LV thạc sỹ_Solutions to enhance the oversight of payment and settlement systems of state bank of vietnam

SOLVAY-BRUSSELS
SCHOOL
OF
ECONOMICS AND MANAGEMENT

NATIONAL ECONOMICS UNIVERSITY

Vietnam –Belgium Master Programmes
MASTERS IN PUBLIC MANAGEMENT AND ECONOMICS

FINAL PROJECT
SOLUTIONS TO ENHANCE THE OVERSIGHT OF PAYMENT AND
SETTLEMENT SYSTEMS OF STATE BANK OF VIETNAM

…

Hanoi

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ACKNOWLEDGEMENT
I would especially express my sincere thanks to Dr. ….
Last but not least, I would like to acknowledge ULB-NEU administration and
library staff who has helped in some ways to complete this Final Project.

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EXECUTIVE SUMMARY
The oversight of payment and settlement systems get much concerns from

governments, central banks and international organizations because payment and
settlement systems are a major part of a country’s economic and financial
infrastructure. They contribute towards promoting economic activity and
improving macroeconomic management, including the release of funds from the
clearing and settlement functions for more productive use, the reduction of float
levels, the lowering of transactions costs, and the control of monetary aggregates.
Central banks have always had a close interest in safe and efficient functioning of
payment and settlement systems because of its direct link to their basic functions –
safeguarding trust in the national currency and maintaining financial stability. That
is to say ensuring the reliability and efficiency of payment and settlement systems
and minimizing systemic risk is the main objective of oversight function.
In Vietnam, the oversight of payment and settlement systems has just got intention
recently because the payment and settlement systems do not much develop so the
systemic risks related to the operations of payment systems do not get a lot
concerns.
The Final Project is done aiming at giving “solutions to enhance the oversight of
payment and settlement systems of State Bank of Vietnam”. In answering
research questions (i) Why does SBV have to oversight payment and settlement
systems?; (ii) What is real situation of carrying out the monitor and oversight
function of SBV? and (iii) How to enhance the oversight of payment and
settlement systems of SBV?, the study will present a picture of SBV’s oversight.
The picture is uniformly matched with a part of types of non-cash payment and
settlement systems as well as the limitations and risks related to these systems. In
addition, another part of this picture is shown by limitations of the current
situation of SBV’s oversight of these systems. Other part of the picture is the
analysis of chances and challenges of SBV in carrying out oversight function.
Basing on the findings, the suggestions are made to enhance the SBV’s oversight
of payment and settlement systems. The general suggestions have covered many
fields from (i) Finalizing institutional mechanism for SBV’s oversight function; (ii)
Enhancing the SBV’s oversight of payment and settlement systems; (iii) Finalizing

payment and settlement in the economy; (iv) Enhancing SBV’s role in organizing
and operating interbank payment system; (v) Improving competence and skills for
staffs taking in charge of carrying out oversight and supervision of payment and
settlement systems and (vi) Maintaining and improving the cooperation among

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relevant authorities. A part from the general suggestions, the study also
recommends an oversight framework for SBV in current circumstance.

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TABLE OF CONTENTS
ACKNOWLEDGEMENT....................................................................................1
EXECUTIVE SUMMARY...................................................................................2
LISTS OF ABBREVIATIONS..............................................................................6
LISTS OF FIGURES............................................................................................7
LISTS OF ANNEXES...........................................................................................7
INTRODUCTION................................................................................................8
CHAPTER I: GENERAL OVERVIEW OF THE OVERSIGHT OF
PAYMENT AND SETTLEMENT SYSTEMS.................................................11
I.1. The importance of payment and settlement systems in the economy........11
I.2. Roles of the central banks in overseeing payment and settlement systems
........................................................................................................................ 12
I.3. General principles for effective oversight of payment and settlement
systems developed by Bank of International Settlement (BIS).......................14
CHAPTER II: PAYMENT AND SETTLEMENT SYSTEMS IN VIETNAM
AND REAL SITUATION OF CARRYING OUT OVERSIGHT FUNCTION

