VIETNAM NATIONAL UNIVERSITY, HANOI
SCHOOL OF BUSINESS
Nguyen Thi Tuyet Le
A STUDY ON ELECTRONIC BANKING
THE CASE OF BANK FOR INVESTMENT ANI)
DEVELOPMENT OF VIETNAM.
Major: Business Administration
Code: 60 34 05
A 'L O /
< s
MASTER OF BUSINESS ADMINISTRATION THESIS
Supervisors: Dr.Nguyen Viet Anh
Hanoi - 2010
TABLE OF CONTENTS
Acknowledgement i
Abstract ii
Tóm Tat iv
Table of Contents vi
List of Tables X!
List of Figures xii
INTRODUCTION
1. The problems

2. Objectives and Aims

3. Research questions
4. Scope of work

5. Data sources
6. M eth od s
7. Significance

12.1.1. Phone banking

11
12.1.2. Mobile banking
n
1.22. Electronic Banking usinu personal computers
15
P . 2.1. Hom ebanking
15
1 2.2.2. Internet bankint»
16
12.2.3. Mail banking
17
1.2 '. Others: Means of payment and self-service zones
17
12.3.1. Payment card
17
12.3.2. El I POS (Electronic fund transfer at point of sale)
18
12.3.3. ATMs (Automated Teller Machine)

18
12.3.4. Electronic wallet
19
12.3.5. Self-service zone
19
3. AD VA N T A G E S AND D ISA D V A N TAGE S OF 1
ELECTRONIC B A NK IN G
.20
1.1. The Benefits of Electronic Banking

28
l.<6. Reputation risk
?9
viii
1.5. II Ỉ Cl RON IC BANKING STRATEGIC OPTIONS FOR BANKS

30
CHAPTER 2 35
2.1. ELECTRONIC BANKING IN VIETNAM
35
2.1.1. The development of Electronic Banking in Vietnam 35
2.1.2. Electronic Banking services in V ietn am 37
2.1.2 1. Home-banking 37
2 .1.2 2. Phone-banking 39
2.1.2 3. Mobile-banking 40
2.1.2 4. Internet-banking 40
2.1.2 5. Bank kiosk 41
2.2. OVERVIEW OF BIDV 41
2.2.1. Introduction of B ID V 4 i
2.2.2. Organization structure 43
2.2.3. Overview of business performance in the period 2005-2008 45
2.2 3.I. Business Performance 45
2.23.2. Services 46
2.3. TTE NECESSARY OF DEVELOPING ELECTRONIC BANKING IN BIDV

.

48
2.3.1. Trend in economic globalization 48
2.3.2. Competition pressure from banks 49

promoting the development o f e-B an k in g 91
3.3.2. Risk management and privacy policy for e-banking custom ers 93
3.3.3. Frequent assessment and study o f customer segmentation and enhancement of
service quality, product & service diversification for e-banking cu s to m ers 95
3.3.4. Impulse to relationship with customers, establishment of contact center, and supply
of information and instruction in e-banking use to convince customers to stick at service
quality 96
3.3.5. Improvement of human resource quality
97
3.3.6. Improvement of the bank's financial pow er 100
3.3.7. Exploitation of retail services via the internet, the use o f card services, electronic
paym ent provided by commercial b an k s 101
3.3.8. Promotion of product m ark etin g 102
3.3.9. Other solutions 105
\
3.4. RECOMMENDATIONS 106
3.4.1. Recommendation for the G o v ern m en t 106
3.4.2. Recommendations for The State Bank o f Vietnam
107
3.4.3. Recom m endations for Vietnam Bank Association (VBA) 109
C O N CL U SIO N I 1 1
XI
LIST OF TABLES
Table 2.2: BSMS's business performance 2007-2008 54
I able 2.3: Home banking's business performance of BIDV 2007-2008

57
Table 2.4: Card service's business performance of BIDV 2007-2008

63

Figure 3.3: Number of bank accounts by percentage of population and number of
Internet users in Vietnam by percentage of population 84
f igure 3.4: E-banking objectives of BIDV 87
Figure 3.5: BIDV's Strategic options for entering e-banking

