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On Tuesday, the China Banking Regulatory Commission and China’s central bank issued rules that will govern the operation of foreign payment card companies, like Visa and MasterCard, in China.
The entry of foreign players could considerably diversify the market. In order to enter China, card networks must hold 1 billion yuan ($152.4 million) in registered capital in a local company, be locally based, and meet China’s national security and cybersecurity standards, according to Reuters . Companies can apply by meeting the same standards as domestic card networks.
Historically, state-affiliated China UnionPay has held a near monopoly over the country’s card ecosystem, but a 2012 World Trade Organization (WTO) ruling pushed the country to open up to foreign markets. Since then, Chinese banks have begun to issue internationally-branded cards, but few local merchants accept them. That means the cards are mainly used for digital cross-border commerce and purchases made while traveling abroad.
The move could be a boon to major card networks, which have been waiting for direct access to China for years. Chinese consumers spent 55 trillion yuan ($8.4 trillion) on payment cards in 2015, and China is expected to be the largest card payment market in the world by 2020, according to Reuters. Grabbing even a small portion of that market could significantly boost total card spend for networks. For context, a 10% share of that spend in China equates to about 8.4% of the Nilson Report’s listing of Visa’s total global 2015 volume.
The opening of China to more foreign card companies is one piece of the ongoing evolution of the worldwide payments ecosystem, which is undergoing major changes even as we speak.
Evan Bakker and John Heggestuen, analysts at BI […]
