Visa Eyes China, Prepares to Take on UnionPay
The sheer size of the Chinese mobile payments market is too sweet a prize for any mobile payments processor to not want to make at least some kind of run at. Several have tried, but results so far have been sketchy at best. Now, Visa’s going straight to the source, and filing an application with the People’s Bank of China (PBOC) to be the first payment network with a bank card clearing license that didn’t originate in China.
It’s been about two years since China opened up the payments market to non-local firms, and word is that Mastercard is planning a similar strategy, though it may take on a local partner instead of going the straight license route.
Some believe, however, that Visa may have a tough time of it; Visa is already the second-largest share of the worldwide payment card market as of 2016 figures; UnionPay is the leader at 43 percent, but almost all of its market is Chinese in nature. Visa comes in second with 21 percent, followed by an amalgam of the rest of the market at 20 percent and Mastercard itself at 16 percent of the total.
If Visa were to enter the market, it would be directly competing with UnionPay in pretty much the only place where UnionPay competes. UnionPay is actively working to pursue business outside of the Chinese market, of course—outside of China, UnionPay only reportedly makes up about 0.5 percent of card market share—but it’s going to be walking into a very competitive market.
So what will PBOC’s response to this be? If it lets Visa in, it risks slitting UnionPay’s throat by letting a competitor into the one market segment where UnionPay is top dog. If it keeps Visa out, then it looks like a protectionist stroke, a move that’s not going to be well-accepted by the business community at large. If UnionPay wants to take on other markets, then it’s likely going to have to demonstrate it can stand off competition on its own merits.
This isn’t a good situation for UnionPay, and the only way for it to survive long-term is to diversify out of China. Visa in China may make that a lot tougher, however.