Visa & Mastercard Chinese expansion delayed by PBoC
(14 January 2019 – China) China’s central bank has refused to acknowledge applications submitted by Visa and Mastercard to process Renminbi (RMB) payments despite rules in 2017 that removed formal obstacles to foreign participation in the US$124 trillion market following a decade-long struggle.
The application delays by the People’s Bank of China (PBoC) highlight complaints by overseas companies and trade negotiators that China uses informal barriers to block foreign competition in the domestic market, even where written rules guarantee fair treatment. Although Visa and Mastercard submitted applications to the PBoC in 2017 the PBoC has not formally acknowledged these submissions. China’s refusal to process the applications could escalate tensions in ongoing trade negotiations between the US and China which are reaching a critical juncture ahead of a 2 March 2019 deadline to strike a deal or incur more new tariffs. The US has been attempting to secure greater market access for American financial services companies along with other changes to Chinese economic policy such as curbing the forced transfer of technology.
In November, American Express became the first foreign card scheme to win initial approval from the central bank to establish a RMB bank-card clearing company. Notably Amex launched a joint venture with a Chinese partner even though regulations permit wholly foreign-owned ventures. Visa and Mastercard’s efforts to enter China date back at least a decade. The World Trade Organisation (WTO) ruled in 2012 that China discriminates against foreign payment providers nearly two years after the US government filed the complaint. In October 2014, China’s cabinet declared that it would open the market to foreign players. The cabinet published a more specific market entry framework six months later, and the PBoC followed up with rules governing bank-card clearing companies in 2016. In June 2017, nearly five years after the WTO ruling, PBoC issued the application procedure for establishing such a business. Visa submitted its application in July 2017 and Mastercard followed suit later that year.
The PBoC is the largest shareholder in China’s UnionPay which maintains a monopoly on RMB bank-card payments in China. Visa, Mastercard and American Express have partnerships with Chinese commercial banks to issue foreign-branded credit cards however they can only be utilised for foreign-currency payments. Chinese customers use such cards for international travel but most domestic merchant acceptance is poor. UnionPay has sought to expand its international business in recent years, first in emerging markets and more recently in Europe. Chinese payment card transactions totalled US$124 billion in the year to September 2018, up 11.5 percent from a year earlier according to PBoC data despite the rapid rise of mobile payments sparking a shift away from plastic.
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