Visa & MasterCard Welcome to China Market

Jun 08, 2015

Global bank card operators including Visa and MasterCard can seek licences to clear domestic Chinese payments starting on Monday, following a long-running effort to penetrate a market dominated by a state-backed incumbent.

The biggest share price gains for both Visa and MasterCard over the past year have come in response to Chinese government policies that open the local payment card market to foreign players.

Previously, all renminbi payments had to be cleared through China UnionPay, a network created by the central bank and now owned by 85 mostly state-owned banks. But in 2012 the World Trade Organisation ruled that China unfairly discriminated against foreign payment processors, handing a victory to the US, which brought the complaint.

Industry experts say foreign players still face big challenges in trying to win market share from UnionPay, the settlement network used by 80 per cent of debit cards accounting for 72 per cent of total transaction value in 2014, according to Datamonitor.

“Visa and MasterCard need to build up their local infrastructure. In the past they just operated as a sales office. They don’t really have the physical presence,” said James Chen, former China general manager for MasterCard and now greater China general manager at First Data Corp.

“They need to start to recruit people and buy equipment — basically build from ground zero.”

Chinese banks do issue Visa, MasterCard and American Express credit cards — whose payments are processed through their foreign-currency networks — but few Chinese merchants accept them. Instead, Chinese cardholders use them mainly for foreign travel.

Before 2010, many banks issued dual-currency credit cards with both a UnionPay and a foreign logo. But dual-currency cards were largely halted after a dispute between Visa and UnionPay in 2010.

Central bank data shows that banks had issued 4.9bn debit and credit cards in the country by the end of 2014, with retail payments totalling Rmb42tn ($6.8tn), a third higher than 2013.

Even after the rules take effect, foreign operators face a long road. Though now ostensibly independent from the government, UnionPay has been chaired by a succession of former senior officials from the People’s Bank of China, and the government is keen to support the company’s growth both within China and overseas, where its cards are accepted in 150 countries.

“Realistically, Visa and MasterCard are not going to be the dominant card networks in China in the near future,” said Tristan Hugo-Webb, associate director of global payments at Mercator Advisory.

“Nonetheless, even a small share of the fast-growing Chinese electronic payment market will be a big boon for Visa and MasterCard as they increasingly face competition from other players in the global payments marketplace.”

Source: THE Financial Times