Banks Synchronize Networks

China's major commercial banks may form an alliance of their bank card networks, which insiders said would substantially benefit card holders.

Led by the central People's Bank of China (PBOC), five major banks, including the largest four State-owned banks and the Bank of Communications, expect to connect their bank card networks to the National Bank Card Switching Centre at the central bank by October 1, paving the way for a nationwide and industry-wide linkup by the end of the year.

All joint-stock commercial banks are scheduled to connect their internal card networks to the switching centre by the end of the year, according to the PBOC.

"The central bank, issuing banks that operate on a nationwide basis as well as the bank card connection centre are working actively towards this end,'' the PBOC said in a statement.

The switching centre was established by the central bank and major issuing banks in December, 1998. The centre, State-owned banks as well as joint-stock commercial banks, are working on a layout of the programme and carrying out operational trials, the statement said.

The All-China Bank Card Office is drafting related regulations to guarantee the smooth pace of the project, it added.

Analysts said the connection will help banks minimize financial risks, improve services and reduce costs by sharing infrastructure.

"Only by this alliance can commercial banks share resources, downsize costs, prevent risks, give full play to electronic currency and promote economic growth,'' the PBOC said in the statement.

Since the Bank of China issued the country's first bank card -- the Great Wall Card in 1986, China's bank card industry had been growing rapidly, but interbank co-operation was limited.

Unaware that co-operation could benefit both sides in the burgeoning industry, over a zero-sum game in a savings war, Chinese banks had been reluctant to form alliances in their bank card operations, industry insiders said.

By not seeing bank cards as an independent industry, domestic banks had also been criticized for giving themselves up to global card organizations like Visa and MasterCard, instead of developing independent brands.

Twenty-two Chinese banks have become members of Visa International and have been operating subordinate brands like Great Wall Cards and Long Cards.

In a bid to unify the industry, the PBOC launched a Golden Card Project in 1993 to promote co-operation among issuing banks.

"The effect of an alliance in bank card businesses has been evident,'' giving a strong boost to the use of the plastic currency, the central bank said in the statement.

Sixteen major cities have set up bank card network service centres and linked regional networks of different banks. So far 350,000 merchants and 130,000 banking outlets have received bank cards and the numbers of automatic teller machines (ATMs) and point-of-sales terminals have soared to 27,000 and 240,000 respectively, according to statistics from the PBOC.

As a result, sales via cards have been surging, accounting for nearly 10 per cent of total retail sales last year, statistics showed.

More noticeably, two banks issued true credit cards earlier this year, which gave credit without deposits on the card and allow an interest-free repayment period.

The majority of China's bank cards forbid cash advances or impose high interest rates on overdrafts, in a bid to minimize financial risks.

Insiders said, however, there are still difficulties hampering an industry-wide alliance of bank card operations.

"Differences in both hardware and software need to be ironed out first,'' said an official with the Agricultural Bank of China, who declined to be named.

Due to years of uncoordinated development of bank card operations, China's commercial banks have developed different computer systems and software, which would take time to unify under the alliance, he said.

Larger banks are not as enthusiastic for the project as smaller banks, since the alliance may mean large firms would share the infrastructure they have invested in heavily throughout past years.





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