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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