Rủi ro trong hoạt động kinh doanh thẻ tín dụng tại ngân hàng tmcp đầu tư và phát triển việt nam bidv

ĐẠI HỌC QUỐC GIA HÀ NỘI
KHOA QUẢN TRỊ VÀ KINH DOANH
---------------------

PHẠM NAM SƠN

RISKS IN CREDIT CARD BUSINESS ACTIVITIES
AT BANK FOR INVESTMENT AND DEVELOPMENT
OF VIETNAM JSC-BIDV
RỦI RO TRONG HOẠT ĐỘNG KINH DOANH THẺ TÍN
DỤNG TẠI NGÂN HÀNG TMCP ĐẦU TƯ VÀ PHÁT TRIỂN
VIỆT NAM – BIDV

LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

HÀ NỘI - 2021


ĐẠI HỌC QUỐC GIA HÀ NỘI
KHOA QUẢN TRỊ VÀ KINH DOANH
---------------------

PHẠM NAM SƠN

RISKS IN CREDIT CARD BUSINESS ACTIVITIES
AT BANK FOR INVESTMENT AND DEVELOPMENT
OF VIETNAM JSC-BIDV
RỦI RO TRONG HOẠT ĐỘNG KINH DOANH THẺ TÍN
DỤNG TẠI NGÂN HÀNG TMCP ĐẦU TƯ VÀ PHÁT TRIỂN
VIỆT NAM – BIDV

Chuyên ngành: Quản trị kinh doanh
Mã số: 8340101.01
LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

NGƯỜI HƯỚNG DẪN KHOA HỌC: PGS.TS PHẠM THỊ THANH HÒA

HÀ NỘI - 2021


DECLARATION

I hereby declare that the data and research results in this thesis are truthful
and have never been used. All the help in implementing this thesis has been
appriciated and the information cited in the thesis has been quoted.


ACKNOWLEDGEMENT

Through theoretical and practical research, the author has completed the
master thesis with the topic “RISKS IN CREDIT CARD BUSINESS
ACTIVITIES AT BANK FOR INVESTMENT AND DEVELOPMENT OF
VIETNAM JSC - BIDV”.
First of all, I would like to express my deep gratitude to Assoc., Prof., Ph.D
Pham Thi Thanh Hoa who scientifically help me to complete this thesis.
I would like to thank the teachers of the Ha Noi School Of Business &
Management (HSB) for their candid, profound comments and wholehearted help to
complete this thesis.
I would like to send my sincere thanks to the leaders and departments of the
Bank for Investment and Development of Vietnam JSC - BIDV for providing
information to analyze as well as comments for me to complete the thesis.

I would like to express my gratitude to my family, colleagues, and close
friends who have regularly encouraged and helped me in the most difficult times to
pass and complete my master training.
Thank you very much!


TABLE OF CONTENT

LIST OF TABLES, CHART, CHART, DRAWINGS ............................................... i
LIST OF FIGURE ...................................................................................................... ii
INTRODUCTION .......................................................................................................1
CHAPTER 1. THEORETICAL BASIS OF CARD AND RISKS IN CREDIT
CARD BUSINESS ACTIVITIES OF COMMERCIAL BANK ................................6
1.1. Theoretical basis of card ......................................................................................6
1.1.1. Card definition and development history ......................................................6
1.1.2. Card classification .........................................................................................7
1.1.3. Card usage and payment process ...................................................................9
1.1.4. The card business segments .........................................................................11
1.2. Risk in credit card business activities at commercial banks ..............................17
1.3. Card risk management at commercial banks .....................................................20
1.4. Factors affecting risks in credit card business activities at commercial banks ..23
1.4.1. The subjective factors ..................................................................................23
1.4.2. The objective factors....................................................................................26
CHAPTER 2. SITUATION OF RISK IN CREDIT CARD BUSINESS
ACTIVITIES AT BANK FOR INVESTMENT AND DEVELOPMENT OF
VIETNAM JSC- BIDV .............................................................................................28
2.1. An introduction of Bank for Investment and Development of Vietnam JSC - BIDV ...28
2.1.1. The process of formation and development ................................................28
2.1.2. Organizational structure...............................................................................29
2.1.3. Business performance ..................................................................................30

