Focus

Credit programs ring bells for stores and banks

By Shi Jing (China Daily)
Updated: 2010-03-18 07:50

Purchases made by credit card installments reached 11 percent of the total transactions last year at Suning Appliance Co stores in Beijing, about 4 percentage points higher than that of 2008.

The company began providing credit card installment loans in 2006. To counteract the gloomy economic environment last year, Suning launched a campaign in January 2009 to boost consumption. It worked with eight major commercial banks in China to make it happen.

"For a consumer with a China Merchants Bank credit card, we usually charge a 4.5 percent commission fee if he pays within 12 months," said Sun Chengzhi, general deputy manager of Suning's Beijing branch. "That would amount to 450 yuan ($66) if the product were worth 10,000 yuan. It is a considerably large sum for a consumer with a mid-level income. With the campaign just launched, all the commission will be paid by our company and the commercial banks. And that works out very well."

Credit card installments help consumers afford a relatively expensive product in advance once they sign a contract promising to pay back a certain amount of money on a monthly basis. Currently in China, most banks receive repayments in three months, six months or a year.

"As long as you pay by credit card, you can shop in any store and pay in installments," said Lei Jun, a customer service manager at the Bank of Communications' Huixin branch. "All you need to do is to call the customer service and tell them you would like to have your purchase made by installments. And snap!"

Not everyone sees a bargain in the installment payments. The naysayers even include bank employees. "You will be charged extra dozens of yuan if you buy a 3,000-yuan product. So you'd better pay all at once instead of by installments," said Wang Peng, a customer service manager at China Construction Bank.

Although Suning's zero-commission campaign looks attractive now, it is a temporary tactic to boost store sales, critics said.

The commission fees will likely be resumed at a later time, said Zhang Lin, a customer service manager of China Merchants Bank.

"For example, if you have a credit card from the Ito Yokado department store, you can pay by installments," Zhang said. "But it will charge you a small percentage of the total purchase. That is to say, you will pay an additional amount."

Currently, most banks charge higher commission fees when the money is paid back over a longer term. Other banks, including China Construction Bank, do the opposite.

The Bank of Communications charges commission fees based on the price of the product, with higher priced goods having lower interest rates.

Meanwhile, most banks have set a minimum purchase price to qualify for credit card installments, normally more than 500 yuan.

Bank clerks also point another hazard: invisible costs, such as the "freight" charge, or restocking fee, of 150 yuan that is added for returned goods purchased with China Merchants Bank accounts. That bank also charges annual fees of 100 to 300 yuan.

According to Suning, its credit card installment program is geared to appeal to people born after the 1980s. Those customers are believed to be accustomed to this way of spending.

But others, such as collegians, are generally not welcome, at least on their own.

"Students are not eligible to apply for installments," said Wang of China Construction Bank. "They have to produce a contract which has been signed by their parents in advance."