying-bank, in advance of the shipment or before presenting the prescribed documents (Bhogal & Trivedi, 2019b).

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It is often used as a method of providing the seller with funds prior to shipment of goods. Therefore, it is of great value to middlemen that require pre-shipment finance where the buyer would be willing to meet this special request from the seller/beneficiary.

The advising or confirming bank provides the beneficiary loan or overdraft facility up to the amount authorised or percentage of the value of the credit, and would get repayment of the facility plus interest from the proceeds due to the beneficiary when the goods are shipped and documents presented in accordance with the terms and conditions of a letter of credit. If the seller fails to ship the merchandise, the advising or confirming bank recovers the amount advanced plus interest from the issuing bank, which in turn recovers from the buyer (applicant).

The issuing bank ensures to take cash deposit or mark a lien on the applicant’s deposit to protect itself from any loss for claim made by the advising/confirming bank in case the beneficiary fails to ship the goods and submit the documents under a letter of credit, as it is the liability of the applicant to pay for such a facility to the exporter.

<small> </small> <b>Standby L/C </b>

Standby letters of credit are not primary payment method. Standby letters of credit are secondary payment options which means they act as a guarantee and will be utilized in case another primary payment mechanism does not work (Bhogal & Trivedi, 2019b).

<small> </small> <b>Revolving L/C </b>

A revolving letter of credit is a special letter of credit type which is structured in a way so that it revolves either in value or in time covering multiple-shipments over a long period of time under single letter of credit (Bhogal & Trivedi, 2019b). This type of credit permits the beneficiary to ship the good and make periodic drawing up to the value of the credit until the expiry date of the revolving letter of credit. If such a credit revolves in time it is also called a ―periodic letter of credit‖.

<small> </small> <b>Transferable L/C </b>

A transferable credit is one that can be transferred by the original (first) beneficiary to

first beneficiary does not supply the merchandise himself, but is a middleman and thus

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It may happen that the credit in favour of the seller is not transferable, or, although transferable, cannot meet commercial requirements by transfer in accordance with Article 38 of UCP 600 conditions. The seller, however, is unable to supply the goods and needs to purchase them from another supplier. The other supplier of the goods is prepared to sell to him on the basis of a letter of credit. In this case, it may be possible to use a ―back-to-back credit‖. This concept involves the issue of a second credit by the seller in favour of his supplier.

<b>2.2.4. Roles of banks in L/C </b>

The roles of banks in letter of credit are crucial for both buyers and sellers involved in international trade. From the buyer's perspective, banks provide a guarantee to the seller that payment will be made upon presentation of compliant documents. This gives sellers confidence in shipping goods to buyers located in different countries, as they know that their payment is secured by the bank. On the other hand, banks also protect buyers by ensuring that sellers fulfill their obligations before releasing payment. This creates a mutually beneficial arrangement where both parties can engage international trade with reduced risks.

Banks play a pivotal role in facilitating secure and efficient transactions by acting as intermediaries between the parties involved. They ensure that the terms and conditions of the letter of credit are met, providing a level of trust and assurance to both parties.

Banks participate in L/C transactions in the following roles:

<small> </small> <b>Issuing bank </b>

Issuing bank is the bank that issues a letter of credit at the request of an applicant or its own behalf (Bhogal & Trivedi, 2019a). It undertakes to honor a complying presentation of the beneficiary without recourse. Issuing bank is the ultimate payer of

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the letter of credit. Even if other banks do not pay to the beneficiary against a complying presentation, issuing bank must pay the letter of credit amount.

<small> </small> <b>Advising bank </b>

Advising bank is the bank that advises the credit to the exporter at the request of the issuing bank (Bhogal & Trivedi, 2019a). The advising bank is an agent bank of the issuing bank in the country of the exporter. The advising bank forwards the letter of credit to the beneficiary in accordance with the instructions of the issuing bank. If the advising bank forwards the letter without any undertaking on its part it must say clearly when advising the letter of credit to the beneficiary, that is, it (the advising bank) is under no obligation to make payment or incur any liability to make deferred payment and so on.

<small> </small> <b>Confirming bank </b>

Confirming bank is the bank that adds its confirmation to a credit upon the issuing bank's authorization or request (Bhogal & Trivedi, 2019a). A confirming bank is usually the advising bank. If the issuing bank requests the advising bank to add its confirmation to the credit the advising bank does so. If the advising bank does not wish to do so, it must advise the issuing bank immediately of its intention of not doing so. Once the advising bank adds it confirmation, it is known as a confirming bank. The confirmation is an independent undertaking between the confirming bank and the

of the beneficiaries that eliminates the country risks and the insolvency risks of the issuing bank.

<small> </small> <b>Nominated bank </b>

A nominated bank is the bank authorised by the issuing bank to pay, incur deferred payment liability, to accept bill of exchange and pay on maturity, or to negotiate the letter of credit (Bhogal & Trivedi, 2019a).

<small> </small> <b>Negotiating bank </b>

Negotiating bank is the bank that examines the documents to ensure compliance with the letter of credit's terms and conditions (Bhogal & Trivedi, 2019a). If everything is

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<small> </small> <b>Transferring bank </b>

Transferring bank is the bank that transfers the credit or, in a credit available with any bank, a bank that is specifically authorized by the issuing bank to transfer and that transfers the credit. An issuing bank may be a transferring bank.