2.2. The current situation of credit card business at Bank for Investment and
Development of Vietnam JSC - BIDV .....................................................................34
2.2.1. Credit card development history at Bank for Investment and Development
of Vietnam .............................................................................................................34
2.2.2. Credit card products of Bank for Investment and Development of Vietnam .....35


2.3. Situation of risk in credit card business at Bank for Investment and
Development of Vietnam JSC - BIDV .....................................................................42
2.3.1. Risks in credit card business ........................................................................42
2.3.2. Situation of measures taken by the Bank for Investment and Development
of Vietnam JSC - BIDV to limit card business risks .............................................55
2.4. Assessing the current situation of risk management in credit card business
activities at the Bank for Investment and Development of Vietnam JSC - BIDV ...61
2.4.1. Achievement ................................................................................................61
2.4.2. Restrictions ..................................................................................................62
2.4.3. The cause of the restriction ..........................................................................63
CHAPTER 3. RISK LIMITATION SOLUTIONS IN CREDIT CARD BUSINESS
ACTIVITIES AT BANK FOR INVESTMENT AND DEVELOPMENT OF
VIETNAM JSC - BIDV ............................................................................................69
3.1. The development orientation of Bank for Investment and Development of Vietnam
JSC - BIDV ................................................................................................................69
3.1.1. General orientation ......................................................................................69
3.1.2. Development orientation of credit card services .........................................71
3.2. Some solutions to limit risks in credit card business activities at Bank for
Investment and Development of Vietnam JSC - BIDV ............................................72
3.2.1. Professionally ..............................................................................................72
3.2.2 Engineering and technology .........................................................................78
3.2.3. Management, personnel organization ..........................................................79
3.2.4. Some other solutions....................................................................................80

CONCLUSION AND RECOMMENDATIONS......................................................86
REFERENCES ..........................................................................................................90
APPENDIX ...............................................................................................................92


LIST OF TABLES, CHART, CHART, DRAWINGS

Table 2.1: Number of credit cards used at BIDV in 2017-2019 ...............................39
Table 2.2. Market share of BIDV’s card services compared to some banks from
2017-2019..................................................................................................................40
Table 2.3: Net income of credit cards of BIDV in 2017 - 2019 ...............................41
Table 2.4: Forging credit cards of BIDV issued in 2017 - 2019...............................44
Table 2.5. Outstanding credit card balance at BIDV in 2017 - 2019........................52
Table 2.6. Bad debt ratio of credit card at BIDV in 2017 - 2019 .............................53

i


LIST OF FIGURE

Figure 1.1: Card issuance, usage and payment process ............................................10
Figure 1.2: Card issuance process .............................................................................12
Figure 1.3: Card payment process .............................................................................13
Figure 2.1. Number of new credit cards issued by BIDV in 2017-2019 ..................38
Unit: Card .................................................................................................................39
Figure 2.2: Ratio of fraudulent payment / Total revenue from BIDV credit card
payment in 2017-2019...............................................................................................46
Figure 2.3. Reasons for losing credit card of customers at BIDV ............................48
Figure 2.4: The way customers deal with lost of card ..............................................49