90
Figure 3.6: Marketing strategy of e-banking 102
Figure 1.1 : Basic diagram of E-hanking 7
INTRODUCTION
1. The problems
I'-commerce has increased its significance during the iast decades and its
importance is still continuing to increase. Branches, which have had traditional means
of conducting business and interaction between parties have also been influenced by
the Internet and gone through many changes. One of these traditional branches is the
banking industry, which during the middle of the 1990‘s started offering banking
services over the Internet. The changes lead to that the physical interaction in the bank
office environment between the banks and their customers has diminished and been
replaced by customers conducting their errands from their homes and businesses. The
loss of interaction between the banks and their customers has evoked my interest in the
subject of developing e-banking services.
Electronic banking (e-banking) is the newest delivery channel for banking
services. The definition of e-banking varies among researches partially because
electronic banking refers to several types of services through which bank customers
can request information and carry out most retail banking services via computer,
television or mobile phone.
In recent years. Vietnam's commercial bank system has had strong changes in
bank's scale as well as service quality. Especially, some banks bravely experiment and
provide e-banking services for customers, bringing much convenience and
effectiveness for customers, banks and the economy. However, most customers still
reserv e and use restrict because the concept of e-banking is quite new and strange. Due

internal data.
6. Methods
The thesis uses the empirical method, interview and case study in the study
process.
7. Significance
The thesis may contribute a small part to the development of e-banking sector,
which has been emerging in Vietnam. Since the forecast of internet booming in
Vietnam in next two or three years, many banks can implement the knowledge studied
in this thesis for their business activities.
8. Limitation
I he biggest limitation of this thesis is due to the freshness of internet services
industry in Vietnam in general, and e-banking in particular, therefore few academicals
reviews have been applied and proved. In case of the BIDV, it has just run for several
years and in the simple way. so it may be early to measure and judge exactly its
performance.
I lie other limit is from case study method. This method cannot cover all the
theoretical issues of e-banking. Thus, later this case, this thesis only studies several
areas in e-banking and applies some related key performance indicators to analyze
performance for BIDV.
9. Expected results
The thesis expects to give the systematical theory in electronic banking, find out
BIDV's e-banking performance restrictions and proposes solutions to improve it.
10. Outline
Excluding introduction, conclusion and reference part, this thesis includes three
parts as follows:
Chapter 1: Theoretical Foundation
Chapter 2: The Case of BIDV
Chapter 3: Solutions to improve and develop e-banking services in BIDV.
4
CHAPTER 1

handling the rapid expansion of e-commerce. Organizations that joined e-commerce
with specific, realistic and measurable goals and objectives avoided this failure online.3
I he future of e-commerce looks promising and profitable; almost every company
around (he world, weather small, medium or big. either has its own webpage or does
business online. Not only companies are frequent users of ecommerce but private
customers are also starting to use the Internet more and more to make their purchases
online.
1.1.1.2. Electronic Finance
E-finance can be defined as all which relates to the linking of business, finance,
and banking via electronic means, encompassing information gathering, processing,
retriev al, and transmission of data as well as the transmission, purchase, and selling of
goods and services.
‘ Turban. I ., 2004: Preface
' Trepper, C 2000: Introduction
But the definition broadens when we look at the new possibilities offered by
technology. Computers and the use of one time data entry and relational databases
mean that online real-time data about a company's business and accounts can be
generated, enabling managers to manage their companies in new and more proactive
ways.4
1.1.1.3. Electronic Banking
What is electronic banking?
E-Commerce
Conducting business through electronic networks
E-Finance
Providing financial services
through electronic ctonneis
E-Money
Stored value Of prepaid
payment mechanisms'
E-Banking

Electronic banking has been around for some time in the form of automatic
teller machines and telephone transactions. More recently, it has been transformed by
the Internet, a new delivery channel for banking services that benefits both customers
and banks. Access is fast, convenient, and available around the clock, whatever the
customer's location. Plus, banks can provide services more efficiently and at
substantially lower costs.
Electronic banking also makes it easier for customers to compare banks' services
and products, can increase competition among banks, and allows banks to penetrate
new markets and thus expand their geographical reach. Some even see electronic
banking as an opportunity for countries with underdeveloped financial systems to
leapfrog developmental stages. Customers in such countries can access services more
easily from banks abroad and through wireless communication systems, which are
developing more rapidly than traditional "wired" communication networks.
The Hip side of this technological boom is that electronic banking is not only
susceptible to. but may exacerbate, some of the same risks—particularly governance,
legal, operational, and reputational inherent in traditional banking. In addition, it
poses new challenges. In response, many national regulators have already modified
their regulations to achieve their main objectives: ensuring the safety and soundness of
the domestic banking system, promoting market discipline, and protecting customer
rights and the public trust in the banking system. Policymakers are also becoming
increasingly aware of the greater potential impact of macroeconomic policy on capital
movements.
1.1.2 The History of Electronic Banking
Electronic innovation in banking can be traced back to the 1970s when the
computerization of financial institutions gained momentum (Pang, 1995). However, a
\isible presence of this was evident to the customers since 1981. with the introduction
of the automatic teller machine (ATM). Innovative banking has grown since then,
aided by technological developments in the telecommunications and Information
Technology industry. The early decade of the 1990s saw the emergence of automated
voice response (A\'R) technology. By using the AVR technology, banks could offer