OF STATE BANK OF VIETNAM...................................................................16
II.1. Types of payment and settlement systems in Vietnam and the limitations
and risks related to these systems....................................................................16
II.1.1. Payment and settlement systems held by SBV.................................17
II.1.2. Commercial Banks’ payment systems..............................................22
II.1.3. Payment and settlement systems managed by other State
Management Agencies................................................................................25
II.2. Oversight of payment and settlement systems of SBV............................27
II.2.1. Legal framework for the oversight of payment and settlement
systems of SBV..........................................................................................27
II.2.2. Current situation of oversight of payment and settlement systems of
SBV............................................................................................................27
II.2.3. General comments on the current situation of oversight of payment
and settlement systems of SBV...................................................................32

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CHAPTER III: SOLUTIONS TO ENHANCE THE OVERSIGHT OF
PAYMEMENT AND SETTLEMENT SYSTEMS OF STATE BANK OF
VIETNAM.........................................................................................................35
III.1. Chances and challenges for the oversight function of SBV in the future
........................................................................................................................ 35
III.1.1. Chances...........................................................................................35
III.1.2. Challenges......................................................................................35
III.2. Solutions to enhance the oversight of payment and settlement systems of
State Bank of Vietnam....................................................................................36
III.2.1 Some general suggestions and recommendations............................36
III.2.2. Suggestions of oversight framework for SBV.................................39
ANNEX 1............................................................................................................ 46

ANNEX 2............................................................................................................ 48
ANNEX 3............................................................................................................ 53
REFERENCES....................................................................................................56

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LISTS OF ABBREVIATIONS
SBV:

State Bank of Vietnam

BIS:

Bank of International Settlement

WTO:

World Trade Organization

ATM:

Automated Teller Machine

FRBNY:

Federal Reserve Bank of New York

WB:

World Bank

PM:

Prime Minister

NPSC:

National Payment System Center

PPC:

Provincial Payment Center

HVTS:

High Value Sub-system

LVTS:Low Value Sub-system
KIPS:

Korean Inter-Bank Payment System

MoF:

Ministry of Finance

VSD:

Vietnam Securities Depository

SE:

Securities Exchange

STC:

Stock Trading Center

DVP:

Delivery versus Payment

SSC:

State Securities Commission

CPSIPS:

Core Principles for Systemically Important Payment
Systems

SIPS:

Systemically Important Payment System

Vietcombank: Bank for Foreign Trade of Vietnam
BIDV:

Bank for Investment and Development of Vietnam

Agribank:

Bank for Agriculture and Rural Development

Eximbank:

Vietnam Export Import Bank

Incombank (Vietinbank): Vietnam Joint Stock Commercial Bank for
Industry and Trade

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LISTS OF FIGURES AND TABLE
Figure 1

Non-cash payment and settlement systems in Vietnam

Figure 2

The outline of the electronic interbank payment system
provided by Hyundai Information Technology

Figure 3

The processing model of the electronic interbank payment
system

Figure 4

The model of the electronic money transfer system

Figure 5

Model of the paper-based clearing system

Figure 6

Model of electronic clearing system

Figure 7

A model of Core Banking

Table 1

Suggested oversight framework for SBV
LISTS OF ANNEXES

Annex 1

Core principles for systemically important payment systems
and central bank responsibilities

Annex 2

The norms of payment activities (4B, 4C, 4D) of Circular
number 21/2010/QD-NHNN dated October 8th 2010 by

Governor on the regulations of report and statistic mode
applying for SBV agencies and commercial banks

Annex 3

CPSS-IOSCO Task Force Recommendations for Securities
Settlement Systems

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INTRODUCTION
1. Rationale of the study
Payment and settlement systems are very important elements of financial
infrastructure of a country. Disruptions or inefficient implementation of these
systems may badly affect to the stability of financial system and the economy as a
whole. Besides, safe and efficient functioning of payment and settlement systems
can help central bank in implementing effectively monetary policies, maintaining
financial system and safeguarding public confidence in national currency. That
leads to the fact that the oversight of payment and settlement systems as well as
principles and standards for effective oversight gets much attention and priority
from the government and central banks.
After 20 years of carrying out the economic renovation process, Vietnam financial
system has gained significant changes in broad scale. It also has gradually finalized
the structure and infrastructure. Within this development trend, payment and
settlement systems have been broadened. Technological infrastructure has been
upgraded and completed. Nowadays, most of payment and settlement systems have
been computerized. New payment instruments and services have been adopted and
applied especially electronic ones that make payment transactions quicker and
more convenient. However, payment and settlement systems in Vietnam have been

