19 Feb 2020
Posted in Banking
China opens up US$16.5 trillion card payments market for foreign operators, says GlobalData
The Chinese Government is gradually opening up its card payments market for international operators with Mastercard being the latest entrant. China is the world’s largest card payments market, in terms of payment value, accounting for US$16.5 trillion in 2019 – much higher than developed markets such as the US (US$7.2 trillion) and the UK (US$1.1 trillion), according to GlobalData, a leading data and analytics company.
Ravi Sharma, Banking and Payments Lead Analyst at GlobalData, explains: “The Chinese payment card market has traditionally been a closed market with high entry barriers. The licensing for foreign operators will bring competitiveness to the market, which is predominantly occupied by state-owned domestic card scheme UnionPay.”
The World Trade Organization (WTO) previously directed the Chinese government to open up its payment card market to foreign competitors in 2012, but this did not come to fruition. However, in February 2020, Mastercard has received approval from the People’s Bank of China (PBOC) to set up a domestic bankcard clearing business in China, as a result of recent US-China trade deal.
Earlier, American Express became the first foreign card network to gain approval to establish a network to clear card payments in China in November 2018. Meanwhile, Visa is also planning to set up a wholly foreign-owned company in China and seeking for a clearing license.
While foreign card schemes are already present in the market, they are mainly issued in collaboration with UnionPay under the co-badging agreement. This means, all local transactions are processed by UnionPay while foreign schemes are only able to manage overseas transactions. With new licensing, foreign schemes will also be able process transactions locally via their own infrastructure, and seek to capture a pie in the largest card market globally.
At this point, the cards market is less attractive than it was in the 2000s because mobile has disrupted it to the point that mobile has become the dominant form of payment with solutions such as Alipay and Tenpay being preferred widely.
According to GlobalData’s Payment Cards Analytics, the overall card payments value in China is expected to grow at a CAGR of 11.8% between 2019 and 2023 to reach CNY177.1 trillion (US$25.8 trillion).
Sharma concludes: “While this decision will pave the way of foreign operators into the Chinese card market, they have a long way to go before they can dent UnionPay’s stronghold.”