Global bank card operators including Visa and MasterCard can seek licences to clear domestic Chinese payments starting today, following a long-running effort to penetrate a market dominated by a state-backed incumbent.
The biggest share price gains for 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.
In late October, China’s cabinet announced it would allow foreign companies to access the market. The government followed up in April with rules that take effect on June 1.
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 China unfairly discriminated against foreign payment processors, handing a victory to the US, which brought the complaint.
Industry experts say foreign players will still struggle to win market share from UnionPay, which is used by 80 per cent of debit cards and accounted 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.
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 these 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 in 2013.
“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.