Foreign operators battle central bank over payment settlement

Credit-card companies are fighting for a slice of multi-billion-dollar revenues which could be earned by providing their international networks to settle transactions made on the mainland.

However, the People's Bank of China appears intent on keeping those revenues at home by regulating a two-tier card payment settlement system - one for domestic transactions settled over a mainland payment network owned by local banks; and another for cross-border foreign-currency transactions.

That would effectively lock international card companies such as MasterCard International and Visa out of a mainland domestic consumer retail market, which according to official data, generated retail sales valued at 3.76 trillion yuan (about HK$3.52 trillion) last year.

Assuming 30 per cent of those sales could be transacted on credit cards once the system is fully operational (a ratio already achieved in mature card markets), and based on a 10-basis point levy taken by card companies for transactions settled by their networks, that translates into potential revenues to card companies of almost HK$8 billion.

The stand-off between card companies and the central bank over the architecture of the settlement system erupted into the open this week in comments from MasterCard's president for Asia-Pacific, Andre Sekulic.

The China settlement system is one of two battles being fought by card companies in Asia with regulators over the issue of 'interchange' - or payments levied for the use of global card networks - the other being with the Reserve Bank of Australia (RBA).

In a move contested by card companies and issuers, the RBA on December 14 announced proposed reforms that sought to regulate the wholesale or 'interchange' fees paid to card issuers by merchants for every transaction using a credit card.