initially developed and each system exposes certain limitations and risks. For
example, internal payment systems of commercial banks and card-based payment
systems face up with traditional, hi-tech and foreigner-related crimes and frauds as
well as operational and reputation risks due to the unhomogeneity in payment
system infrastructure investment. The unhomogeneity causes difficulties in
connecting these systems. Besides, treasury payment system and securities
settlement system haven’t been connected with interbank payment system of SBV
that block the development of payment instruments and expose the systemic risks.
A part from that, the interdependency of payment systems in the economy is a
certain tendency because payment and settlement systems in supporting financial
markets and payment flows in the economy are increasingly connected through a
wide array of complex inter-relationships. Through these relationships, the smooth
functioning of a single system often becomes contingent on the performance of
other systems or being potential source of systemic risk. Being the central bank of
Vietnam, SBV has a close interest in safe and efficient functioning of payment and
settlement systems because of their direct link to its basic functions – safeguarding
trust in the national currency and maintaining financial stability. If SBV has no
effective risk management mechanism as well as a suitable oversight framework to

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localize risks of a single payment system, the risks can be transmitted to other
payment and settlement systems. Consequently, systemic risks are easily occurred,
threatening the stability of financial system and the economy. From these
mentioned reasons, I choose the study named “Solutions to enhance the oversight
of payment systems of State Bank of Vietnam” aiming at reviewing and
evaluating real situation of carrying out the monitoring and oversight function of
SBV. Basing on the analysis results some recommendations to enhance the
effective oversight of payment systems of SBV will be pointed out. It is also

hopeful that this study results will be suggestions for the policymakers of SBV in
building up the master plan for the development of Vietnam banking system to the
year 2020.
2. Research objectives
By reviewing and evaluating real situation of carrying out the monitoring and
oversight function of SBV, the study will find out some gaps in the
implementation of this function. Some suggestions to enhance the oversight of
payment and settlement systems of SBV will be pointed out basing on the analysis
results. The study will answer the following research questions
-

Why does SBV have to oversight payment and settlement systems?

-

What is real situation of carrying out the monitor and oversight function
of SBV?

-

How to enhance the oversight of payment and settlement systems of SBV?

3. Research methodology
Firstly, it is necessary to say that this study is an in-desk one. This study research
objective is giving some suggestions to enhance the oversight of payment and
settlement systems of SBV so the theories on the oversight of payment and
settlement systems and general principles for effective oversight developed by
Bank of International Settlement (BIS) – a world leading in payment field will be
used as the theoretical background.
Due to the fact that there is any statistic report on the fraud types related to the

payment and settlement systems which is officially published or announced, I
made a list of cases that media mentioned recently. Besides, many interviews are
carried out in order to find out popular risks in payment and settlements and
collect ideas on the oversight function of SBV. The participants are mainly from
SBV departments and banks. The result of interviews is useful source for the
suggestions and recommendations.

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In addition, the statistical, synthetic, comparative, analysis, annotating and
forecasting methods are used to answer the research questions.
4. Research scope
Due to the fact that there is no statistic report on the frauds related to the payment
and settlement systems which is officially published or announced, this study
mainly quotes some types and cases that medias mentioned recently.
The study is also limited in reviewing and evaluating real situation of carrying out
the monitor and oversight function of SBV from 2002 after the enforcement of the
Decree No 64/2001/NĐ-CP dated Sept 20th 2001 on the payment activities by
payment service providers up to now.
In addition to giving general suggestions and recommendation, the study will work
out an oversight framework for SBV.
A part from the Introduction and Conclusion, the study is divided into 3 chapters
Chapter 1: General overview of the oversight of payment and settlement systems.
This chapter works out a summary on oversight issues which pave the way for
giving suggestions and recommendations in chapter 3.
Chapter 2: Payment and settlement systems in Vietnam and real situation of
carrying out oversight function of SBV. Issues such as types of non-cash payment
and settlement systems in Vietnam as well as the limitations and risks related to
these systems are dealt with in this chapter. Besides, current situation of SBV’s

