China Welcomes Visa and MasterCard Into Local Payment Card Market

Visa and MasterCard are now allowed to acquire licensing for domestic Chinese payments.

Prior to the new rules set by the central bank, only China UnionPay (CUP) was approved to clear yuan transactions in the region.

At the moment, CUP is the sole interbank network outside of Hong Kong and Macau.

“Visa and MasterCard need to build up their local infrastructure. In the past they just operated as a sales office. They don’t really have the physical presence,” said James Chen, former China general manager for MasterCard, to the Financial Times, . “They need to start to recruit people and buy equipment — basically build from ground zero.”

Previously, the Chinese government announced it would open the market to foreign financial institutions after being accused of discrimination. The World Trade Organization finalized the complaint in favor of the United States in 2012.

Since then, China has updated its policies to accommodate to foreign companies interested in playing an active role in the local financial sector. In October 2014, the government made its plans official and stated that the new guidelines will be put into effect on June 1.

While the event marks a significant milestone for many international bank card operators, analysts speculate that gaining shares in the market will be difficult and challenging.

Based on information released by Datamonitor, CUP currently holds majority of debit cards processing, which accounted for over 72 percent of the total transaction value in the area last year.

“Realistically, Visa and MasterCard are not going to be the dominant card networks in China in the near future,” mentioned Tristan Hugo-Webb, associate director of global payments at Mercator Advisory Group.

“Nonetheless, even a small share of the fast-growing Chinese electronic payment market will be a big boon for Visa and MasterCard as they increasingly face competition from other players in the global payments marketplace.”