Payment Standards May Halt Visa And MasterCard In China

Not long ago the Chinese government confirmed plans to open the country’s bank card market to foreign companies like Visa and MasterCard, but industry observers told the Financial Times the struggle to access the sector dominated by a state-backed provider may just be beginning.

“Regulations allowing foreign companies to apply for renminbi clearing licenses took effect on June 1 — but a separate rule announced by China’s central bank in November creates major headaches for Visa and MasterCard,” the Financial Times reported over the weekend.

“From this year, all bank cards issued in China must comply with a technical standard known as PBOC 3.0, named for the People’s Bank of China,” they added.

According to industry analysts, this presents yet another challenge because it differs from the EMV international payments standard. In order to meet the new payment standards, Visa and MasterCard may be forced to change the way their cards are produced.

“This will definitely impact the foreign players, but it is not finalized yet,” James Chen, greater China general manager at First Data Corp and former China GM at MasterCard told the Financial Times. “The issues can be resolved. The question is, how much space is left for Visa and MasterCard?” he said.

While adoption of the chip-and-pin technology has been slower in the U.S., China is attempting to phase out magnetic stripes.

“Both the international and the Chinese payment-card standards generate single-use data for each transaction, making the information useless for a hacker attempting to clone a card,” the Financial Times confirmed.

Advocates of the Chinese payment standard said it includes additional features not supported by EMV, such as support for NFC technology, enabling contactless payments.

However, “even if it is possible for, say, MasterCard and Visa to redesign their own chip to meet that standard, the fact that it is possible doesn’t detract from the point that China would be deviating from the international standard and creating an unnecessary barrier to trade,” law professor Brian Mercurio told the Financial Times.

A disagreement over payment standards may not block foreign providers in China’s bank card sector, but it could present a significant delay in rollout.

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