(Yicai) Feb. 11 -- Against the backdrop of shrinking net interest margins, Chinese banks have made SMS notifications for transactions lower than certain amounts a paid service to control costs.

China Merchants Bank will stop sending free SMS for transactions below CNY5,000 (USD725) from March 16, the lender recently announced. Clients who wish to keep the service will have to pay a monthly fee of CNY3 (43 US cents).

More than 10 other large- and medium-sized banks, including Bank of China, as well as several rural commercial banks, have also announced they will charge monthly fees for SMS transaction notifications, according to incomplete statistics compiled by Yicai. However, their payment thresholds were set at CNY100 to CNY500 (USD15 to USD72), much lower than that of China Merchants Bank.

SMS transaction notifications are not mandatory basic services, so charging fees is within regulatory rules as a market-based practice, Dong Ximiao, chief researcher at Merchants Union Consumer Finance and deputy director of the Shanghai Institute for Finance and Development, told Yicai.

Even though the price per SMS is low, the total expenditure is substantial, given banks’ huge customer base and high transaction frequency, making this cost a financial burden lenders are eager to cut.

A bank with 100 million personal accounts likely pays CNY3 million (USD434 million) per month to mobile network operators, if each account receives just one free SMS for a small transaction per month for 3 Chinese cents (0.43 US cent) per message, according to industry estimates. That adds up to more than CNY36 million (USD5.2 million) a year.

Chinese banks’ net interest margins -- the difference between the interest a bank earns on its loans and investments and the interest it pays on deposits and other funding -- have been continuously narrowed in recent years. So, even such once-overlooked expense has now become an important focus for lenders to refine cost management.

“Assuming each customer receives up to 100 SMS a month, charging a monthly fee of CNY3 per message will basically cover the costs and even part of the spending on system maintenance, risk control, and management,” an industry insider told Yicai.

Besides covering operational costs, charging fees for SMS transaction notifications can also guide customers to use zero-cost digital channels, such as bank apps and WeChat official accounts, Lou Feipeng, a researcher at Postal Savings Bank of China, told Yicai.

“Shifting payment alerts to mobile banking apps and WeChat can boost customers’ app usage, thus driving the adoption of integrated services, such as account management and wealth allocation,” said Yang Haiping, a researcher at the Shanghai Institute of Finance and Law.

The banking industry will eventually adopt a model where free SMS alerts are kept for large transactions, while notifications for small transactions are sent by default via apps or WeChat, Lou predicted. Fully free SMS services will only be provided to designated groups, such as high-end clients and elderly customers, who are less familiar with app operations.

Editors: Tang Shihua, Futura Costaglione