ii


INTRODUCTION
1. The urgency of the topic
Along with the renovation of the economy, society and the context of
international economic integration, the payment system in Vietnam is gradually
developing and perfecting to meet the increasing demand for payment of goods and
services not only domestically but also internationally.
In a developed society, payment cards are one of the most commonly used
payment ways and Vietnam is not out of general trend. Mr. An Vogels, Director of
MasterCard in Indochina acknowledged that Vietnam has great potential to develop
the card market. Currently, the number of MasterCard acceptance points in Vietnam
is the highest in the region. MasterCard with affiliated banks will launch many
different types of cards, besides credit cards, including with domestic debit cards.
This excitement is explained by the huge profit generated from the card.
The Government has also approved the scheme to promote non-cash
payments in Vietnam. Both the Government and commercial banks are making
efforts to research and bring to customers features and card products, especially
credit cards, which are encouraged to use mainly for paying of goods without using
cash.
The development of the card market in Vietnam contributes positively to
changing the perception of the population about using banking services. According
to estimates of the Bank Card Association, about 40% the Vietnamese population of
working age has been using banking services so far. This is a breakthrough that card
services have brought to the operations of commercial banks, making an important
contribution to promoting non-cash payments according to the Government's
orientation.
Growth in the number of cards and the value of credit card transactions,
obviously bring profits to the bank, convenience for consumers, on the other hand it

also has many potential risks for all stakeholders. According to the research by
international card organizations, the rate of card fraud risk in Vietnam is often
1


higher than the average of the Asia-Pacific region and the world and this is
explained that the tight and strict regulation of credit card operations of some
countries such as Thailand, Malaysia, Singapore ... have led criminals to switch to
other markets, including Vietnam, where card services are in explosive
development.
Entering the card market in Vietnam from the beginning, BIDV has made
great efforts in the research and development of products and services as well as
always put credit card safety first. Revenue of BIDV credit card transactions has
always achieved high growth.
In addition to these achievements, BIDV also faces risks in the credit card
business process: attacked by international criminal organizations when turning to
the Vietnamese market. From 2002 up to now, the fraudulent situation in payment
and card usage at BIDV is increasing at an ominous speed causing damage to banks,
affecting the reputation and business efficiency. Therefore, it is imperative that bank
pay proper attention to risk management in their card business.
Therefore, the requirement for risk management in card operations,
especially credit cards, has become an urgent content set out for BIDV's Board of
Directors. However, in the recent period there is no research on this issue.
Therefore, the selection of the topic “Risks in credit card business activities at the
Bank for Investment and Development of Vietnam JSC – BIDV” is quite practical
and urgent.
2. Related researches
In fact, there are many types of risks involved in card business at Joint Stock
Commercial Bank, risk management in card operations in general and credit cards
in particular is extremely important job of banks. Over the years, there have been

many authors interested in researching with different research fields and aspects on
this content. Below are some researches that have been studied on risks in card
business activities at joint stock commercial banks:
Nguyen Le Nguyen Huong (2017), “Completing the card service
2


management at Vietnam Joint Stock Commercial Bank for Industry and Trade, Hue
Branch”, Master thesis of economic science, Hue College of Economics – Hue
University.
The thesis has raised the urgency of the card service management at Vietnam
Joint Stock Commercial Bank for Industry and Trade - Hue Branch, systematized
the theoretical basis of the card payment service of commercial banks, thereby
giving explanations of card services development was a trend of commercial banks
in the current era; analyzed and clarified the current situation of the management of
card service activities at Vietnam Joint Stock Commercial Bank for Industry and
Trade - Hue branch during the period from 2014 to 2016. From assessing the
current situation, point of view and objectives, the thesis proposed a number of
solutions to complete the card service management in terms of both size and quality
at Hue Branch.
Pham Thu Huong (2016), “Risks in credit card business activities at Joint
Stock Commercial Bank for Investment and Development of Vietnam”, Master thesis
in banking and finance, VNU University of Economics and Business.
Thesis systematized the theoretical basis of cards and related risks at
commercial banks; analyzed and assessed the current situation of risk and managed
credit card risks at the Joint Stock Commercial Bank for Investment and
Development of Vietnam, on that basis, proposed 5 solutions about: Operation;
Technique and technology; Management, Organization of personnel activities;
Communication and guidance for customers to use cards safely; Combination of
business goals and safety of the BIDV card system helps to effectively manage risks

