Chinese Banks to Start Charging for SMS Transaction Service to Reduce Costs

Amidst narrowing net interest margins, Chinese banks have shifted to charging for SMS transaction notifications for amounts below certain thresholds as a way to cut costs.

Starting March 16, China Merchants Bank will cease offering free SMS alerts for transactions under 5,000 RMB (approximately 725 USD). Customers wishing to continue receiving these notifications will need to pay a monthly fee of 3 RMB (about 43 cents).

Numerous other major and mid-sized banks, including the Bank of China, along with several rural commercial banks, have also announced plans to introduce monthly fees for SMS transaction alerts. According to partial data compiled by industry sources, their fee thresholds range from 100 to 500 RMB (around 15 to 72 USD), significantly lower than China Merchants Bank’s.

Since SMS notifications are not considered mandatory core services, charging fees for them aligns with regulatory guidelines and is viewed as a market-driven approach, according to industry experts.

While the per-message cost is nominal, the total expense can be substantial because of the vast customer base and high transaction volumes banks handle daily, making these costs an area they aim to trim.

An estimated bank with 100 million individual accounts might spend around 3 million RMB (roughly 434 million USD) monthly to mobile providers if each account receives just one free SMS per small transaction at 3 Chinese cents (about 0.43 US cents) per message. Over a year, this adds up to more than 36 million RMB (approximately 5.2 million USD), industry estimates suggest.

Net interest margins— the difference between earnings on loans and investments versus interest paid on deposits and other funding—have been steadily shrinking in recent years. Consequently, even minor expenses like SMS alerts have gained importance as banks seek to further optimize costs.

An industry insider stated that assuming customers receive up to 100 SMS notifications monthly, charging just 3 RMB per message could cover these costs and contribute to expenses related to system maintenance, risk management, and overall administration.

In addition to cost savings, implementing fee-based SMS alerts can encourage customers to migrate to zero-cost digital channels like banking apps and messaging platforms such as WeChat, explained a researcher from Postal Savings Bank of China.

Using mobile apps and messaging platforms for alerts can increase user engagement with digital services like account management and wealth management, noted Yang Haiping, a researcher at the Shanghai Institute of Finance and Law.

Experts predict that a future industry model will maintain free SMS notifications for large transactions while defaulting to app or WeChat alerts for smaller ones. Fully free SMS services are expected to be reserved for specific groups, such as high-net-worth clients or older customers less comfortable with digital platforms.