<b>2.3. Overview of Services 2.3.1. Services definitions </b>

Service has been defined by many researchers. Gronroos (1990) defined the service concept as ―a process consisting of a series of more or less intangible activities that normally, but not necessarily always, take place in interactions between the customer and service employees and/or physical resources or goods and/or systems of the service provider, which are provided as solutions to customer problems‖.

According to Lovelock and Wirtz (2011), services are economic activities offered by one party to another. Often time-based, performances bring about desired results to recipients, objects, or other assets for which purchasers have responsibility‖.

Services can also be considered as a theatre (Grove and Fisk, 2000), where the service scape is the environment in which the services are produced and delivered, the ―actors‖ are the people who produce and deliver the services, and the ―audiences‖ are customers who consume the service (Bitner,1992).

Kotler and Conner (1977) defined service as ―any activity or benefit that one party can offer to another that is essentially intangible and does not result in the ownership of anything‖. Its production may or may not be tied to a physical product.

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A different concept of service was suggested by Vargo and Lusch (2004), they viewed service as ―the application of specialized competences (knowledge and skill) through deeds, processes, and performance for the benefit of another entity or the entity itself‖. They claimed that this definition is more inclusive and it captures the fundamental function of all business enterprises.

<b>2.3.2. Roles of services </b>

<small> </small> Services dominate the economy in most nations

The size of the service sector is increasing in virtually all countries around the world (Lovelock & Wirtz, 2011). As a national economy develops, the relative share of employment between agriculture, industry (including manufacturing and mining), and services changes dramatically.

Even in emerging economies, the service output is growing rapidly and often represents at least half of the gross domestic product. In developed economies, knowledge-based services, which were defined as those that are intensive users of high technology and/or have relatively skilled workforces, have been proving the most dynamic component (Lovelock & Wirtz, 2011).

<small> </small> Most new jobs are generated by service

Employment is predicted to continue shrinking in manufacturing, mining, and agriculture. People will look to service industries for new job creation. And many new service jobs likely will demand significant training and educational qualifications, thus employees often are highly compensated. Some of the fastest growth is expected in knowledge-based industries, such as professional and business services, education, and health services. (Lovelock & Wirtz, 2011).

<b>2.3.3. Characteristics of services </b>

The service has seven outstanding features as follows:

Firstly, services are intangible (McColl‐Kennedy & Russell‐Bennett, 2003a). Services are often difficult to visualize the experience in advance of purchase and to understand what they will be getting. This situation can make service purchases seem risky. When customers can’t taste, smell, touch, see, or hear physical elements, it may be more

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Additionally, services are inseparable (McColl‐Kennedy & Russell‐Bennett, 2003a). Services are created and consumed simultaneously. The service is being produced at the same time that the client is receiving it. Personal services cannot be separated from the individual.

Furthermore, services are inconsistent (McColl‐Kennedy & Russell‐Bennett, 2003a). While manufactured goods which can be produced under controlled conditions, and checked for conformance with quality standards long before they reach the customer, service quality never stays the same. Service outputs depend on who provides them and when, where, how.

Besides, services cannot be owned because they lack the tangible aspects and transferability that define ownership (McColl‐Kennedy & Russell‐Bennett, 2003a). Consumers pay for the benefit or experience the service provides, not ownership of the service itself.

Moreover, services have role of customer in the production and delivery (McColl‐Kennedy & Russell‐Bennett, 2003a). It means that other customers can directly affect the way services are perceived by the customers.

Finally, services are difficult to evaluate even after consuming because they are intangible as mentioned before (McColl‐Kennedy & Russell‐Bennett, 2003a).

<b>2.4. Overview of service quality 2.4.1. Service quality definition </b>

According to Kotler and Armstrong (1994), the term 'service quality' is the ability of a service firm to hang on to its customers. That is, in their opinion customer retention is the best measure of service quality.

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Researchers also describe service quality as an elusive and abstract concept, similar in nature to an attitude, as it represents a general appraisal of a product or service (Bitner & Hubbert, 1993).

In addition, service quality also defined as a consumer’s judgement or perception of an entity’s overall excellent or superiority, often as a result of comparing expectations with perception (P. Parasuraman et al., 1985).

The definition of expectation and perception is briefly summarized as below:

 Expectations are viewed as desires or wants of consumers, what they feel a service provider should offer rather than would offer (P. Parasuraman et al., 1985).

 Perception is the overall impression gained by the consumer after the service encounter (P. Parasuraman et al., 1985).

<b>2.4.2. Models of service quality </b>

Several models of service quality have been developed to find out what makes up service quality and how service quality work.

 <b>The disconfirmation of expectation models </b>

The disconfirmation of expectation model of Oliver (1977) serves as the foundation for many later models of service quality. Disconfirmation model focuses on three outcomes from experiencing a service: dissatisfaction (the perceived performance did not meet expectation); satisfaction (the perceived performance met the expectation); enhanced satisfaction (the perceived performance exceed the expectation). Within this model, expectations form a baseline for consumers’ satisfaction levels. The higher the expectation in relation to actual performance, the greater the degree of disconfirmation and the lower the level of satisfaction are achieved. Conversely, the lower the expectation in comparison to actual performance, the smaller the degree of disconfirmation and the higher the level of satisfaction are achieved (McColl‐Kennedy & Russell‐Bennett, 2003b).

There are three possible outcomes of this model: Consumers are dissatisfied (the purchase did not meet expectations); Consumers are satisfied (the purchase met the expectation); Consumers are delighted by the service (the purchase exceeded the expectation).

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