for card operations of the Joint Stock Commercial Bank for Investment and
Development of Vietnam.
Tran Thi Kim Loan, Ngo Thi Anh (2019), “The solution to limit risks in card
business at BIDV, Tra Vinh province”, Review of Finance issue 2-12.
By collecting secondary data from reports on card operations at the State
Bank of Tra Vinh Branch and BIDV Tra Vinh Branch about risks arising in card
3


business at BIDV Tra Vinh in the period of 2016- 2018, through descriptive
statistical methods, analysis, comparison, evaluation and survey of 20 experts in the
field of card operations, this research shows the risks in card business at Branch.
From there, the authors proposed the implications of governance, improved risk
control in card business at BIDV Tra Vinh Branch in the future.
In the studies on risks in credit card business activities at banks, according to
the author’s research, there has not been research on risks in credit card business
activities at the Joint Stock Commercial Bank for Investment and Development of
Vietnam with the scope of time and space as the subject. Therefore, the author
chose the topic: “Risks in credit card business activities at Bank for Investment and
Development of Vietnam JSC – BIDV” as research topic.
3. Research objective
The research objective of the topic is to propose solutions to limit risks in the
card business of BIDV. Specificially:
The first is to systematize the theoretical basis of cards and credit card risks
of commercial banks.
The second is to assess the current situation of risks in credit card business
activities at the Bank for Investment and Development of Vietnam JSC in the period
of 2017 - 2019.
The third is to propose some solutions to limit risks in credit card business
activities at the Bank for Investment and Development of Vietnam JSC.

4. Research subjects
Theoretical and practical research on risks in credit card business activities at
commercial banks.
5. Research scope
Time: Data from 2017 to 2019.
Location: The Thesis is researched at BIDV.
Content: The thesis focuses on analyzing the current situation of risks in
credit card business activities at BIDV through secondary data. Thereby, proposing
4


management solutions to limit risks in credit card business activities at commercial
banks.
6. Research Methods
- Data collection method
The author collects secondary data from textbooks, master thesis, related
articles and studies to serve as the theoretical basis, and at the same time, collect
from BIDV’s annual reports..
- Data processing methods:
The data is collected aggregately and statistically processed by Excel software.
- Information analysis method:
+ Descriptive statistical method: Based on the statistical data, the data
describes the fluctuations as well as the changes in data. This method is used to
describe the current situation of risks in credit card business activities at BIDV.
+ Comparative method: is used in the process of analyzing and assessing
the current situation of risks in credit card business activities at BIDV over the
years. From there draw comments and assessments that create a basis for
analytical and synthesis methods.
Comparison by absolute figure: Through the results of subtraction
between the value of the analysis period compared with the base period of the

economic indicators, we see the variation in the absolute figure of the analyzed
indicators.
Comparison by relative figure: From the comparison results between the
actual number and the original number adjusted by a coefficient of the relevant
indicator in the direction of the analytical indicator to find the percentage of
increasing or decreasing in the target of reality compared to the original.

5


CHAPTER 1. THEORETICAL BASIS OF CARD AND RISKS IN CREDIT
CARD BUSINESS ACTIVITIES OF COMMERCIAL BANK
1.1. Theoretical basis of card
1.1.1. Card definition and development history
1.1.1.1. Card definition
Based on “Regulations on issuance, payment, use and provision of banking
card operations” issued under Decision No. 20/2007 / QD-NHNN, banking cards or
cards are issued by the card issuer to perform card transactions under the terms and
conditions agreed upon by the parties; does not include cards issued by goods and
service suppliers for using in the payment of goods and services to such issuers.
As defined by the Vietnam Bank Card Association, a bank card is a non-cash
payment, developed from the method of buying and selling goods subject to retail
sales and development associated with the application of information technology in
banking and finance sector. A bank card is a payment tool to pay for goods or
services or withdraw cash within your deposit balance or granted credit line. A bank
card can be used to make payment at POS or for services through an automated
machine (ATM) system.
1.1.1.2. Card development history
In 1946, John Biggins in Brooklyn (New York) created the first bank card
called "Charg-It". When customers shop, spend, the bill will be transferred to

