The heated bank card dispute in Shenzhen has escalated nationwide after businesses in Shanghai, Ningbo, Chongqing and Guangzhou echoed the bid to slash transaction fees.

A major chain retailer in Shanghai, Yongle Electrical Store, launched a temporary boycott of bankcards issued by the Industrial and Commercial Bank of China on June 15, aiming to reduce handling fees to 0.4 percent from the current 0.6 percent.

According to a spokesman with Shanghai Yongle Electrical Store, sales in the first five months of this year reached nearly 4 billion yuan (US$480 million), with 40 percent made via bankcard compared to 23 percent last year.

As a result, the store is expecting to pay 24 million yuan (US$2.9 million) in bankcard handling fees, almost double the 14 million yuan (US$1.69 million) paid in 2003.

"With our present razor-thin profits, we can't afford the 0.6 percent handling fee," said the spokesman.

China Homemart, the leading chain store for construction and decoration materials in Shanghai, followed suit.

But Unionpay (Shanghai) and 17 commercial banks in the city refused to cut the fee, insisting they had already reduced transaction fees by 30 percent in accordance with a new regulation released by the People's Bank of China in March.

At the moment, the fee ranges from 0.5 percent to 2.5 percent in Shanghai, which is the lowest in the country.

Zhu Delin, secretary-general of the Shanghai Banking Association, was quoted by China Central Television as saying, "We won't raise or cut the fee unless there are new regulations from the State."

In Guangzhou, the Guangzhou Catering Business Association with a membership of over 500 local restaurants has made a plea to China Unionpay (Guangzhou) to lower the present bankcard handling fees of 2 to 3 percent to 1 percent. Otherwise, they might also consider refusing bankcard transactions.

Heated competition among the over 30,000 restaurants in Guangzhou, a city renowned for its delicious and delicate Cantonese food, has resulted in thin profits.

Consumers, however, disagreed with the possible boycott by local restaurants.

"It will be extremely inconvenient if we cannot use credit card," complained Liu Jun, a Guangzhou resident. "A seafood dinner can be over 3,000 yuan (US$362.75). In fact, fewer people pay for dinner in cash nowadays."

In another development, the card dispute stalemate in Shenzhen has been broken after bankers finally compromised and agreed to cut bankcard fees by drafting a new regulation expected to come out next month.

According to a spokesman for the Shenzhen Banking Association, card transaction fees will be reduced to 0.8 percent for retailers and 1.5 for catering businesses respectively once the draft is implemented.

The Shenzhen Retailing Association, which represents 46 members, was disappointed with the new draft, reproaching the bankers for unilaterally stipulating a closed-door regulation.

"We question the effectiveness of the draft since it is a result without consultation and negotiation by both parties," said a spokesman for the Shenzhen Retailing Association.

The retail group noted that a key problem in the card dispute was not only handling fees but also the monopoly of the banks.

The retailers want to sign contracts with banks individually instead of being given a unified contract at fixed charges by China Unionpay (Shenzhen).

"The disputes won't stop if the banks set the price without hearing our voices," said one local retailer.

Yi Xianrong, an expert with the Chinese Academy of Social Sciences, said the card fees should not be set by either side.

"It is the time for the government to step out and do something," said Yi.

Yi suggested the government invite financial experts and other parties to report on the best price for both sides.

Zhou Chunsheng, professor with Peking University, argued that both parties should cooperate to achieve a win-win outcome.

The disputes arose last month when the coalition of 46 local retailers demanded the 1.0 percent card charges be cut by half to match fees in big cities like Beijing and Shanghai.

Retailers complained that cut-throat competition made it hard to afford expensive card fees of 1 percent when their gross profits averaged only 1 to 3 percent.

"The ratio of banking card transactions has soared to over 25 percent and keeps rising. We have found it is getting harder and harder to bear the burden," said the chief accountant of Tianhong Department Store.

Negotiations between the Shenzhen Retailing Association and Shenzhen Banking Association, which represents 17 banks, proved fruitless after the banks refused to adopt any concrete measures. The banks argued that "to cut fees is impossible" because of the cost of operating the POS (Point-of-Sale) business.

To force the banks back to the negotiation table, a two-day boycott of bankcard transactions was launched by the retailers on June 2.

The move was followed by retailers threatening to add a 1 percent charge to customers who use bankcard for transactions.

Zhou criticized the double price standard, saying it sacrificed the consumer's interests and will eventually hurt all parties concerned.

(China Daily June 21, 2004)