oversight activities are mentioned also. Limitations of current situation of SBV’s
oversight of these systems are source for suggestions and recommendations to
enhance the oversight of SBV.
Chapter 3: Solutions to enhance the oversight of payment systems of State Bank
of Vietnam. In this chapter, recommendations and suggestions to enhance the
oversight of payment and settlement systems of SBV will be given.
Recommendations and suggestions are based on limitations of current situation of
SBV’s oversight of these systems as well as analysis of chances and challenges for
the oversight function of SBV in the future.

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CHAPTER I
GENERAL OVERVIEW OF THE OVERSIGHT OF PAYMENT AND
SETTLEMENT SYSTEMS
This chapter serves as a theoretical framework for giving suggestions and
recommendations in case of SVB. Main issues related to the oversight function of
central bank are mentioned such as (i) the importance of payment and settlement
systems in the economy; (ii) the role of central bank in overseeing payment an
settlement systems and (iii) general principles for effective oversight. The general
principles for effective oversight will be a very important base for giving
suggestions of an oversight framework for SBV.
I.1. The importance of payment and settlement systems in the economy
In an economy, people and organizations use various payment instruments (cash,
cheque, credit cards, e-money or a claim on a financial institution such as a bank,
credit union, etc.) to purchase goods and services, to make investments and to
transfer funds from person to another. These payment transactions are executed
through payment and settlement systems which can be classified into popular
types: large value transfer system, automated clearing settlement system small

value transfer system and securities clearing and settlement system in the way that
they enable timely and continuously execution of financial liabilities arising from
business operations of economic agents. In a broad sense, the term payment
system refers to a set of money transfer systems used for circulation of funds.
Although, payment system and settlement system have a bit difference in nature,
in this study, the definition of payment system given by BIS is used for both. BIS
defines that a payment system consists of a set of instruments, banking procedures
and, typically, interbank funds transfer systems that ensure the circulation of
money.
In the past, payment activities, in general, did not get much attention from the
central bank and the government. Payment and settlement systems have been
basically recognized as mechanisms or technical activities. However, in the past
two decades, due to (i) the robust rise in number and value of processed payment
transactions via payment and settlement systems which reflects the significant
increase in financial market activities over the world and payment amounts
formed from these activities; (ii) developments in technological infrastructure of
payment and settlement systems which enable faster, larger and safer transactions
and (iii) the increase in number of payment service providers, payment and
settlement systems have gained in importance. Their impact on the banking sector
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and the real economy is greater than ever before. That is to say, the roles of
payment and settlement systems are highly appreciated in most of economies.
Here after three main roles of payment and settlement systems are mentioned:
- Payment and settlement systems in relation with financial stability: unsmooth
operation of payment and settlement systems can have “domino effect” on
financial markets that they serve.
- Payment and settlement systems in relation with implementing central banks’
roles: the smooth functioning of payment and settlement systems is also critical to

certain public policy objectives in the areas of monetary policy and banking
supervision. The effective implementation of monetary policy, for example,
depends on both the orderly settlement of open market operations and the efficient
distribution of reserve balances throughout the banking system via the money
market and payment system. Likewise, supervisory objectives regarding the safety
and soundness of depository institutions must take into account the risks payment
and settlement systems pose to depository institutions that participate directly or
indirectly in, or provide settlement, custody, or credit services to such systems.
Besides, safe and efficient functioning of payment and settlement systems is
directly linked to the principal function of a central bank - safeguarding public
confidence in national currency.
- Payment and settlement systems in relation with effectiveness of the economy:
safe and efficient payment and settlement systems ensure the cash flows circulated
timely, quickly and continuously so the efficiency and effectiveness in using these
flows in the economy are greatly increased. Consequently, the effectiveness of the
economy is enhanced as a whole.
As the key financial infrastructure, payment and settlement systems must be
regulated and overseen to ensure the safety and efficiency of these systems for the
sake of financial sector and the economy. Generally, the oversight of payment and
settlement systems is one of the main tasks of central banks.
I.2. Roles of the central banks in overseeing payment and settlement systems
Central banks play multi-roles in payment and settlement systems such as
settlement institutions; operators and participants; regulators; catalysts for
development and reform; and oversight authorities. In this part, the oversight role
of central banks will be clearly defined.
There is any solely correct definition of the oversight of payment and settlement
systems. The definition by BIS is general and popularly used. According to BIS,