Biggins' bank. The bank pays the seller, and then the customer pays the bank. Then
this card is only used within the local area and only for customers of the bank.
In 1949, a man named Frank McNamara went to dinner at a restaurant in
New York. When checking out, Frank realizes he forgot to bring his wallet. That
motivates him to devise a way to pay without using cash. Together with partner
Ralph Schneider, he has issued a specialized card for payment at restaurants. In the
first year alone, dozens of restaurants in New York accepted the card, and card
users numbered in the tens of thousands. Gradually, the card is used more in tourist
and entertainment spots outside of the food and drink field.
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In 1966, Bank of America established BankAmericard Service Company to
conduct the franchise business and issue cards with card banks around the world.
The company quickly grew and became an independent VISA credit card issuer in
the 1970s.
In 1966, the national credit system was visualized and established the
American Interbank Card Association (ICA), now is MasterCard, becoming a direct
competitor of VISA. These are the two largest card organizations in the world. In
addition, there are a number of other card organizations such as American Express,
Diners Club ... also participate in the global card market.
Today, the bank card has been widely presented and developed all over the
world, and has become a popular way of payment in developed countries, with
companies and banks working together to exploit the field with this much profit.
Credit cards are gradually considered as a civilized and convenient tool in goods
and service purchase and sale transactions.
1.1.2. Card classification
* According to card holder
Card issued by bank: a card issued by a bank to a customer to use their
account or an account issued by the bank for payment or to use banking services.

Cards issued by non-bank institutions: Cards are issued by non-bank
institutions with the same payment process and scope as cards issued by banks such
as Amex, JCB.
* According to the credit limit
Gold Card: is a card issued to customers who need to pay large sums of
money. This card has different characteristics depending on each region of the
country to regulate the withdrawal and deposit limit.
Standard Card: is the most basic type of card which is the most commonly
used today. According to statistics, up to 160 million people around the world use
each day. The limit depends on each bank’s regulation is usually 1000 USD.
* According to card making technology
7


Cards engraved with braille: The cards are made on the braille engraving
technique, the necessary information is embossed on the card, so there is very little
information and easy to be counterfeited, so nowadays such cards are less used.
Magnetic tapes: Cards with magnetic tapes to store information, only carry
fixed information that has not been encrypted so it is not safe and easy to be
tampered with. Especially, it can store very little information.
Smart card: Card with electronic chip to store information that can hold up to
200 most recent transactions, and has high safety, difficult to counterfeit due to
encryption.
* According to the usage
International card: Card issued by domestic bank but used for payment inside
and outside the territory of that country or issued in a foreign country but can be
used for domestic payment. For example: ANZ Card, HSBC, ...
International card means a card issued by a card issuing bank in Vietnam,
used and paid within and outside the territory of Vietnam or cards are issued in
foreign countries but can be used in the Socialist Republic of Vietnam.

International cards are paid in a strong foreign currency.
Domestic card: The card is issued by domestic bank and can be used within
the country for payment in local currency.
Domestic card means a card issued by a card issuing bank in Vietnam, used
and paid in the Socialist Republic of Vietnam.
* According to the nature of the payment
Credit Card: also known as deferred or delayed debit card in which the card
holder can use the card to pay for goods and services, withdraw cash within the
credit limit issued by the bank.
Normally, customers will have different credit card limits because the limit is
issued to the cardholder by the bank on the basis of credit rating and appraisal, the
cardholder's monthly salary or the amount of deposit or collateral at the bank ...
With features of “spend first, pay later”, credit cards are a great support for
8


