China

Mastercard’s Entry into China Paints of Picture of China’s Market Liberalisation

Mastercard was granted preparatory approval from the People’s Bank of China (PBOC) to begin setting up a domestic bankcard clearing institution in China, the company announced on February 11.

The news is significant for Mastercard, which has been looking to tap into China’s massive US$27 trillion payments market that’s currently dominated by large, domestic players.

For a long time, US financial companies had struggled to enter China but in 2015 Beijing allowed foreign bankcard clearing providers to obtain license by setting up units or acquiring a local company, reports Bloomberg. Despite this, approvals had remained slow – until now.

The recent regulatory approvals of Mastercard and American Express came just weeks after Beijing agreed to new rules part of the Phase One trade deal agreement between the US and China. The rules require Beijing to handle applications from US payments companies looking to become bankcard clearing houses in China in a timely manner.

“China is a vital market for us and we have reiterated out unwavering commitment to helping driver a safer, more inclusive and seamless payments ecosystem for Chinese consumers and businesses,” Ajay Banga, president and CEO of Mastercard said in a statement. “We are delighted and encouraged by this latest decision from the PBOC … [and] remain focused on working with the Chinese government and local partners to grow the overall payments infrastructure.”

The application was submitted by Mastercard NUCC Information Technology, a joint venture of Mastercard and NetsUnion Clearing Corporation (NUCC), a clearing house for online payments.

Mastercard said that within a year, the joint venture will “be able to apply to the PBOC’s for formal approval to begin domestic bank card clearing activity.”

Mastercard set up a representative office in China back in 1988 but has struggled ever since to access users of bankcards, reports the South China Morning Post (SCMP). After years of unsuccessful attempts, the company joined force with NUCC in 2019, which, according to the Wall Street Journal, is close to the regulator in charge of approving credit card businesses.

Mastercard isn’t the first US credit card and payments company looking to tap into the Chinese market.

America Express was, in fact, the first US credit card company to receive preparatory approval for a clearing and settlement license in mainland China back in 2018. The PBOC accepted the firm’s application in January 2020, allowing it to clear and settle payments domestically through its joint venture with Chinese partner LianLian Group, according to a Bloomberg report.

Meanwhile, PayPal entered China last year through the acquisition of a majority equity stake of 70% in GoPay. The move made PayPal the first foreign payments platform to provide online payments service in China, according to a TechCrunch report.

Visa International is still waiting for government approval for its Chinese operations, reports the SCMP.

As of September 2019, China had 8.2 billion bank cards in circulation with 90% of them being debit cards, according to Bloomberg.

State-run UnionPay currently dominates the domestic card market and is rapidly expanding around the world. The company now has a presence in 177 countries with more than 100 million cards issues overseas, according to the SCMP.

Image Credit: Mastercard