It's been a long time coming for major U.S. payments networks, like Visa and MasterCard, but yesterday (June 7), China's government officially lifted the hurdle for foreign payment card companies to operate in China.
What this means is that, per rules issued yesterday, those card networks will now have the chance to compete for China's massive card market, which has an estimated value of $8.4 trillion. Visa and MasterCard have been working for more than a decade to make this move into the country, which is believed to be the largest card payment market within the next four years.
According to data from the People's Bank of China, bank card transactions from consumer cards accounted for 48 percent of total social spending — a market that has been controlled primarily by China UnionPay, the state-run operation. With 4.6 billion bank cards currently in circulation, UnionPay is the second-largest payment network by value of payments processed after Visa.
As part of the rules that were passed by the China Banking Regulatory Commission, it is required that, to operate in China's market, companies must have $152.2 million in registered capital.
Beyond that, the newly established rules — which took more than a year to actually take effect from the time it was first announced — require that any foreign bank card company follow the cybersecurity standards under China's national security regulations and that they are locally based in that regard.
"In the future, there will be more diverse participants in the domestic bank card market, with many bank card brands competing on a level field," the central bank said in its prepared remarks. Once submitted, the central bank has 90 days to decide if it will approve or reject a company's application. Once approved, companies must do set up shop within a year.
"We are reviewing the new regulations and look forward to the opportunity to formally submit our license application for early consideration," Visa said in a prepared press statement about the rules.
"We're ready to build on our partnerships with local banks, consumers, businesses and government," MasterCard spokesman Seth Eisen said in an email to Reuters.
In order for a card company to apply to have a business, they must fulfill the same requirements that domestic companies do in China. The central bank authorities also indicated that foreign investors have the chance to acquire domestic card clearing companies as part of the new rules, but they are subject to a security review as well.