China opens up to Visa and MasterCard

by Steve Murphy 0

Money withdrawal on the ATM

Before anyone gets too excited about this announcement, let me just reintroduce a phrase from the 20th century, “hold the phone”. The People’s Bank of China (PBOC), the country’s primary bank regulator, has finally announced that qualified foreign entities can enter the card payments market. One must keep in mind that the original “promise” to open up the China market was made four years back, and only after a prior complaint (now going back 6 years) was filed through the WTO by the US government.

Visa and MasterCard have been lobbying for a way into the market – in which local scheme China UnionPay has long held an effective monopoly – for years. China promised to loosen UnionPay’s grip after the World Trade Organisation ruled in 2012 that the US firms were being discriminated against in the country. The WTO entered the fray after the US government made a complaint.

As is the normal case in China, where nothing is really normal, the ability to apply for a license comes with strings attached, which in this case is expensive and thick synthetic rope. The application process has a reported ninety day turnaround for a ruling, after which an approved foreign entity has a year to launch.

…outside players can apply for a license but that they must hold 1 billion yuan ($152 million) in registered capital in a local company, be based locally and meet cybersecurity standards

The article is a bit short on detail, so one might assume that the required investment will be in some type of payments entity, and it would not be a stretch to believe that the Chinese government will hold at least a minority equity position. So we will track and see where this goes as Visa and MasterCard (among others) work their way through the application process. One might also be reminded of a saying derived from the long history of China, “seeing once is better than hearing a hundred times”.

Overview Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group

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