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Credit Card Networks: On a Slow Boat to China

By Brian Riley
April 3, 2019
in Analysts Coverage, Credit
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Credit Card Networks: On a Slow Boat to China

Credit Card Networks: On a Slow Boat to China

It has been a 13 year battle, five years after China’s 2006 broken promise to allow foreign firms into their domestic payment market.

American Express, Mastercard, and Visa have done backflips trying to break into the $31 trillion market and the South China Morning Post wonders if the agreement with China’s president Xi Jinping and President Donald Trump will be too late.

  • Beijing promised to allow foreign firms into its domestic electronic payments market by 2006. Instead, foreign firms have faced continued obstacles, despite a seemingly successful World Trade Organisation case brought by the US to pry open the market. Only now has China finally established a two-step application process for foreign companies to receive a license to provide electronic payment services.
  • Even if Xi and Trump resolve the issue as part of a broader agreement to defuse the bilateral trade war, it could take another two years before Visa, the largest US payments company, can offer its services in China. And then comes the challenge of wooing away consumers from a well-established brand.
  • Also, since China’s entry into the WTO in 2001, China’s UnionPay has grown from a government-backed credit card start-up into an international behemoth with a substantial home-field

Caixing Global, another Chinese news source, reports that Visa plans to set up a foreign-owned company, similar to what the payment brand did with Visa Europe a decade ago.

  • Alfred F. Kelly, Jr., CEO of Visa Inc., told Caixin that the global credit-card giant had begun groundwork for the clearing business to prepare for the operation if it obtains the license. Visa will make full use of its existing market advantages, technical capabilities and infrastructure to operate in China, Kelly said. For instance, it opened an innovation center in Beijing on Friday, the second in Asia following one in Singapore that opened in 2016.
  • Visa isn’t the only foreign credit-card giant charging into China. Archrival MasterCard Inc. last month agreed to form a joint venture with China’s newly launched online clearinghouse Nets Union Clearing Corp. American Express Co. has also formed a joint venture with Lianlian Group, a Chinese financial technology company, and has acquired the first such license.

Discover Network is already in the market with a long-standing bilateral arrangement with Union Pay. The other three payment brands jumped through hoops to satisfy an early (new) requirement but to no avail.

  • In 2017, Visa and MasterCard submitted applications for the licenses after Beijing promised to further open the market to foreigners. Visa retrieved its application in January 2018 and re-submitted in April the same year. However, sources close to the central bank said the application was not officially reviewed due to lack of required materials, especially for documents surrounding user and vendor protection.

Mastercard took a different approach.  Rather than looking at a new entity, they formed a transaction clearing service venture, as reported in February.

  • An extended wait to offer its core transaction clearing services in China may finally be coming to an end for Mastercard Inc. The global credit card giant has agreed to form a joint venture with China’s newly launched online clearinghouse Nets Union Clearing Corp. (NUCC), seeking to crack into the nation’s vast transaction clearing market, Caixin has learned.
  • The regulator late last year granted the first such license to Mastercard’s smaller rival American Express Co. (AmEx), which agreed to form a joint venture with Lianlian Group, a Chinese financial technology company.

This is potentially a great market, but surely it has been a slow boat to China.

Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group

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Tags: American ExpressChinaCreditMastercardVisa

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