China UnionPay

In a recent announcement that has generated tremendous excitement within the international payments community, the Chinese government issued new rules that effectively open the gates to the country’s payment transaction market to foreign companies. As of June 1, 2015, bank card-clearing companies based outside of China will be able to submit an application to the central bank, ending the monopoly currently held by China UnionPay, the state-controlled bank card organization.

China’s payments market is huge, with spending from bank card consumer transactions totaling $6.84 trillion in 2014. This is good news for MasterCard and Visa, the world’s two largest credit and debit card issuers, as they currently must rely on China UnionPay and pay network access fees to process payments within China. Not surprisingly, news of the end of the state monopoly sent stock prices for both card issuers soaring as a result.

What has brought about this seemingly sudden change?

Like most changes in China, this particular policy change took some time to come about. In 2012, the World Trade Organization (WTO) ruled against China in a trade dispute between the U.S. and China. Towards the end of October 2014, the State Council made a statement saying that it would open the bank card-clearing business to domestic and foreign investors for the first time. However, at the time, it did not set a date as to when that would actually happen. It was not until this week that a clear decision was finally made.

According to the new rules published by the State Council, foreign firms must set up local clearing company in China and apply to the central bank for a license. In addition, a license is not required for overseas companies that process only foreign-currency, cross-border transactions, but they will have to register with Chinese banking regulators. As a result of this momentous change, China’s card payment processing market will be fair and competitive, which should mean better service and lower transaction fees and prices, benefitting merchants and consumers alike.

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