The ten year-old regime governing merchant fees in China is about to change – and the fees are, in general, about to be reduced by one-fourth or more. This change will take effect February 25, 2013, pursuant to the Standards on Bank Card Merchant Fees (the “Standards”), recently approved by the State Council. The Chinese interchange regime is less notable for being dictated by the government – a trend that has also reached the United States, among many other countries – than for cross-sector subsidies. Set out below is a brief overview of the forthcoming regime.

Fees will vary by sector – entertainment; general; daily living; and public welfare. For the entertainment sector, including food and beverage, entertainment, jewelry, artworks, real estate and automobile sales, fees will fall from 2% to 1.25%, including a 0.9% for issuance service fee, a 0.13% clearing house online service fee, and a 0.22% (+/- 10%) transaction fee. Note that in the aggregate these decreases exceed the basic one-fourth decrease.

For real estate and automobile sales, by contrast, a maximum amount of RMB 80 will be charged for each transaction, increased from RMB 10.

For general items, including general merchandise, wholesale purchases, training services, travel agencies and ticket services, a rate of 0.78% will be charged, including 0.55% as an issuance service fee, 0.08% as a clearing house online service fee, and 0.15% (+/- 10%) as a transaction fee. Merchant fees for wholesale purchases will be limited to a maximum of RMB 26.

For the daily living sector, including supermarket purchases, utility fee payments, and gas and transportation, merchant fees will be set at 0.38%.

No fees will be charged for the public welfare sector, including, for example, hospital and educational institutions.

The Standards will adversely affect the profits of the banking industry, especially the Bank of Communications, China Minsheng Bank, Ping An Bank and China Everbright Bank. The impact is expected to be especially substantial in the credit card businesses of these and other banks.