What can 10 yuan (US$1.2) buy for an ordinary person today? A boxed lunch, a tube of toothpaste or a taxi-ride from People's Square to the Shanghai Center on Nanjing Xilu.

But what if it's more than 10 yuan?

The announcement by the Agricultural Bank of China (ABC) that it would begin to charge a 10-yuan annual fee for every debit card from July 1 and the decision to follow suit by the China Construction Bank (CCB) and the Industrial and Commercial Bank of China (ICBC) have ignited a large scale and heated debate around the country.

The fee will not only apply to new clients but also to old debit card holders who were told the cards were free when they applied.

Up to now, among the four state-owned banks, only the Bank of China has kept the promise of fee-free cards it made to its customers.

Arrogant behavior

As official from the China Consumers' Association said, the move to charge early card holders was a violation of the contract the banks had with those customers. The banks had declared that the cards were free when their customers applied for them but then announced the change unilaterally, without consulting or gaining the card holders' agreement.

Guo Guoquan, an economist with the Standard Chartered Bank, told the Shanghai Morning Post that it was hard to say whether the state-owned banks' decision was right or wrong but that at least they ought to take the time to explain the details of the changes to the public.

"The banks have never notified me in person about the change -- I learnt it from a newspaper," said an accountant surnamed Xu.

An increasing number of card holders across China have lined up in banks to cancel their cards.

Some said it was not only the 10 yuan fee that had annoyed them, but also the arrogant way the banks had behaved in imposing it and that they felt they had been "cheated."

And 126 bank customers in southwest China's Chongqing Municipality have decided to sue the three banks over their "irresponsible" act. "How could they deduct money from my account without my permission?" said Duan Qiang, a local bank customer.

He has eight cards issued by different banks. "I often used two of them. The rest were applied for years ago when I was in college and they have never been used up to now. But it's time-consuming to go a long way back to the bank where I opened the account to cancel a card."

In each of the surplus account books, there were only several yuan on deposit. "If I am in arrears with 10 yuan yearly for each of them as the new policy goes, I would get a bad credit rating, bad for me," he said.

Duan was not the only one to have so many cards. Roger Zhang, who has moved to Shanghai from Beijing while he went to university in Nanjing, said he had some cards that he had not cancelled yet in Beijing and Nanjing.

"On canceling the cards, the banks require the holders to come in with their ID cards. It's impossible for me to go back to the two cities just for the two useless cards," Zhang said.

He recalled that he was persuaded to open the account years before by the bank staff when they were promoting their card services.

"They said it was free and I could get a card as long as I had a small amount of money on deposit, even 10 yuan," he said.

The three banks said the move was designed to get rid of "dormant" debit cards that have never been used by card holders but were occupying space in the banks' data bases and technology resources.

A senior official with the ICBC said the new policy was to lower costs to the banks and to improve the state-owned banks' management performance.

Market oriented

Another insider said the state-owned banks were considering becoming more market-oriented rather than being dependent on government support and they expected profit growth from charging fees on the debit cards.

Since the advent of the first account card in China in 1985, some 618 million debit cards have been issued (over 95 percent of all kinds of bank cards, according to China UnionPay), about one card for every two Chinese.

Between them, the commercial banks in China have issued a total of 400 million cards and the gross annual fee to be charged on them will earn the banks 4 billion yuan (US$483 million).

Though the banks claimed that the management and maintenance of the cards, including investment in the hardware of the computer centers, ATMs and POS machines, were costing them a lot of money, people doubted whether so much money needed to be spent on those items every year.

In the past 19 years when the banks were scrambling for market share and trying to reduce services over the counter, they promoted their cards by all means regardless of the cost.

The banks required their staff to lobby a certain number of customers to acquire a bank card through "special relations" or by card promotions which involved free gifts and the offer of "fee-free" cards.

Analysts said "dormant" cards, defined as cards that are never used within a year, would not cost the banks a lot or occupy too much of their technological resources, because according to the regulations of the People's Bank of China, those cards have been managed under another system.

The Beijing Star Daily reported that the real motive for the banks to start charging annual fees was to build up funds for their listing on overseas stock markets in the near future.

The four state-owned banks have announced that their level of bad debt was 20 percent. According to the Beijing Star Daily, although the government is planning to invest US$100 billion for their listing, the amount was far from enough for the banks.

The newspaper said the banks claim to be "market-oriented," was just not "customer-friendly" and the unilateral policy decision was not based on any market research or arrived at with the permission of customers. Fierce competition in the future may see the end of those banks who have a reputation for bad service.

A real winner

While the state-owned banks are losing customers, stock-exchange listed banks are striving to win the "broken hearts" by promising not to charge annual fees on their cards.

The smaller banks, such as the China Merchant Bank and the Bank of Communications, have less developed networks and fewer card holders around the country, so they are spared the costs of large-scale debit card operations.

Some of these banks are promoting their cards by reducing other service fees, in addition to the lure of free debit cards.

Insiders said this could be a good opportunity for such banks to win more customers, assisting their further development.

(Shanghai Star April 30, 2004)