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oversight of payment and settlement systems is a central bank function whereby
the objectives of safety and efficiency are promoted by monitoring existing and
planned systems, assessing them against these objectives and, where necessary,
including change.
Central banks have always had a close interest in safe and efficient functioning of
payment and settlement systems because of its direct link to their basic functions –
safeguarding trust in the national currency and maintaining financial stability. For
that, the oversight is aimed at systems as a whole rather than at any single
participants.
Generally, the objectives of central bank oversight are to promote the smooth
functioning of payment and settlement systems and to protect the financial system
from possible “domino effects”. In other words, oversight of payment and
settlement systems is to ensure the uniform of finance and technology of these
systems, enhance their anti-market shock ability and minimize systemic risks by
developing, regulating and implementing oversight rules and standards. In details,
oversight of payment and settlement systems is to ensure that infrastructure
elements and financial service provision markets:
- operate smoothly, efficiently and equally to all participants and users.
- minimize and control risks which transmit shocks to the economy due to
disruptions of payment and settlement systems when payment obligations of one
participant cannot be fulfilled.
- promote the developments of technology and legal framework to meet the
needs of payment and settlement in the open economy.
The scope of oversight policy is closely related to the objectives to be achieved.
Each central bank has set out different criteria for determining its policy scope
which are suitable for its own circumstance. However, the scope of central banks
in oversight usually consists of
- Payment systems: the scope of oversight usually comprises large value
systems that are systemically important for the stability of the financial market but

also some small value systems if considered of systemic importance which are
usually retail payment systems.
- Securities settlement systems: these systems are important for the infrastructure
of the financial system. Central banks need put close eyes on their safe and
efficient functioning because they provide services indispensable for the monetary
policy implementation. Weaknesses or disruptions in securities settlement systems

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can be a source of systemic chaos not only for securities markets but other
financial markets and payment systems also.
- Payment instruments: oversight of payment instruments can be carried out
either independently or jointly into oversight of payment and settlement systems.
Typically, in the oversight of payment instruments, central banks set some safety
and efficient standards issuers of the instruments must meet.
- Third-party service providers: payment system operators sometimes outsource
a part of their operations to a third party (here called a service provider). In this
case, the oversight is carried out in a way that the system operators must bear full
responsibility for any outsourced activities and ensure that the service provider’s
compliance with central bank policy.
In fulfilling the oversight function, the central banks usually carry out the
following activities:
- Monitoring and analyzing statistical data, information, reports and other
documents relating to the functioning of payment and settlement systems and use
of payment instruments available. This activity helps in improving the
understanding of the functioning of payment and settlement systems as well as
their impact on the overall financial stability.
- Assessing the compliance of relevant policy requirements and standards
defined. This is a periodic activity conducted to evaluate the compliance degree of

payment and settlement systems with the standards and principles of smooth
functioning.
- Inducing change is based on the results of monitoring and compliance
assessment. This activity may be recommendations to the payment and settlement
operator about changes necessary to ensure safe and efficient functioning of the
system or amendment and supplementation of legal framework for payment
transactions as well as issuance of guidelines and recommendations to ensure the
achievement of basic oversight objectives.
I.3. General principles for effective oversight of payment and settlement
systems developed by Bank of International Settlement (BIS)
Being a leading organization in dealing with payment and settlement issues, the
publications of BIS on the central bank’s oversight of payment and settlement
systems are guidelines for central banks throughout the world in carrying out their
oversight function. Due to the limitation in the study scope, only five general
principles for effective oversight are introduced as the base for giving suggestions
in the case of SBV.
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- Transparency: Central banks should set out publicly their oversight policies,
including the policy requirements or standards for systems and criteria for
determining which systems these apply to.
- International standards: Central banks should adopt, where relevant,
internationally recognized standards for payment and settlement systems.
- Effective powers and capacity: Central banks should have the powers and
capacity to carry out their oversight responsibilities effectively.
- Consistency: Oversight standards should be applied consistently to
comparable payment and settlement systems, including systems operated by the
central bank.
- Cooperation with other authorities: Central banks, in promoting the safety

and efficiency of payment and settlement systems, should cooperate with other
relevant central banks and authorities.

