US bank card firms apply to enter Chinese market in months

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US-based payment card companies, including American Express, MasterCard and Visa, are preparing to submit licence requests to operate in China within months, according to a Reuters report.

When will US card companies enter Chinese market?

The long wait for the US companies is unlikely to end soon. It may take two years or more for the companies to clear all official scrutiny, including from banking regulators, and for them to pass a security review, as well as meeting other conditions, the sources said.

The move comes against a backdrop of growing economic friction between China and the United States, after the two countries failed on Wednesday to agree on major new steps to reduce the US trade deficit with China.

US payment network operators have been waiting for more than a decade to get access to China. It is set to become the world's largest bank card market by 2020, when the number of cards in circulation is forecast to rise to nine billion from six billion in 2016, according to research firm GlobalData Plc.

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How open is China's bank card market?

China first agreed in 2015 to open the card market to local and foreign businesses, a move triggered by a 2012 World Trade Organization ruling. However, foreign card companies have been unable to set up local operations in the absence of a clear road-map from Chinese authorities.

In May, Beijing and Washington agreed to a July 16 deadline for China to issue "necessary guidelines" for the launch of local operations by US payment network operators, leading to "full and prompt market access."

The People's Bank of China (PBOC), the central bank, issued the guidelines on June 30, according to three people familiar with the matter and a copy of the document reviewed by Reuters.

Some experts believes the expected entry of foreign card companies will challenge the dominance of state-backed China UnionPay Co Ltd, which currently is the sole operator in a yuan bank card payment network worth more than eight trillion US dollars in China.

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An American Express spokesman said the US company will apply for a licence as soon as possible. "The PBOC's guidelines clearly set forth the process ... and we're continuing to work with different regulators as we move through this process," he said.

A spokeswoman for Visa declined to comment, citing the quiet period ahead of the announcement of the company's quarterly results. MasterCard did not immediately respond to request for comment.

There has been no official information released by the PBOC yet.

Challenges in Chinese bank card market

Under the conditions laid out by the central bank, all payment companies would have to set up technology and data infrastructure and a back-up data system within China.

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This is a concern for the foreign payment network operators, according to industry insiders familiar with the situation.

UnionPay has also been expanding its operations overseas and has a presence in over 160 countries, including the United States, while the likes of MasterCard and Visa have been waiting to offer yuan-denominated cards for years.

UnionPay's share of the global credit card market rose to 25 percent in 2015 from 13 percent in 2010, drawing level with MasterCard but lagging Visa's more than one-third market share, according to Euromonitor International.

The plans by the major global card companies to enter China also come at a time when Chinese consumers are increasingly turning to mobile and online payments and money transfers, using services such as Tencent Holdings' WeChat Pay and Alibaba Group Holding's affiliate Alipay.

(With inputs from Reuters)

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