China Says Hello To Visa And MasterCard

Foreign payment networks can enter the Chinese payment market —an industry that handled $73 trillion in 2014 according to Bloomberg — marking a huge opportunity for companies such as Visa and MasterCard. Until now, UnionPay, the Chinese payment network, which was initally created by its Central Bank, was king. It handled the entire Chinese market on its own while planning for its global expansion earlier this year. Its first tweet of the day was a reminder that UnionPay cardholders in New York could enter the Metropolitan Museum of Arts for free.

Following a World Trade Organization ruling in 2012, China had to break the monopoly and introduce new rules for foreign payment networks which come into play as of today.

“Realistically, Visa and MasterCard are not going to be the dominant card networks in China in the near future,” said Tristan Hugo-Webb, associate director of global payments at Mercator Advisory, to the Financial Times.

“Nonetheless, even a small share of the fast-growing Chinese electronic payment market will be a big boon for Visa and MasterCard as they increasingly face competition from other players in the global payments marketplace.”

With 4.6 billion bank cards currently in circulation, UnionPay is the second-largest payment network by value of payments processed after Visa. In 2013, 38 percent of all payment cards worldwide were issued by UnionPay, more than No. 2 Visa (24 percent) and third-ranked MasterCard (18 percent), according to Retail Bank Research. And according to The Nilsen Report, last year UnionPay’s credit and debit purchase transactions at merchants grew by 52.3 percent.

The Chinese card provider will be a tough player for U.S. payment networks to compete with in China, where they will have to start building their networks from scratch.

“Visa and MasterCard need to build up their local infrastructure. In the past they just operated as a sales office. They don’t really have the physical presence,” James Chen, a former China general manager for MasterCard and now greater China general manager at First Data Corp., told the Financial Times.

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