cardholders to quickly make payment for goods and services at merchants or on ecommerce websites. Periodically to a certain date, according to each bank’s
regulation, the bank sends a statement listing the previous month's expenditures of
the credit card holder in detail and requires the cardholder to pay. Cardholder can
choose to pay the full amount before the deadline indicated in the notice, when the
cardholder does not pay interest. If not, the cardholder can choose to pay the
minimum amount, the rest can be paid slowly and interest will be charged according
to the bank's regulations. When the entire amount arising is returned to the bank by
the payer, the cardholder's credit limit is restored to the original. This is also called
the cyclic nature of the tag.
Banks usually classify credit cards according to grades to manage customers
such as standard cards, gold cards, platinum cards ... the higher the credit card
holder uses, customer will enjoy more privileges and more dedicated care.
Debit Card: This card is directly related and attached to the deposit account
of the issuing card holder. This type of card, when buying goods and services, will

be immediately credited to the cardholder's account and immediately credited to the
merchant's account. Debit cards have two types of cards: online and offline.
Cash Card: is a card used to withdraw cash at ATMs or banks with a special
function of withdrawal, the amount withdrawn each time will be immediately
deducted from the account cardholder's account.
* According to the object responsible for the payment
Personal card: is a card issued to individuals who need and meet the
conditions to open a card at a bank. Cardholder is responsible for paying all
expenses on the card with his or her own money or issue additional cards.
Card of an individual authorized by the company to use: A card issued to an
individual or an organization, the company is going to undersign the card issue and
authorize that individual to use the card and is responsible for paying all expenses
on the card.
1.1.3. Card usage and payment process
9


Card usage and payment activities in each country and bank are different in
terms of procedures and conditions, due to many factors that are bound by law,
politics, intellectual level of development or conditions. But overall it includes the
following basic content:

Figure 1.1: Card issuance, usage and payment process
When a customer wishes to use the card (1), the issuing bank requires the
customer to provide the necessary documents in accordance with the regulations to
be able to issue the card to the customer, the papers according to the regulations of
each bank, each country but basically proof of customer identity, the solvency of
customers and related organizations and individuals. After verifying the documents,
if the customer is eligible to make a card, the bank will issue the card to the
customer (2), instruct how to use and preserve the card. Customers use the card to

pay for goods or services or withdraw cash at the card accepting points (3), the
agent will check the card’s solvency by applying for payment bank authorization. If
the card does not matter, the issuing bank will pay (4) and notify the merchant. The
merchant will then ask the cardholder to sign the invoice (make sure the signature
10


on the invoice must match the signature on the card) and provide goods, services or
cash advance to the customer (5). The merchant receives the payment from the
acquiring bank (6) after returning the bill to the bank (if the card scanner), or after
the review on the electronic card reader and deducted an agent discount. The
acquiring bank will collect money from the issuing bank (7) through the
international card organization (in case the issuing bank and the acquiring bank are
not in the same system), the tasks of the international card institution is debited to
the issuing bank’s account and credited to the acquiring bank.
Every month on the date of making the billing statement, the issuing bank
receives a data file of detailed statements about cardholder's activities, then the bank
prepares a transaction notice board and sends it to the cardholder to make payment
request.
During the process of card usage, issuance and payment, the issuing bank,
the acquirer and the international card organization are responsible for settling all
complaints, investigating, claiming reimbursement, handling disputes and others.
1.1.4. The card business segments
1.1.4.1. Card issuance operations
The bank’s card issuance operations include the management and
implementation of the entire card issuance process, card usage and customer debt
collection. Each part is closely related to customer service and risk management for
the bank. Financial institutions and card-issuing banks must develop regulations on
card issuance, use and debt collection.
* Subjects of card issuance

