In a big reversal from previous policy, Chinese authorities have announced that they will open China’s market for clearing domestic bank card transactions, Reuters reported Wednesday (April 22). This will allow players like Visa and MasterCard direct access to a $6.84 trillion market (as of last year) that they have heretofore been almost entirely locked out of.
As of June 1, foreign firms will be able to set up clearing companies within China and apply to the central bank for license, according to a posting on the State Council website yesterday (April 23). Until now, the state-backed Union Pay has had exclusive access to processing payments card transactions within China – though some Chinese citizens have foreign issued Visa/MasterCards for some cross-border purchasing.
The combined value of bank card transaction (counting both debit and credit) was almost $7 trillion in 2014, a 13 percent increase over the previous year. Ending Union Pay’s monopoly and allowing foreign entrants into the market ends a longstanding trade dispute between China, the United States and the rest of the world. The World Trade Organization ruled in 2012 that China’s monopolistic practices around electronic payment were discriminatory against foreign card companies.
“Opening up the market for bank card clearing will help improve the country’s card-clearing services through market competition,” the People’s Bank of China said in an online statement on Wednesday. “[The State Council announcement] fully represents the principles of opening up the Chinese financial system and achieving a fair and competitive market environment.”
Yesterday’s announcement follows an October release from the PBOC that indicated willingness to open its credit card markets to foreign players.
A spokesman for China Union Pay responded to the news of his firm’s assured dominance of the card market end positively – noting that Union Pay “supports and will firmly execute” the government’s decision.
A senior credit card executive cited by Reuters welcomed the “positive development,” but wanted more detail.
Detailed rules from the state’s central bank and banking regulator, the China Banking Regulatory Commission, are reportedly forthcoming.
MasterCard had no official comment, according to Reuters.
“We are hopeful these new regulations will permit additional participants in the Chinese domestic market,” Visa said in a statement. “Visa will review the new regulations and look forward to further implementation details.”