Risks and Measures for Applying International Payment Methods in Ho Chi Minh City

- Non-foreign trade payment: is the payment not related to imported and exported goods or the provision of services to foreign countries, that is, payment for non-commercial activities. It is the payment of expenses of diplomatic agencies abroad, travel expenses of other state delegations, organizations and individuals, sources of gifts and subsidies from foreign individuals to domestic individuals, sources of subsidies from a foreign charity to domestic organizations and groups, etc.

Payments between two entities in two different countries must be made through banks using certain payment methods.

Tran Hoang Ngan (2008) defined international payment as a way to make payment for an import-export contract through a bank intermediary by transferring money from the importer's account to the exporter's account based on the foreign trade contract and documents provided by both parties to the bank. The choice of international payment method depends on the negotiation between the two parties and is consistent with the customs and laws in international payment and trade, international payment operations at banks.

2.1.2 Popular international payment methods

Maybe you are interested!

International payments play an important role in the world economy and are mainly carried out through the global banking system. The three most common international payment methods today are: remittance, collection and documentary credit.

Tran Hoang Ngan (2008) introduced these three methods as follows:

2.1.2.1 Telegraphic Transfer (TT)

A money transfer is a payment method in which a bank customer (called the remitter) requests the bank to transfer a certain amount of money to a beneficiary at a certain location.

Remittance includes two forms: prepayment and postpayment. Postpayment is the form of transferring money to the exporter before receiving the goods. Conversely, prepayment is the form in which the exporter receives the money before delivering the goods. In practice, both parties can apply a “mixed” transfer, that is, paying a part in advance and a part in arrears according to a certain ratio to minimize risks for both.

In this method, the remitter's bank will make the transfer while the beneficiary's bank will make the guarantee. It can be said that money transfer is a simple payment transaction, in which the remitter and the recipient make direct payments to each other. When making a money transfer, the bank only acts as an intermediary for payment under authorization to receive fees and is not bound by any responsibility towards the remitter and the beneficiary.

2.1.2.2 Collection

Collection is a payment method in which the exporter, after completing the obligation to deliver goods or provide services, authorizes its serving bank to collect money from the importer based on the bill of exchange and documents prepared by the exporter.

In the collection method, banks are involved in the payment process more deeply than in the remittance method. The extent of banks' involvement in the collection process depends entirely on the content of the instructions and what (documents) the seller authorizes his serving bank to collect.

2.1.2.3 Documentary Credits

The documentary credit method is considered the most superior method of international payment because it overcomes the disadvantages of other methods. The content of the documentary credit method is implemented according to the "Uniform Customs and Practice for Documents Credits", the latest version is UCP600.

A documentary credit is a method in which a bank, at the request of a customer, undertakes to pay a certain amount of money to the beneficiary or to accept a bill of exchange drawn by this person within that amount if this person presents a set of payment documents in accordance with the provisions stated in the letter of credit.

According to UCP 600, Letter of Credit means any arrangement however named or described, under which a bank (issuing bank) acting at the request and on the instructions of a customer (applicant) or on its own behalf:

- Make payments to, or to the order of, a third party (the beneficiary) or accept and pay bills of exchange drawn by the Beneficiary, or;

- Authorize other banks to pay, accept and pay bills of exchange;

- Allow other banks to discount documents specified in the Letter of Credit, provided that they comply with all terms and conditions of the Letter of Credit.

In the documentary credit method, three contractual relationships are formed.

wall:

First, the contractual relationship between the buyer and the seller, expressed in

the terms and conditions set out in the sales contract (including the terms and conditions governing the method of payment). If the buyer and seller agree to use a documentary credit, this must also be set out in the sales contract.

Second, the contractual relationship between the buyer (the person who proposes to open the LC) and the bank serving the buyer (the bank that issues the LC).

Third, the contractual relationship between the buyer's bank (LC issuing bank) and the LC beneficiary (seller). This relationship is a consequence of the two relationships above but is an independent contractual obligation of the LC issuing bank.

In the money transfer method, the bank simply performs the function of transferring money at the request of the buyer and receiving money on behalf of the seller. In collection, the

The bank is involved in processing the documents sent by the seller and acts as the seller's agent. However, in the documentary credit method, the banks have participated much more actively and proactively, according to which the banks make payment according to their commitment. Accordingly, the obligation of the issuing bank to the beneficiary is irrevocable and unconditional (i.e. the bank cannot give reasons for refusing to pay if the seller has fully complied with the conditions of the LC).

2.2 Risks and measures to apply international payment methods in Ho Chi Minh City

To meet the payment needs of import-export enterprises, international payment services of banks in Ho Chi Minh City were born and are constantly being improved, bringing customers increasingly high conveniences.

- Based on popular international payment methods, banks have built the following basic products:

o Import

 Remittances: commercial and non-commercial

 Collection: payment at sight (DP) and deferred payment (DA)

 Letter of credit: issue LC, endorse bill of lading/issue letter of guarantee for receipt of goods, process documents and make payment.

