The government wasn’t the only place that got stuck on pause this week — the card networks also found themselves on hold in China. But one at least gets the impression that card networks, like the rest of payments and commerce are trying their hardest to move forward.
Card Networks Have Trouble Getting Into China
Despite the fact that Visa and Mastercard submitted their applications to process renminbi payments over a year ago, reports this week indicated that China’s central bank has yet to acknowledge those applications.
We can’t say that we were surprised to learn the news.
The latest stall comes nearly four years after China announced it was opening its credit card market to foreign competitors.
While rules implemented in 2017 seemingly made it easier for foreign companies to participate in the massive Chinese market, global players complain of informal barriers that make it incredibly difficult for them to enter. The refusal to formally accept the applications of the card networks is seen as proof of that — according to the application process, the PBoC must decide on applications within 90 days of acknowledgment.
The tension over access to the market is one of many tensions between the U.S. and China going into trade negotiations. The two nations are beginning to press up against a March 2 deadline before new tariffs come into effect.
“It’s a funny spin on World Trade Organization compliance. Yes, China will have due process for the application once they’ve accepted it, but no one ever thought it would be possible not to accept the application,” one source told The Financial Times.
In November, American Express (Amex) received approval to open up card-clearing services in China. However, it’s important to note that Amex formed a joint venture with Lianlian Group, a Chinese FinTech company, to get the payments network up and running.
There have been reports that China has pressured Visa and Mastercard to also operate in the country through joint ventures, and PBoC has yet to reveal why it has not acknowledged their applications.
“One could suspect that it’s because of the trade war, but then again, American Express was approved. Somebody said, ‘Well, Amex is smaller, so there’s less impact to the market,’ but nobody really knows,” an anonymous source told The Financial Times . “There are a lot of variables. We are communicating with the central bank on and off, but there’s no clear reason.”
Fiserv And First Data Start The Year Of With A $22 Billion Bang
As of Wednesday of last week, Fiserv said it would buy First Data Corp. for $22 billion in an all-stock deal slated to close in the second half of the year. The consolidated company will be known as Fiserv. First Data holders get 0.30 0f Fiserv shares, Fiserv holders will own 57.5 percent of the combined entity and First Data holders the rest. The overarching strategy is to meld financial services and eCommerce front to back. According to the release announcing the deal, the goal is create a “one-stop shop” for integrated offerings to banks, merchants and a range of service providers.
Fiserv CEO Jeffery Yabuki (who will be CEO of the merged firm) and First Data CEO Frank Bisignano (to be president and chief operating officer of the merged firm) noted at the time of the announcement on a joint call that money movement is changing for the banks and credit unions that make up the typical Fiserv customer, and for the retailers and merchants that are among First Data’s key end-users (and where First Data has partnered with banks to offer merchant services).
Yabuki noted that $500 million targeted for tech investments over five years following consummation will be funded out of $900 million in cost synergies and reductions to be realized over the same period. During the question and answer session with analysts, Yabuki noted that the cost synergies targeted by the company are not tied to any platform combinations or consolidations between the two firms but are based on eliminating the duplicative structures.
The two CEOs said on the call that the deal brings two complementary businesses together and ties together parts of the payments ecosystem.
“Let me give you two really good reasons why this transaction is compelling from my point of view,” Bisignano said on the call. “First, for years we had aspirations to develop a great core processing capability and a world-class digital banking platform. We will now have those products and with them a long list of core processing and digital FI clients.”
Post-merger, said the companies, payments will represent 45 percent of capabilities, with merchant acquiring another 38 percent, and financial services the remaining 17 percent.
“This is about making a very clear statement to the client community and the market that this is not about overlap in services,” Yabuki said on the call. “There are any number of high quality integrations that can be done that can deliver value to customers, the financial institution clients, to the users of merchant technologies and that can create unique, digitally-based transformative experiences that no one else is able to do today.”
Square’s Instant Funds Card For SMBs
While some might have noted that the Fiserv-First Data deal was a $22 billion shot across Square’s bow last week, the payments turned SMB services platform seemingly moved through its week unperturbed — and even managed to roll out the Square Card, a business debit Mastercard focused as their latest offering in real-time cash management.
The new debit card can be used anywhere Mastercard debit cards are accepted and allows businesses to tap funds in the Square merchants’ accounts instantly. Those accounts also hold all funds from sales, which are instantly made available upon the completion of the transaction.
In short, Square has given merchants tools to instantly receive payments when customers swipe their cards on Square machines — and the ability to instantly spend those funds with the new debit card.
“As sellers make crucial spending decisions, we know that fast access to funds – and the ability to put proceeds from sales to use immediately – can help with overall cash flow management,” said Alyssa Henry, seller lead at Square, in the press release announcing Square Card. “Small businesses have to be nimble. They don’t have the time to wait for funds to clear a bank account, or the resources to easily reconcile personal versus business expenses. Square Card addresses these pain points, and further extends Square’s ecosystem of products and services for small businesses.”
Businesses using the Square Card can also view purchase activity alongside a comprehensive record of sales via the Square Dashboard and Square Point of Sale, and access reporting features that separate business and personal expenses.
The new rollout out comes alongside recent reports that Square is actively pursuing a banking license once again. The company had previously asked to start a bank in September of 2017, but eventually withdrew from the process over procedural issues.
So what did we learn this week? The march of progress is ever forward. Sometimes it is slower than might be desired, particularly if one is trying to process payments in China — but in payments and commerce, there is no real pause button.
Till next week.