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CHAPTER II
PAYMENT AND SETTLEMENT SYSTEMS IN VIETNAM AND REAL
SITUATION OF CARRYING OUT OVERSIGHT FUNCTION OF
STATE BANK OF VIETNAM
This chapter is a core part of this study with which types of payment and
settlement systems in Vietnam and the limitations and risks related to these
systems as well as real situation of carrying out oversight function of SBV are
explored. The findings will be useful source for giving suggestions and
recommendations in the next chapter.
II.1. Types of payment and settlement systems in Vietnam and the limitations
and risks related to these systems
Like many other countries, there exist two types of payment and settlement
systems in Vietnam: cash and non-cash payment systems. In this study, due to the
scope that limits in reviewing and evaluating real situation of carrying out the
monitor and oversight function of SBV from 2002 after the enforcement of the
Decree No 64/2001/NĐ-CP dated Sept 20th2001 on the payment activities by
payment service providers up to now only non-cash payment and settlement
systems are mentioned.
Non-cash payment and settlement payment systems can be well viewed in the
figure 1 in the form of a Pyramid. Payment systems held by SBV lie in the top of
the pyramid (level 1). In the level 2, there are commercial bank payment systems.
Other payment and settlement systems managed by other State Management
Agencies are at the bottom of the pyramid.

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Figure 1: Non-cash payment and settlement systems in Vietnam
II.1.1. Payment and settlement systems held by SBV
At the moment, SBV organizes and manages three payment systems. They are
electronic interbank payment system, electronic money transfer system and
clearing system.
- The electronic interbank payment system:
The electronic interbank payment system was installed in July 2002, to replace the
paper-based inter-bank payment system. This system plays the key role in payment
activities in Vietnam. This system is built in a subproject of the Modernization of
Vietnam Banking and Payment Systems Project funded by the World Bank (WB).
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The system is a modern payment system built on the basis of advanced technology
and international standards. This system consists of a National Payment System
Center (NPSC) situated at Banking Informatics Technology Department, a backup
center at Son Tay and six provincial payment centers (PPC) at state bank branches:
Hanoi, Hai Phong, Da Nang, Ho Chi Minh, Can Tho and Banking Operations
Center.
In 28th Feb, 2009, SBV organized an opening ceremony of the electronic interbank payment system – second phase which sets forth a new period for banking
payment system with significant changes in terms of technology, modern and
effective processing and procedures applied to international standards and
practices. This will satisfy the increasingly real and high volume payment and
settlement need of Vietnam. According to 2009 annual report of SBV, the system
has applied in 63 SBV’s branches and 3 SBV’s departments, 81 payment providers
and over 700 commercial banks’ branches all over Vietnam. This system has
processed about 40.000-44,000 transactions valued at 70,000 billion VND a day.

This system has had automatic interfaces that are ready to connect with Treasury
payment system, securities settlement system and other necessary ones. Figure 2
shows the outline of the electronic interbank payment system provided by Hyundai
Information Technology.

Figure 2: The outline of the electronic interbank payment system provided
by Hyundai Information Technology

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(Source: Le Van Xuan’s Presentation on Payment Conference in 2007)
As illustrated in the diagram above, the inter-bank electronic payment system is
composed of two sub-systems: High Value Sub-system (HVTS) 1, for large-amount
remittances on a gross basis, and Low Value Sub-system (LVTS) 2 for smallamount remittances on a net basis. This system is based on the Korean Inter-Bank
Payment System (KIPS), and was developed by Hyundai Information Technology.
The system processing model can be easily imagined in figure 3.

