Bank card fee cut will have little effect

Translated from the Beijing Times by Xiao Lixin

A notice from the People's Bank of China states that "swipe fees"for bank cards will be cut by 23 to 24 percent from Feb 25 next year. This does not only lower most banks' overall high-level charges, but also aims to stimulate consumption by cutting fees, said an article in the Beijing Times.

The current fees are already a big burden for small and medium-sized businesses that can only relieve the burden by either lowering service quality or passing the cost onto customers through price markups. The result of either choice would restrain the demands of normal consumption.

Cutting swipe fees is to reduce the heavy burden on shops and consumers and eventually stimulate consumption by China Unionpay and card issuers surrendering part of their profits, which should have been done a long time ago, if only from the perspective of profit distribution adjustment. The fee cut is not a lose-lose situation; on the contrary, the potential "dividend"may benefit all parties involved.

However, even if the cut can stimulate consumers' enthusiasm, it does not mean stimulating consumer demand. At present, the biggest "but"is in the catering and entertainment industry, which belongs to non-daily consumption for ordinary consumers. Therefore, the stimulus's guiding effect may not be as strong as expected.

To ease consumer burden, there should be larger fee cut in the daily consumption field including everyday goods and public service expenditure. But it would also mean more complex game playing and is not a mission that swipe fee cut can single-handedly accomplish. Consequently, the coming fee adjustment will not make any substantial contribution to increasing consumer demand.

There are still many obstacles caused by human factors such as excessive swipe fees in consumption. It is simpler to eradicate unreasonable fees than rely on the two structural factors of GDP growth and rational income distribution.