China’s 55 trillion yuan credit card clearing market now open for competition

China on Tuesday officially ended the longstanding monopoly held by its home-bred champion UnionPay over the Chinese bank card market and announced that its enormous credit card clearing market is open for competition to domestic and foreign players.

For companies like Visa and MasterCard, the move has been four years in the making since a 2012 World Trade Organisation ruling which decided it was discriminatory of China to bar foreign electronic payment processors from handling yuan-denominated transactions.

The mainland government first signalled it would move to liberalise the market in October 2014, ending a long-held practice that required foreign providers to tag on to the UnionPay payment network which was created by the central bank and majority held by state-owned banks.

Visa and Master will now be able to dip into that market’s multi­trillion-yuan pie, where Chinese consumers have embraced bank cards as their most used non-cash means for payment. Some 48 per cent of all gross consumption and retail activities in China last year were done through cards, according to the central bank. The network currently processes some 55 trillion yuan of transactions a year from 5.4 billion cards in circulation.

However, participating banks said this does not mean instant business for either brand.

“Just like how UnionPay first broke into the international market, it will take time for Visa and MasterCard to break into mainland China,” said David Kwok, chief executive of Shanghai Commercial Bank.

“UnionPay offers a lot of incentives to entice users to adopt its network on the mainland market. Visa will need to be able to match local market pricing terms before it could break in. Merchants now get all sorts of fee and exchange rate incentives on Union­Pay. It’s really very competitive at the merchants level.