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Bank makes a charge too far
(Business Weekly)
Updated: 2004-07-15 15:54
[The author is a researcher with the Department of Research and Development
under the Shanghai Bank.]
Although it is not unusual for banks to charge customers for their services,
the Agricultural Bank of China's decision on March 18 to charge debit card users
aroused an unexpected level of debate.
Academics and customer associations criticized the decision; a lawyer took
the bank on court; debit card users queued in long lines to cancel their bank
accounts.
As a matter of fact, the reasons for charging debit card users are only
plausible excuses that could not stand up to solid analysis.
The first reason given is to "match international practice." The banks seem
to believe that "international practice" could be used as panacea for all
questions related to the legitimacy of charging debit card users.
But things are not like that.
Experts agree that a certain practice cannot become an "international" one
until it is widely used in the long-run international businesses. Therefore, an
"international practice" should be accepted in most countries and regions around
the world.
Charging debit card users is certainly not an "international practice," as
most banks in countries such the United States, the United Kingdom and Australia
do not levy such charges.
Banks in other countries would usually collect fees upon the saving accounts
whose balance is under a certain amount, while others are free of such
management fees.
It is clear that the decision does not conform with any international
standard.
Most importantly, the foreign banks offer diversified financial products and
services including individual cheques, settlement, investment and financial
consultation.
By contrast, China's debit card holders can only use the card to draw money
on ATMs or purchase on point-of-sale (POS) terminals. And they would usually
have difficulty using such simple functions.
If domestic banks want to charge a fee according to "international
practices," they should at least lift their services to an international level.
The second justification given by the banks is that they want to eliminate
the long-term dormant cards, which account for 80 per cent of all debit cards.
The banks have to back up the information on these dormant cards and spend
huge resources to maintain these accounts, giving the banks a heavy burden.
Collecting fees from debit card users would make people write off these
dormant cards and ease the banks' burden, the banks claim.
However, such an explanation is not justifiable.
The debit cards become dormant for the banks, not the card holders. According
to my own investigation, 60 per cent of dormant debit cards were issued in the
banks' aggressive efforts in a bid to simply increase the number of debit card
holders. Some card holders' applied for the cards in a bid to help relatives or
friends working in banks meet their targets in debit cards promotions.
Another considerable portion of dormant debit cards, 25 per cent, were issued
through employers. People working in big companies may have several debit cards
from different banks, all of which have businesses with their employers.
Obviously, a large portion of cards applied for in this way become dormant.
As the banks try to develop their settlement functions, they enhance
co-operation with universities, tax authorities, transportation management
organs and other administrative departments. People must use certain banks debit
cards to pay examination fees, traffic fines or reserve funds for housing, with
the cards becoming useless after this. Such cards account for 10 per cent of all
dormant cards.
To attract customers, banks issued special types of debit cards, such as
mini-cards, transparent cards and cards bearing a portrait of the card holder.
Many people apply for such cards only for fun or to collect them, rather than
for any serious purpose.
To sum up, most dormant cards are the result of the banks' blind pursuit of
growth. It is unreasonable to ask customers to pay for keeping dormant cards
resulting directly from the banks' own policies.
There is also an assumption that bank services will be improved after these
fees are collected, therefore, charging the fees will ultimately benefit the
customers themselves. Is that so?
It is true that the banks could increase their investment in science and
technology in a drive to facilitate services with the new income from charging
debit card holders. But the point is, the banks' inadequate investment in
technologies in last years has created the current unsatisfactory environment
for card users. It is hard to make people believe that charging debit card users
could effectively change the situation.
Another explanation is that "collecting fees for services is a basic logic
behind the marketization of the banking sector."
It is natural for people to pay for services they enjoy, but such service
should be the added-value products, instead of debit cards with simple
functions.
The most important principle in market economy is that the exchange must base
on the equivalent values. So, the banks must offer the services worth the fee if
they want to collect it from card holders.
The banks also quote the Provisional Measures Governing Service Charges of
Commercial Banks, a file issued by the China Banking Regulatory Commission and
the National Development and Reform Commission, to defend their decision, saying
that the charge has been approved by the relevant authorities.
However, the file stipulated that commercial banks can charge for services,
but did not specify whether debit card charges should be subject to a price
under government supervision.
In my view, debit cards are closely related to ordinary citizens' daily
lives, so the charges should be determined by the government instead of being
set by the banks at their own will.
Of course, charging for services is inevitable as the commercial banks try to
adapt to the development of a market economy. But they should always abide by
market principles instead of sticking to the old concepts of the planned
economy.
Therefore, the debate about charging debit card users is more like a clash
between the ideas of the market economy and the planned economy.
There is little reason to be optimistic about the nation's banking sector
reforms if commercial banks fail to rid themselves of the legacy of the planned
economy.
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