The heated bank card dispute in Shenzhen is escalating nationwide since retailers in Shanghai, Ningbo, Chongqing and Guangzhou echoed the bid to slash transaction fees.

Yongle Electrical Store, a major chain retailer in Shanghai, launched a temporary boycott of bank cards issued by the Industrial and Commercial Bank of China on June 15. The store's goal was to reduce handling fees to 0.4 percent from the current 0.6 percent.

According to Shanghai Yongle's spokesman, sales in the first five months of this year reached nearly 4 billion yuan (US$480 million), with 40 percent made via bankcard. That figure is up from 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 fees range from 0.5 percent to 2.5 percent in Shanghai, the lowest in the country.

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

Meanwhile, the Guangzhou Catering Business Association, comprising more than 500 local restaurants, appealed to China Unionpay (Guangzhou) to lower the present handling fees of 2 to 3 percent to 1 percent. They threatened also to consider refusing bank card transactions if their demands are not met.

Competition is stiff between the 30,000-plus restaurants in Guangzhou, a city renowned for its delicious and delicate Cantonese food. The fight for market share has taken a bite out of profit margins.

Consumers, however, are critical of the possible boycott.

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

Back in Shenzhen, where the card dispute began, the stalemate was finally broken-or at least cracked--when the bankers compromised. They agreed to cut bank card 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 once the regulation is implemented.

But the Shenzhen Retailing Association, which represents 46 members, remains unhappy. The bankers will write the regulation, and they have not invited input from the retail group.

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

The retailers noted that a key problem in the card dispute is not only handling fees, but also the monopoly of China Unionpay (Shenzhen). They want to sign contracts with the banks individually instead of being given a unified contract at fixed charges by the central clearing entity.

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

Yi Xianrong, of the Chinese Academy of Social Sciences, said that neither side should set the card fees. "It is the time for the government to step in and do something."

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

Professor Zhou Chunsheng, of Peking University, argued that the parties should cooperate to arrive at a conclusion that is positive for them both.

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 cutthroat 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 cutting fees is impossible because of the cost of operating the POS (point-of-sale) business.

To force the banks back to the negotiation table, the retailers launched a two-day boycott of bankcard transactions on June 2. They followed that up with a threat to add a 1 percent service charge to all card 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)