Credit cards issued by foreign bank card companies seldom can be used in China, except for certain restaurants or high-level hotels. Since UnionPay is the only clearinghouse for offline transactions in China, foreign clearinghouse like Visa and MasterCard
Credit cards issued by foreign bank card companies seldom can be used in China, except for certain restaurants or high-level hotels. Since UnionPay is the only clearinghouse for offline transactions in China, foreign clearinghouse like Visa and MasterCard have no place to suit the Chinese market.
However, as the latest changes in the banking industry, bank cards with Visa and MasterCard channels are expected to can be widely used in China.
Visa and Mastercard are breaking China’s door.
According to Reuters, China is pressing foreign payment card companies to form local joint ventures for onshore operations.
Some of the foreign card issuers, who were looking to set up their wholly-owned operations in China, have “informally” been told by the authorities to enter into equity joint ventures with local companies.
Visa, one of the world’s largest payments network operator, was the first to submit its application for a license in July, after the People’s Bank of China (PBOC), the central bank, issued the guidelines on June 30.
UnionPay is foreign bank card companies’ biggest rival.
Image: Business Insider
Same as Visa and MasterCard in the United States, UnionPay serves as the clearinghouse in China.
-A clearinghouse is a financial institution formed to facilitate the exchange (i.e., clearance) of payments, securities, or derivatives transactions. The clearinghouse stands between two clearing firms (also known as member firms or participants). Its purpose is to reduce the risk of a member firm failing to honor its trade settlement obligations.
Actually, Visa and MasterCard have already cooperated with certain domestic commercial banks, it’s not rare to see the Chinese credit cards are with UnionPay and Visa/ MasterCard two channels, it brings conveniences for users to have transactions both in China and abroad.
A transaction normally involves two banks and a clearinghouse. The infographic above is the process of transaction clearance for bank cards with two clearinghouse channels.
UnionPay has expanded well beyond China with a presence in over 160 countries including the United States, and many countries in the middle east and Europe.
It had a 43 percent share in the global payment card market in 2016. China no longer needs to rely on foreign clearinghouse to deal with the overseas transactions.
The infographic above is the comparison of different fees between UnionPay and Visa/MasterCard.
In 2016, the central bank of China starts to interfere with domestic commercial banks and clearinghouse, they stopped one Chinese bank card having two clearinghouse channels.
This policy partly helps UnionPay keep expanding its business. In early 2017, it launched its mobile QuickPass service in the UAE.
Now it cooperates with the local bank, Banque Misr in Egypt, both sides made an agreement enhances UnionPay acceptance penetration at the local POS terminals to 40%. Cardholders are already able to withdraw cash at almost all the local ATMs!
Download UnionPay Wallet you find it covers all the WeChat and Alipay financial functions. Moreover, UnionPay almost supports all currencies exchange while WeChat Pay and Alipay only support 9 and 18 respectively.
What will be the future of foreign bank card companies forming local joint ventures in China?
The National Development and Reform Commission rolled out a restriction, the service fee of UnionPay should not more than 0.065% for every transaction. UnionPay still achieved CNY16.4 revenue and CNY3.28 net profit in 2016.
However, the threshold of establishing a clearinghouse in China is pretty high, it requires CNY1 billion registration capital. The shareholders of UnionPay have ever worked for the central bank of China, and many of the board members have the experience working for the central bank of China.
According to Reuters, the U.S company Visa’s application has been put on hold, and the company has been asked informally to firm up its local equity partnership before resubmitting the application.
Even after getting a local equity partner, foreign bank card companies would have to subject themselves to unspecified national security reviews and agree to set up data systems within China.
The invisible hand strengthens risk control on banks
China attaches importance to the macro adjustment on banking. Last Wednesday, regulators featured a capital restraint mechanism to strengthen risk control for the country’s three banks:
- China Development Bank (CDB)
- Export-Import Bank of China (China Eximbank)
- Agricultural Development Bank of China (ADBC)
The practice barely meets the changing regulatory requirements as the banks’ increasing services and widening business scopes have posed a challenge to risk control, said Zhou Minyuan, an official from the China Banking Regulatory Commission.
The invisible hand is constantly adjusting the banking industry in China, with the stronger control on banks, will the foreign bank card companies successfully break China’s door?
Reference: qdaily, sohu, Reuters
Source:HiTouch
