Visa, MasterCard Still Struggling With China

Contrary to recent inviting signals from Chinese Premier Li Keqiang, executives with MasterCard and Visa are finding it increasingly difficult to get permission to do business in China.

“Despite a World Trade Organization directive putting China on notice to open its bank card market by August 2015, the central government has no immediate plans for letting Visa or any other company substantially challenge UnionPay, the state-controlled firm that has exclusive permission from the People’s Bank of China (PBOC) – the nation’s central bank – to clear all domestic interbank payments,” said a report in Caixin Online. “As it stands, foreign bank card firms can’t do business in China without working through the UnionPay network and paying its network access fees. They were also required to stamp all bank cards issued to its clients in China with the UnionPay logo, an agreement that fell apart in 2010 as their relationship with UnionPay went south.”

Earlier this month, UnionPay announced that “new financial integrated cards issued by all banks must conform to the PBOC 3.0 standards.” PBOC are the electronic payment standards solely used at POS and ATM; the problem is that they are solely used by UnionPay and are absolutely incompatible with EMV because they use different encryption methods. The story quoted a UnionPay technician as saying that the cost of swapping out one POS “could cost several hundred yuan.” Given that “several” is a very vague range, 200 yuan is worth about $33 U.S. and 500 yuan is worth about $82 U.S..

“The decision to make PBOC 3.0 standards a national requirement followed Li’s October 29 statement about opening the market for clearing payments, suggesting domestic and foreign companies would be allowed to compete. At the time, Visa and MasterCard executives apparently didn’t know that the central bank’s rule essentially barring their EMV systems would soon follow,” the story said.

To be fair, UnionPay has a few grievances against the U.S. card brands. “In 2010, for example, Visa ordered all merchants using its POS machines outside China to stop routing transactions through the UnionPay network. UnionPay quickly retaliated by ending an agreement that put its logo on cards alongside Visa and MasterCard logos,” the story said. “As a result, today all Visa and MasterCard cards issued in China must be cleared in U.S. dollars rather than yuan. Technically, that should make these cards more expensive for merchants than UnionPay cards, and thus discourage the use of Visa and MasterCard. In practice, however, many Chinese banks that issue overseas cards work around this requirement by automatically converting dollar-denominated payments into yuan, thus sparing merchants the extra charges.”