Hopefully, the Bank of China is working payment network applications alphabetically. American Express received approval to process payments in yuans. Mastercard and Visa still wait. Discover enjoys a bilateral acceptance agreement with Union Pay.
- American Express just became the first US credit card company to get the green light to start building its own payments network in China.
- The company said Friday that the Chinese central bank has given it preliminary approval to handle payments in yuan. AmEx (AXP) can now start setting up the payments network through a joint venture with LianLian Group, its Chinese partner.
- In every other market around the world, AmEx processes transactions through its own network, whose hub is in Phoenix, Arizona. But in China, they have been handled by state-controlled payments giant China UnionPay.
- Once AmEx has built its own network in China, it will be able to use it to process payments on AmEx branded cards and collect fees on far more transactions.
Forced relationships are one thing, full licensing is another. With 9 billion cards outstanding, this is a payment networks nirvana.
- In China, AmEx, Mastercard (MA) and Visa (V) can only issue co-branded cards, typically in partnership with UnionPay. The cards use UnionPay’s network for yuan payments in China, and the US companies’ networks for payments abroad in dollars or other foreign currencies.
- AmEx now has a shot at taking some of UnionPay’s business inside China.
From American Express to Express, Seeking Alpha reports.
- The U.S. credit-card company formed a joint venture, Express (Hangzhou) Technology Services Co. with Chinese fintech services company LianLian to build a network business that will enable charges on American Express branded cards to be cleared and settled domestically by its joint venture.
And, WSJ points out that Mastercard and Visa still await approval as years of footdragging
- Once running, the AmEx network will join a market with nearly 7 billion bank cards in circulation, with government-owned China Union Pay Co. commanding more than 90% of the market. Mastercard ’s application for a similar joint-venture is pending, as is Visa Inc.’s to form a wholly owned entity in China.
- Approval of the AmEx deal was timed to get out ahead of that summit, a Beijing official said. He called it a “goodwill gesture.” In its announcement, the People’s Bank of China said the permission represents “an important step” toward liberalizing China’s clearing industry.
- Beijing and Washington are looking to the meeting between presidents Xi Jinping and Donald Trump at the end of the month to ease a trade conflict that has battered global businesses and investors as well as damaged the bilateral relationship.
With 9 billion cards outstanding, this is a payment networks nirvana.
For more detail on the China card market, see this Mercator Advisory Group report.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group