1.2.1. Electronic Banking using a telephone connection
Telephone banking and the first banking services using classic telephone lines
for communication date back to the turn of the sixties and sev enties of the last century.
These services grew very rapidly and at the close of the 20th century mobile phones
10
also started to be used in banking with the development of information and
communication technologies. In this period banks quickly responded to the dawning of
a new era in using mobile telephones world-wide and began communicating with their
clients by SMS messages, with GSM banking later becoming a natural component of
electronic banking. Each financial institution offers this under a different name, but the
essential product remains the same. A mobile phone can be used to communicate with
a so-called telephone banker or an automated telephone system, just as well as a fixed
line. However, opportunities for mobile phone usage in communication with a bank are
much greater. Mobile phone use represents a direct communication channel that spread
on a massive scale through which clients have immediate access to typing a bank
operation, ordering services or working with accounts. Electronic banking using a
telephone connection can be divided into phone banking (ATS. client advisor) and
mobile banking (SMS banking, GSM SIM Toolkit and WAP).
1.2.1.1. Phone banking
Phone banking is the provision of banking services using a classic telephone
line. A bank client can obtain the necessary information on dialing a telephone number
specified in advance. Before the requested banking service information is provided, the
client's identity is determined using contractually agreed terms. Using this banking
service enables bank clients to obtain information concerning active and passive
banking products, but a client can also actively use the bank payment system and
request, for example, a payment order or a collection order, open or cancel a term
deposit or a current account. In this case a fax connected to the telephone serves as an
output communication channel. The client advisor or so-called telephone banker is a
bank employee capable of providing any information about products and services and,
follow ing verification that he is speaking with an authorized person, can also perform

Information sent on request mostly concerns current interest rates or currency
exchange rates. Providing these is simple for the bank because this is publicly
accessible information that needs no protection. A client however can request
information about the balance in his account, which is not public information and must
be protected when it is provided. Passwords are used for this purpose or technologies
based on the principle of an electronic key. A client however is required to know the
code of every transaction including constant and variable symbols. The whole message
containing data separated by
# symbols sometimes has up to fifty characters. Users can
easily make mistakes. This is frequently a limiting factor for clients, reducing the
comfort factor in this service.
GSM SIM Toolkit
The (iSM SIM Toolkit service can only be used from a mobile phone
supporting (his technology. GSM SIM Toolkit is a software interface that enables
arbitrary changes to the mobile phone menu. Operators supporting this technology can
use it (o personalize mobile phone menus. This means that only functions activated and
paid for will appear on the user menu. This technology dates back to 1998. Among the
first companies to use it in banking applications based on the GSM SIM Toolkit
standard were RadioMobil and Hxpandia Bank in the Czech Republic. Most mobile
phones now on the market support for the (iSM SIM Toolkit. To use this service the
client needs to be using services of an operator supporting this standard in its network,
be a client of a bank that offers handling of accounts through the GSM SIM Toolkit,
have a mobile phone supporting GSM SIM Toolkit technology and use a special SIM
card for banking services.
After buying a special SIM card and activating it at the pertinent bank branch
the client can begin using this service. The mobile phone menu will be widened to
include the Banking Services item, through which it is possible to carry out active or
passive banking operations. The precise structure differs from one financial institution
to another. Security is what is important here. To access banking services it is
necessary to know BPUK (PUK for banking applications) and BPIN. BPUK is

A home banking system usually consists of two parts: a bank computer program
and a program in the client's computer. The bank program works as a communication
server. It receives calls from clients, verifies their identity, receives data from them,
authenticates digital signatures, generates digital receipts and sends data to clients. A
home banking computer system is a multi user application, meaning that several of the
client's employees can work with it. in particular:
a) Administrator - can define new employees, change rights.
b) Sender ensures communication w ith the bank and transmission of prepared data.
e) Accountant can type payment orders and orders lor collection,
b) Viewer - can browse through statements and announcements received.
This system is open and can be expanded in the future without great cost.
1.2.2.2. Internet banking
Internet banking can be used from the home or the office, as well as an internet
café. although the latter is not recommended for security reasons. In order to handle his
account a user just needs an internet browser (such as MS Explorer or Netscape
Navigator). A client cannot avoid visiting the bank though, because he must first ask
for an identification code. After opening the bank's web site the client simply selects
internet banking and. further to proper identification, can perform passive or active
operations. Good internet banking should provide a maximum of services. No less
important are the graphic interface, clarity, simplicity, and unambiguity of usage. The
intelligibility of texts determines simplicity and speed of understanding of the meaning
of menu items, data fields, and general text information displayed to the client.
Safety for concrete applications is assured by client authentication, verification
of data and data protection by encryption. Client identification is done using passwords
or codes. The client chooses some of these and the bank assigns others. It is
recommended to choose a password made up of various types of characters, which can
be a combination of numbers, low er case and capital letters, and special symbols.
Banks usually protect large volume transactions with additional security means,
such as an encryption (authentication) calculator, or a token, which generates
nonrecurring random passwords, which a client types on confirming an order. The