Figure 3: The processing model of the electronic interbank payment system
(Source: Bui Quang Tien’s Presentation on Payment Conference in 2007)
The electronic interbank payment system is considered the core payment system of
the banking system in particular and of the whole economy in general. According
to standards recommended by BIS, this system is a systemically important
payment system and needs to meet ten core principles for payment system of this
kind (see annex 1). However, up to now, SBV does not officially recognize and
apply these principles as standards to assess the safety and reliability of the
system.
- The electronic money transfer system:
Electronic money transfer system came into effect since August 1999. This has
been used by all 67 branches of SBV. At that moment, the transaction time for a

sum of money between two banks was not over 2 minutes. The money transfer
activity ran stably. Due to some improvement in operational procedures since July
2000, the money transfer increased in terms of both transaction volume and value.
1
2

According to SBV, remittances of 500 million dong (US$33,000) or more are handled by HVTS.
LVTS is for remittances of less than 500 million dong

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The average transaction quantity in last 6 months of 2000 reached 793 transactions
per day (increase 32% in comparison to first 6 months of 2000). The average
volume of year 2000 was nearly 1,700 billion VND (Source: www.sbv.gov.vn).
Since then, the electronic money transfer system has well met the need of payment
in provinces and cities with low cost and high effectiveness. In 2009, the average
transaction volume reached over 18,000 transactions valued at 8,500 billion VND
a day (Source: SBV’s annual report 2009 – www.sbv.gov.vn). However, there are
some obstacles to be solved to ensure the safety and efficiency of this system.
They are (i) The system’s operations depend much on the telecommunications
network; (ii) Lack of qualified staffs in payment field; (iii) Some participants do
not strictly follow technical procedures and processes that bring about bad effects
to the system operations and (iv) The system’s infrastructure is only unpretentious
so it needs to be upgraded and broadened to meet the requirements of money
transfer in the future.
The model of the electronic money transfer system is shown in figure 4.

Figure 4: The model of the electronic money transfer system
(Source: Bui Quang Tien’s Presentation on Payment Conference in 2007)

- The clearing system:
SBV’s clearing system was built and carried out since 1991. Since July 2002, in
parallel with paper-based clearing system, an electronic clearing system has been
implemented in some SVB’s branches. Figure 5 and 6 show the model of paperbased and electronic clearing systems.

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Figure 5: Model of the paper-based clearing system
(Source: Bui Quang Tien’s Presentation on Payment Conference in 2007)

Figure 6: Model of electronic clearing system
(Source: Bui Quang Tien’s Presentation on Payment Conference in 2007)
In general, the clearing systems has made contribution in enhancing payment
speed at cities and provinces in Vietnam which is better capital savings in payment
especially at locations applying electronic clearing system. However, this system
also shows some weaknesses such as (i) Paper-based clearing becomes backward
which is time cost and must strictly follow time defined; (ii) incompliance with
operational regulations and procedures of some participants which influence the
whole system’s operations; (iii) when errors of program and transmitted line
happen, staffs in charging of payment activities cannot handle problems by
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themselves and need the interference of programmer. That leads to slow response
in settling the incidences.
II.1.2. Commercial Banks’ payment systems
There are three main payment systems provided by commercial banks in Vietnam.
They are: Internal payment systems and card-based payment systems.
- The internal payment systems of commercial banks

Payment channel by internal payment systems of commercial banks plays a
relative role in payment activities of Vietnam economy. In 2001, only 6
commercial banks: Vietcombank, BIDV, Incombank, Agribank, Maritimebank,
Eximbank which accounted for 80% of payment volume of the whole commercial
bank system in Vietnam participated in the Modernization of Vietnam Banking
and Payment Systems Project funded by the World Bank (WB) which helped in
modernizing their internal payment systems. Since then, most of commercial
banks in Vietnam have paid much attention to upgrade and develop their internal
payment systems aiming at enhancing capital circulation speed within the systems,
increasing competitive capacity in banking market and best satisfying payment
needs of their customers.
Internal payment systems have been designed and operated on the basis of modern
technology (CORE BANKING – see figure 7), international standards and suitable
with development of economy and payment tendency.