When opening an LC, the bank will require the business to deposit a certain amount, from 0-100%. This deposit amount will vary depending on the level of acquaintance, reputation, payment ability, collateral of the business, feasibility of the business plan... In the long term, to facilitate the opening of an LC, the bank will issue a limit for opening an LC for the business based on an assessment of the business's needs, payment ability and financial situation.

o Export

 Receive money

 Letter of credit notification

 Transfer of letter of credit

 Present and pay documents according to letter of credit

 Send for collection of export documents

 Export document discount

- In addition to the above traditional products, recently, banks have begun to introduce a number of new products with superior features such as:

 Fast money transfer: applicable to beneficiaries in Asian countries, money transfer and receipt within the day.

 Usance Payable At Sight (UPAS) LC aims to meet the capital needs of import enterprises by converting the payment LC from "immediate payment" to "deferred payment". Import enterprises are allowed to pay for goods late based on bank guarantees. Foreign export enterprises (beneficiaries) are paid immediately.

Transaction methods are also gradually improved. Normally, in the money transfer method, customers must send original documents in paper to the bank with signature and seal according to regulations. Currently, some banks develop online banking channels (ebanking) allowing customers to send documents online and supplement the original documents later. Banks that develop this utility are often highly appreciated by customers.

In addition to international payment methods, international payment products also include foreign currencies that banks can provide. Most banks have common foreign currencies such as USD, while EUR and GBP have more limited foreign currency sources. Customers who need to make payments must notify the bank in advance. In addition, less used foreign currencies are only provided by certain banks, for example, CNY is provided by banks specializing in cross-border payments, KOR by Korean banks, etc.

Another product related to international payments is the exchange rate risk hedging tools such as forward contracts... Enterprises often use these types of tools in case of deferred payment to foreign countries. Although very necessary, not all banks provide these products, partly because the banks themselves do not provide them, and partly because some enterprises are not really interested in these products.

- Service fees of various types: these fees are announced on the websites of banks. In addition to the general fees that are widely announced, these fees can be negotiated separately between the bank and the customer. The bank can apply a special fee policy - exempting or reducing fees for one or several services - for customers with frequent transactions and large sales.

- Foreign exchange rates: The buying and selling rates of foreign currencies listed by banks comply with the State Bank's margin. In some cases, businesses can negotiate with banks on exchange rates: banks buy foreign currencies at higher prices and sell foreign currencies at lower prices. There is always competition between banks on exchange rates. Large banks or foreign banks often have an advantage in exchange rates over small banks.

- Currently, banks are expanding their branch systems, transaction offices as well as agency relationships with foreign banks. However, the extent to which the relationship is expanded depends on the internal strength and strategy of each bank.

- In terms of implementation, most banks use a centralized processing model including a payment center located at the Head Office and an international payment department at the branch. This payment center will perform specialized processing and is ready to provide professional advice to the branch. Meanwhile, the international payment department at the branch will directly receive customer files, send processing requests to the Head Office and notify the customer of the results. The branch's international payment department will be responsible for the accuracy of the payment.

The legality of the file as well as answering questions, handling complaints and performing customer care. The advantage of this model is that the file is processed centrally at the Head Office, so the processing time is quick, with few errors because the staff working at the Head Office are often well-trained and specialized in international payments. In addition, the staff at the branch will have more time to develop and take care of customers.

2.3 Decision on choosing a bank

When referring to the term “choice”, we always emphasize the need to consider and calculate to decide to use the optimal method or way among the conditions or ways of implementation that can achieve the goal under conditions of scarce resources.

The same goes for a business's decision to choose a bank. According to international studies, a business's decision to choose a bank is always influenced by certain factors.

2.4 Brand concept and brand value components

2.4.1 Brand concept

Brands used to be considered a component of products, but today this view has changed: products are a component of brands (Aaker, 1996). Recent research on brands shows that when deciding to buy, customers' desires often have two parts: functional needs of the product and psychological needs of the product. Because products only provide users with functional benefits, while brands provide users with both functional benefits and psychological needs, customers gradually shift from buying products to buying products through brands (Nguyen Dinh Tho & Nguyen Thi Mai Trang, 2002).

Nowadays, in business, brands have become a competitive advantage of enterprises in the market. Brands can be bought and sold, and can be franchised.

rights or leases (Don E. Schultz Beth E. Barnes, 1999). However, a brand is not just a name as people often think. The underlying value of a brand name is often a set of associations or ideas (Aaker, 1991). According to Hankinson & Cowking (1996), the product is only one component of a brand, the product will mainly provide functional benefits to customers while the brand provides both functional and psychological benefits to customers. Thus, the marketing mix components (product, price, distribution, promotion) are also just components of a brand (Ambler & Styles, 1996). The view that the product is a component of a brand is increasingly accepted by many researchers and practitioners (Aaker, 1996).

According to Lassar et al. (1995, page 11), “A brand that is highly valued by customers will create a competitive advantage because customers' trust in that brand will be higher than that of competitors' brands”. Brands play an important role in the decision to buy a certain brand of goods and services instead of goods and services of other brands (Swait et al., 1993).

According to the American Marketing Association, a brand is a name, term, sign, symbol, or design, or a combination of them, intended to identify the goods and services of one seller or group of sellers and to differentiate them from those of competitors.

Philip Kotler (2006) also defines a brand as a product or service that is differentiated by additional elements designed to satisfy the same needs. This differentiation can be functional, tangible elements of the product. They can also be symbolic, emotional, or intangible elements that the brand represents. A brand consists of two parts: the readable part and the unreadable part. The readable part includes elements that can be pronounced, affecting the listener's hearing, such as the business name (Audi...), product name.

Comment