Facing competition from Internet firms, many banks scrap fund transfer charges

By Chu Daye Source:Global Times Published: 2015-12-9 19:28:01

A growing number of joint-equity commercial banks have announced that they had stopped charging fees for online transfers in recent months. Experts say the move is aimed at staving off competition from the Internet-based payment services, such as Ailpay and Tenpay Wallet, which don't charge users for most fund transfers. Big banks, however, may be slow to follow.


Several joint-equity commercial banks have announced they had abolished fees for money transfers via their online services, fueling expectations that more banks will follow suit, bringing more benefits to customers.

Experts said the development shows that the competition between banks is rising, amid a growing pressure from third-party online payment tools such as Alipay, but they noted that larger State-owned banks in China will not be quick to follow.

Shenzhen-headquartered China Merchants Bank announced its decision to scrap fees for money transfers via its online banking service, effective on September 21, 2015.

Currently, most banks charge their customers a fee to transfer funds between banks. Generally speaking, the fee is the highest when a customer performs the transfer with the help of a bank teller. But if the transaction is completed online, the customer can enjoy a discount - usually 50 percent.

However, for Alipay, China's largest online payment tool by transaction which is developed by Alibaba Group, transfers are all free if done through its mobile app and are capped at 10 yuan ($1.56) if done on a computer.

Hangzhou-headquartered China Zheshang Bank, another joint-equity commercial bank, said it will discontinue its transfer fees on Saturday, trailing Beijing-based China CITIC Bank, whose similiar policy took effect on December 1.

Other banks such as Bank of Shanghai, Bank of Jiangsu and Bank of Ningbo also announced they will stop online transfer fees.

Changing the model

Chinese people typically have several bank accounts from different banks, and choose just a few of them to concentrate their deposits.

Ma Tao, an Internet finance analyst with Beijing-based market consultancy Analysys International, believes that bigger State-owned banks, such as Industrial and Commercial Bank of China (ICBC) and China Construction Bank, will also follow suit in the future.

"The megatrend is that as banking services evolve over time, more and more services will become free of charge," Ma told the Global Times Monday. "So free services are the future of electronic banking."

Offering free services will attract more customers, and provide the banks with more opportunities to peddle financial products and services, Ma said.

"As the government pushes ahead with the interest rate reform, banks need to change their profit model from being based on net interest income, as commercial banks are forced to consider financial products and services as the future source of income, and a sizable user base is a prerequisite for such a strategy," Ma said.

Lowering fees is an effective way to grab people's deposits and secure funding. About nearly three-quarters of the banking sector's operating income comes from the net interest income, according to a Fitch report on the banking sector released on Monday.

Big banks hold off

But some experts doubt large banks will also adopt the same policy soon.

When asked whether the Industrial and Commercial Bank of China (ICBC) will scrap the fees for online transfers, a clerk said this is out of the question, shaking his head and waving his hands in disapproval.

"I will say this is utterly impossible for the moment, though it might become true some day in the future," the clerk, who declined to be named, told the Global Times Monday.

Xi Junyang, a professor in the finance department at the Shanghai University of Finance and Economics, said the move is a reaction to the rising competition in the banking sector and from Internet finance firms.

"Bigger banks will not follow suit right away. Smaller banks have fewer outlets and a smaller customer base, so their customers have a greater need for conducting interbank transactions compared with customers of larger banks," Xi told the Global Times Monday, noting that bigger banks also enjoy a higher level of customer loyalty.

Customers can fairly easily use online services to conduct transactions, pushing smaller banks to scrap fees, Xi said.

Fund transfers are an important business for the banks. In the second quarter of 2015, the sector handled 6.86 billion transfers worth 118.17 trillion yuan, according to a quarterly update by the People's Bank of China (PBC), the country's central bank, released on September 8.

The transfer business accounted for 33.01 percent of total bank card transactions and 70.89 percent of the total volume, the PBC said. The percentage rose 15.35 percent and 12.43 percent over the same period last year, respectively.

"Whether larger banks will adopt the same measure depends on the competition in the future, including competition from both inside and outside the banking sector," Xi said.

"If there is enough pressure, the large banks will also choose to offer free transfers."

Ma said third-party online payment tools have been pressuring traditional banks for several years.

"The new generation of customers, born after 1985, are not as attached to the brand effect of big banks as the preceding generation. They care more about whether they should choose Alipay, which can conveniently access to taobao.com and tmall.com online marketplaces, or Tencent Holdings' Tenpay, which is connected with WeChat, the omnipresent social messaging app in China," Ma said.

They tend to understand the bank card as something to be bundled with third-party online payment tools, rather than having resonance with the business reputation of the issuers of the bank cards, Ma said.

Tencent said it will start charging fees on October 17 for transactions over 20,000 yuan per month, citing high costs.

 "Traditional banks and Internet finance firms share a common pursuit of profit," Xi said.

"When Internet finance firms believe in their possessions of big user bases, loyal customers, and that charging fees will not cause an exodus, they will charge fees for their services."
Newspaper headline: Free of fees

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