Figure 7: A model of Core Banking
(Source: MK company’s Presentation on Banking fair 2010)

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Payment by commercial bank internal systems accounts for large proportion in
terms of volume and value and increase yearly. For example, in 2001, transactions
by commercial bank payment systems accounted for 67.78% and 61.35% in terms
of volume and value in comparison to the whole payment transactions of the
economy. This portion reached 77.83% and 69.26% in 2004. Up to now, the
average speed is about 3.35% and 2.64% (Source: www.sbv.gov.vn).
However, because of capital capacity, the investment in developing Core Banking
is different from bank to bank. For some banks, Core Banking is applied all over
the whole system but for many banks it is developed in the head-quarter and main

branches. This creates security holes that set forth for frauds and crimes. Two
popular types of frauds and crimes related to internal payment systems of
commercial banks are the traditional, the hi-tech ones. Main criminal practices in
internal payment systems are young bank staffs with high banking profession and
informatics skill stealing controller code to approve electronic document; forging
controller’s signature; deducting other liquidators to do some adjustment entries in
accounting book to withdraw money; etc. Cases for this kind of crime are various.
For example, Nguyen Hoang Tuan, a bank clerk at Bach Khoa branch of Agribank
benefited by his working post taking his user identification to steal supervisor’s
password and approve final settlement on customers saving accounts, transfer
money to his personal accounts at other banks to illegally withdraw 4,085,000,000
VND3.
From the main types of frauds and crimes in internal payment systems, I have had
many interviews with officers from SBV departments and banks to find out
popular risks in these systems. They have all admitted that most of internal
payment systems of commercial banks face up with operational risks which come
from the potential loss ability due to the incompletion and unreliability of the
systems. These systems can be hacked from both outside and inside. Operational
risks can also happen because customers make mistake in their fund transfer or
computer/electronic systems of payment providers are not designed, installed or
maintained in a right way. The effects of these risks badly affect to the operations
of these systems. That is to say risks related to Privacy and Security as well as
design, installation and maintenance of computer/electronic systems are two main
types of operational risks of commercial banks’ internal payment systems.
+ Privacy and security risks relate to the access control to risk management
system and accounting system of banks, information that banks exchange with
other partners. If the access control is not well managed, the frauds and crimes
from staffs of banks and hi-tech ones can happen easily.
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+ Risks due to bad design, installation and maintenance of computer/electronic
systems: commercial banks’ payment systems may face up with risks when the
selected computer/electronic systems are not perfectly designed or installed. For
example, banks can encounter risks with internal payment systems if the
computer systems are broken down or disconnected because these systems do not
fit the needs of users.
- Dual payment systems
Dual payment systems are set up to meet the payment needs of customers of the
two banks or banks. These systems are based on the internal payment systems of
banks which have interfaces to exchange electronic payment order between two
banks. Incombank (Vietinbank now) is the first bank that develops dual payment
systems. Nowadays, most of banks in Vietnam set up dual payment systems with
other banks. However, as said above, the Core Banking is applied differently
among banks that creates incompatibility between systems and decrease the
effectiveness of dual payment systems and processing speed of payment
transactions.
- Card-based payment systems
Thanks to the Decision 291/2006/QD-TTg dated December 29 th 2006 by Prime
Minister (PM) approving the non-cash payment proposal, the card-based payment
activities and systems have boomed. According to SBV annual reports, at the end
of 2009, there was 46 card issuance organizations with over 180 card names.
Cards in circulation reached 21.5 million (increase 54% in comparison to number
at the end of 2008), over plan set for 2010 (15 millions); ATM system had 9,700
machines (increase nearly 27% in comparison to number at the end of 2008);
POS/EDC reached over 34,000 (increase 36%) (Source: www.sbv.gov.vn).
Most of card payment providers in Vietnam have developed and upgraded their

card payment systems as well as taken part in card associates to meet the
increasingly needs. However, due to the fact that the technical infrastructure of
card payment systems of providers is different from each other, the compatibility
of these systems is not good enough. This is one of the reasons to explain for the
frauds and crimes in card payment in recent years. The crimes for card payments
are mainly hi-tech and foreigner-related ones. The general practice is card frauds
by stealing BIN code to break into customers accounts and transfer money into
personal accounts; stealing personal information in the account to print false
cards; breaking into payment systems to create transfer orders to appropriate
money or using cards accepted to be paid in Vietnam such as Visa, Mastercard,
American Express, Dinner Club, JCB, etc which is stolen and has not announced
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