China’s 55 trillion yuan credit card clearing market now open for competition
Central bank’s announcement finally ends UnionPay’s long-held monopoly over the domestic card market
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.
“Having said that, it’s a positive development,” Kwok said.
“This is long expected and finally happening,” said Jan Bellens, global emerging markets leader for banking and capital markets at EY. “The payment market is going through a lot of changes – credit cards are one part of it – so this should be welcomed,” he said.
The People’s Bank of China and China Banking Regulatory Commission said in a joint statement that the move is intended to encourage competition and open up the market.
The central bank’s end goal is to bring more personalised card services to Chinese consumers, while encouraging a more secure and efficient payment ecosystem.
“The principle of the rules is to create a level playing field and attract more institutions to participate in market competition,” a spokesman said.
“In the future, China’s bank card clearing market will be pluralistic. Multiple brands would compete and offer different and differentiated services. This will allow the card market to sustainably renew itself and optimise its structures and developments.
“The development of the new mechanism will benefit consumers and cardholders and give them more personalised bank card services; all the while creating a more secure and efficient payment ecosystem to meet the public’s payment demands. This will in the end help raise consumption and living standard in the country.”