Individuals applying for the issuance and usage of credit cards under the
authorization and / or guarantee of organizations and companies such as state
agencies, enterprises, and international organizations. Individuals who wish and
meet the conditions for using the card in accordance with the bank's regulations.
* Conditions for card issuance
Subjects applying for card issuance are organizations and companies: the
11


card user must be the legal representative of that organization or company.
Subjects applying for card issuance are individuals: Having civil legal
capacity.
Cardholders who apply for credit card issuance on an unsecured basis must
have sufficient financial capacity to repay the used credit with interest and accrued
fees. A cardholder with a mortgage, pledge or deposit is not required to meet the
above requirements. For debit cards, the cardholder is required to open and maintain
a balance on the deposit account.
* Card issuance process
The process of issuing cards to customers includes the following steps:
Card Account

Cardholder

(1)

(2)

(4)

(3)

Issuing Bank

Figure 1.2: Card issuance process
(1) The customer submits the card issuance request dossier to the issuing
bank
The issuing bank requires the customer to complete the file of card issuance
with full information as prescribed
(2) The issuing bank checks the accuracy and validity of information on the
card issuance request documents declared by the customer. Refer and compare with
the risk notices (if any) of other agencies and relevant agencies.
(3) After the application is accepted, the bank opens the card account for the
customer, collects the card issuance fee, prepares the card management file,
12


determines the card grade and type, determines the credit limit for the credit card,
money is used to encrypt the card, determine the PIN and print the card.
(4) The bank delivers cards to customers safely and securely. Cardholder
receives the card and signs the card delivery paper and signature tape on the back of
the card.
Card payment operations

Figure 1.3: Card payment process
The bank’s card payment operations are as follows:
- Building and managing the customer information system of merchants:
Reviewing and signing the card payment acceptance contract with merchants, which
clearly stipulates the discount rate for card payment acceptance transactions.
- Manage operations of the merchant network.
- Organize payment for card usage transactions for merchants

The card payment when there are transactions occurred as follows:
(1) Cardholder uses the card to pay for goods and services or withdraw cash
at merchants. Merchants, when receiving cards from customers, must check their
validity. If eligible, merchant will provide goods, services or cash to the customer.
13


(2) Merchants transact with banks: send card payment invoices to the
acquiring bank. Card payment receipts are kept at the acquiring bank and used as
original documents for checking and settling complaints (if any).
(3) Acquiring bank credit to Merchant’s account.
(4) Payment with international card organizations and other members.
At the end of each day, the bank summarizes all transaction data arising from
cards issued by other banks and transmits data to international card associations.
(5) The international card association notify the acquirer. After receiving data
from the acquirer, the international card association will proceed to credit the bank.
The data transmitted by the international card association includes the payments
made by the acquirers, the fees payable to the international card associations, the
transactions under the investigation.
(6) The international card association transmits data to the issuing bank.
(7) The international card associations debit to the issuing bank.
(8) On that basis, the bank shall send a statement to the cardholder.
(9) Card holder to pay debt to the issuing bank: After receiving the statement,
the cardholder will have to pay money for the goods and services they have
consumed.
In some cases, the merchants must contact the issuer or international card
association (on behalf of the issuing bank) to apply for credit card payment license.
Payment authorization means the card issuing bank directly or informs the
international card association to prepare for the card transaction by providing a
license number or having appropriate handling requirements for the transaction

applying for the license.
For a transaction that requires a license, the merchant must apply for the
license itself or contact the issuing bank for licensing according to regulations.
Transactions that require licensing include:
+ All cash advance transactions.
+ Transactions performed by EDC machine.
14


+ For ordinary transactions, if the transaction amount is equal to or greater
than the payment limit of the Merchant.
+ In addition, during the card payment process, the operations of amendment,
complaint and reimbursement also arise.
- Provide customer service.
- Organize training on card payment knowledge for merchants’ staff.
- Provide equipment and materials for card payment activities.
The international card payment operation is the main source of income for
the card-trading banks, so banks always focus on effectively developing the
network of merchants.
* The related equipment
Payment by card is a modern form of payment, used mainly by machines and
equipment. There are many types of supported devices but nowadays mainly the
following types:
- Invoice scrubbing machine: Is a device used to reprint the invoice with
necessary information that is embossed on the card such as: Card number,
cardholder's name, card validity date ... Invoice is considered as valid evidence of
cardholder's consumption and is also a legal basis for settlement all disputes of
related objects (if any).
- Automatic licensing machine: Is a word reader connected to the network of
accepting banks and card issuing banks in the world. It is used for licensing and

