Case for Module 4 MBA 601

Case for Module 4 – MBA 601

Read about the following situation in the banking industry.

Banking & Finance1 Banks look to up security

The leading companies involved in automated teller machine (ATM) banking services last week met to find a more secure solution to protect card users from possible money losses due to illegal withdrawals from their accounts by criminals.

The Vietnam Bank for Foreign Trade, commonly known as Vietcombank, and Techcombank, one of the largest joint-stock banks in the country, announced that they would install modern cameras at their ATMs. The camera system will help the banks avoid possible fraud due to illegal withdrawals by taking a snap-shot of people who withdraw money and transmitting the photos to the banks’ card centre. However, director of the Techcombank Card Centre Dinh Viet Cuong said that the camera will not record the personal identification number (PIN) of the card user to ensure that customers’ codes are not disclosed. The move to install cameras comes after several complaints from ATM cards users stating that the ATM system of banks could not ensure enough safety for depositors, and criminals could still withdraw money illegally. Techcombank, which has issued 45,000 ‘F@st Access’ ATM cards and installed 39 ATMs, recently had to face a court case in which a card holder demanded the bank repay VND30 million ($2,000) she lost from her account, which she blamed on a lack of security in its ATM system. Despite the Hanoi-based Hoan Kiem district court finding in favour of the bank, its prestige remains affected. Right after the case was brought to court earlier this year, Techcombank and the other 18 commercial banks supplying ATM cards to customers were hit strongly by rising doubts in the public about a lack of security and safety in their current systems. Cuong said that while the recent implementation of ATM card management programmes had strengthened safety for ATM card users, it was not enough, and the move to install cameras at ATMs will boost the security of the system. Director of Vietcombank’s Card Centre Do Tu Anh had a different opinion. She said that transactions using ‘plastic money’ have risen sharply in the economy, so ensuring security for ATM card users “is a top priority for any bank that wants to develop their ATM banking services.” Presently, Vietcombank is the biggest player in the ATM card business, with 550 machines installed nationwide. It also offers other services such as allowing customers to pay their electricity and water bills through their bank accounts. Anh said that in the first 10 months, transactions via Vietcombank’s ATMs rose to VND1,500 billion ($97 million), accounting for 10 per cent of the entire payment system of the bank. However, Cuong from Techcombank urged ATM card holders to be increasingly vigilant

1 See: http://www.vir.com.vn/Client/VIR/index.asp?url=content.asp&doc=8910 in their card management, and in particular to not share their cards with anyone else. “Furthermore, to avoid disclosing their PIN codes, card owners should not use their name or date of birth for their PIN number withdraw money from any ATM,” he said. By Vu Long

Now assume the following hypothetical facts.

1. A manufacturer has come forward with a new device that will compare the thumbprint of the card holder with a thumbprint on file. By using this device, only card users that pass this thumbprint test will be able to withdraw cash using the cards. The bank is considering installing these devices on 10 of its ATM’s on a test basis. If the devices prove successful, all of the bank’s ATM’s will include these devices.

2. Each device will cost $12,000 and the installation will cost an additional $3,000. In addition, it will cost $60,000 to record the thumbprints of all of the card users.

3. This system will use a spare computer the bank currently owns and is not being used for other purposes. This computer was purchased two years ago at a cost of $10,000. If the devices are not installed, the bank will simply store the computer until some other use for it can be found.

4. The bank will need to devote a certain portion of its main building to house equipment for the devices and to provide space for card holders to record their thumbprints. This space has no alternative use. The cost of the building allocated to this space is $75,000.

5. The expected present value of the savings from fraud prevented by these devices is estimated to be $25,000 per installed device.

Based on these facts, should the bank install the devices? Justify your answer.