The annual income of the domestic banking industry is likely to fall by more than 7.5 billion yuan ($1.2 billion) due to the cut in nationwide bank card transaction fees that was introduced Monday to boost domestic consumption and alleviate the burden on companies amid the sluggish economy, the People's Bank of China (PBC) said Monday.

The fee-cutting policy was launched by the National Development and Reform Commission on January 21 and became effective Monday. Various industries – including real estate, autos, and department stores – will see a drop in bank card transaction fees of up to 24 percent on average, while the catering and entertainment sectors will get the biggest fee reduction of 37.5 percent.

Domestic commercial banks will face financial pressure as a result of shrinking income from their banking operations because of the cut in fees, according to a press release posted by the PBC, the country's central bank, on its website Monday.

However, the increasing use of bank cards for transactions will help to make up for the lower fees, Zhang Guoqiang, an analyst at domestic industry website bankrate.com.cn, told the Global Times Monday.

Zhang said that domestic bank card transactions, which are an increasingly popular method of payment among consumers, still have plenty of room for growth, given that by the end of 2012, just 46 percent of transactions were completed via bank card in China.

In European countries, the proportion is around 80 percent, Zhang noted.

According to PBC data, by the end of 2012, individual spending via bank card reached 5,894 yuan per person, up 6.6 percent year-on-year.

More stores are likely to start using Point-of-Sale (POS) terminals, as the bank card transaction charges for businesses in 2013 are expected to drop by over 20 percent year-on-year, according to the central bank.

In the past, many companies did not support bank card transactions and those that did offer POS services passed the costs onto consumers as the fees squeezed their profit margins greatly, said Zhang, adding that this may also have been holding back domestic consumption.

Zhang pointed out that supermarkets' profit margins will be squeezed less as their bank card transaction fees have fallen from 0.5 percent to 0.38 percent.

"Now the fee rate for electronic goods retailers has fallen to 0.78 percent from 1 percent. I will install a POS terminal to offer my consumers' more convenience," a Beijing-based retailer surnamed Zhao told the Global Times Monday. He said many other companies in his sector would do the same, thanks to the fee-cutting policy.

Sichuan-based hotpot chain Haidilao told the Global Times that the company's operating costs will drop due to the cut in transaction fees from 2 percent to 1.25 percent.