online processing of card transactions at Merchants. Financial transactions are thus
done and recorded on the cardholder's account at the issuing bank.
The machine is specially constructed with a magnetic tape reader on the card.
This reading also helps to check the authenticity on the card. There is a screen
displaying the information and a keyboard to enter the license amount on the
device. After transmitting the information, the machine will receive the reply
directly from the licensing processing center. This machine enables transactions to
be made 24 hours a day.
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- ATM machine: ATM system also provide card payment service through
cash advance to international cardholders.
ATM machine includes some basic parts: screen, keyboard to perform
the operations of withdrawal order, money transfer ..., slit to put the card into the
machine, the slit to receive money from the machine, the slit to receive transaction
invoices ... To withdraw money, the cardholder must put the card into the machine
and enter the correct PIN number. The machine will not show the PIN on the screen
to ensure confidentiality and safety. If the cardholder enters the wrong PIN, the
machine will report an error on the screen and cannot withdraw money.
Previously, when wanting to withdraw money, people had to go to the bank
before it closed, but since ATM was born and worked 24 hours / day, customers can
withdraw cash, transfer, check their account balance… at any time. Due to the
convenience that ATMs are increasingly used and developed in the world, many
banks develop system ATM system with other finance companies. This system is
regional, national or international.
* Card claims processing operations
In the course of using the credit card, if the customer does not accept the
payment for a certain content on the statement for some reason, they can send a
request for issuing bank and the issuing bank will conduct the checking as follows:

The above are the most basic steps in handling claims for a credit card
transaction of goods and services at merchants. In fact, at each step there will be
problems that may arise that make the case is more complicated. However, all of
these issues must be resolved based on card regulations of international card
associations as well as card regulations of the country, each bank, issuer and
payment organization. Depending on each international card corporation, the
handling steps will be different if one of the parties disagrees with the other party’s
answer, they can continue to negotiate or initiate a lawsuit in the international card
association for processing.

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1.2. Risk in credit card business activities at commercial banks
According to Frank Knight (1921), “risk is only measurable uncertainty”.
Holton (2004) argues that risk is caused by two parts, the first part is the uncertainty
about the outcome of an event and the remaining whether the outcome will make
any difference in benefits, if not, it also does not bring any risks. He gives the
example of drawing a ball from a box with red and black balls. Only when the
withdrawal of the ball is associated with the difference in money, assuming that in
gambling or betting, this drawing is related to risk, but if it is only for fun, there is
no win or loss and also no risks happened at all. Alain Willet argues that “risk is
uncertainty that can be associated with an unexpected event” while Irving Perfer
says, “risk is a combination of randomness that can be measured by probability”.
The British economist Marilic Hurt Carty conceived “risk is a state in which events
occurring in the future can be determined”. Thus, the definitions differ in their
wording but have the same meaning that risk is unexpected uncertainty, often
causing damage and can be measured.
More specifically, in the banking and finance industry, the risk is considered
as the ability of the bank to lose money. All financial activities come with risks,

therefore, strict management of transactions and activities in this field is extremely
necessary. If the risk management is not done well, banks will face huge losses.
According to the Vietnam Banking Association, it can be generally understood that
Bank risks are unexpected events that cause loss of assets and income of the bank
during the operation. As an intermediary in the financial market, the bank performs
the function of “borrowing to lend”. Therefore, the bank has to bear risks from both
sides: the borrower and the lender. Similarly, risk in card operations is physical or
non-material losses related to card business, including card issuance and payment
operations. Subjects at risk are banks, cardholders or merchants (State Bank).
For card services, in addition to some common risks associated with banking
products, there are also a few other specific risks, details are as follows:

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