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Bank card charge reasonable
By Tan Yaling (China Daily)
Updated: 2004-06-23 09:50 Disputes have risen recently regarding the
decision by banks to charge card users an annual fee.
Banks insist the charge is important to cover costs of their card systems,
whereas consumers argue it is unjustified because most cards do not offer
services other than such basic functions as making deposits and payments.
The dispute, on its surface, is about the rate the banks charge. But in fact
it is an issue related to the banking sector's ongoing reform.
The charge on bank cards is a natural thing under market conditions. Bank
card service incurs a series of costs including card issuance, transaction
settlement and investment in infrastructure.
Passengers walk through a street flanked with advertisements for
credit cards issued by China Merchants Bank in Nanjing. The row between
merchants and banks in Shenzhen has attracted much attention from around
the nation. [newsphoto] | It takes 400,000 yuan (US$48,300) to introduce a card making machine, which
runs out of use after producing 400,000 or so cards, and 300,000 yuan
(US$36,600) to set up an ATM (automated teller machine) unit. The 10 yuan
(US$1.2) annual charge many banks have introduced is equivalent to the yearly
maintenance cost for a bank card account.
An annual fee for bank cards is very normal in many countries. Current
disputes over the charge here reflects a lack of understanding of the nature of
bank card service.
With the deepening of banking reform, the equity structure and operational
pattern of State banks has changed dramatically, and there is no free lunch any
more when it comes to banking services. The banks are by nature service
enterprises that generate profits by providing customers with sound products and
services.
Admittedly, in some ways we can still see the inertia of the planned economy
system, in which State banks relied on government support and did not care much
about their own efficiency.
But now domestic banks are facing unprecedented challenges with the country's
accession to the World Trade Organization, and competition in the industry is
increasingly fierce. The importance of bank cards in their services is also
rising.
The past practice of free use of card accounts was unreasonable because it
ran counter to the basic norms of a market economy. It was also wrong to issue
cards on a mass basis, regardless of the real effect of the cheap marketing
tactic.
Statistics show 80 per cent of the 200 million or so cards issued by the
Industrial and Commercial Bank of China and the Agricultural Bank of China have
never been used. But banks have to devote systematic resources to taking care of
those "dormant" cards even if there is only one cent in each account.
Those sleeping cards not only add to banks' management cost but also hinder
efficiency in serving regular customers. Charging an annual fee is therefore a
method to sort out the dormant accounts.
When enjoying the convenience of zipping a card to pay daily expenses, card
users should understand it is fair to pay some fees for the service.
From the consumers' perspective, however, the banks should make every effort
to improve service and make sure the service customers receive is worth the fee.
As a matter of fact, the efficiency of some banks' card service is quite
poor, and sometimes there are mistakes that cause financial losses to customers.
These problems have dampened public trust in bank card service.
As long as domestic banks can make substantial improvement in their service,
the card charge will not be a problem.
Meanwhile, domestic banks can consider introducing a differential charge
system in line with the development of banking services.
Western banks usually charge clients according to their contribution to
profits, credibility and specific demand for service, a practice that helps
sustain the input-output balance on one hand while avoiding an exodus of
customers on the other.
The effect of domestic banks' flat-rate card fee seems to have some problems.
In some places, unsatisfactory customers have even lined up to cancel their
accounts. Although customers' refusal of the charge is not unexpected, it in a
way indicates the flat-rate charge policy is not the best option.
Some foreign banks issue every client a card as soon as he or she opens an
account. They also charge the card service, but when a client's deposit exceeds
a prescribed amount, the charge is waived.
Many Western banks also encourage customers to do transactions via ATM units
to save labour, and sometimes there are fees for small over-the-counter
transactions.
China's banks should learn to combine Western banks' advanced experience with
local conditions, and implement a differential fee system based on better
customer resources management.
Another priority should be to complete banking laws and regulations to make
customers better accept charged services.
As bank cards are related to ordinary citizens' everyday life, the public
does not question the charge on the card itself. What they question is the
rationale behind charging for something that was previously free.
The banking industry needs standard rules regulating charged card service to
ensure customers are getting their money's worth.
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