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China’s bank card clearing market opened up

Jiang Xueqing and Wu Yiyao
Updated: Oct 30,2014 7:16 AM     China Daily

Top leaders’ decision means China UnionPay is poised to face competition.

China will widen its market for clearing services for bank card transactions, raising the level of opening-up in the financial sector, the State Council said on Oct 29.

At an executive meeting of the council, top leaders decided to allow domestic and foreign companies that meet the authorities’ requirements to apply to set up bank card transaction clearing institutions.

Currently, only China UnionPay Co, the national bank card association, is approved by the People’s Bank of China to provide clearing services for bank card transactions in the country.

Experts have been calling for another bank card association to be formed to compete with UnionPay.

Last year, Chen Jianguo, a member of the 12th National Committee of the Chinese People’s Political Consultative Conference, urged the government to build a new industry access system for bank card transaction clearing institutions and to improve the regulation system for such institutions.

The current model could no longer meet the increased demand for innovations to the payment system and even hindered the system’s improved efficiency, Chen said.

Zhong Wei, a professor of finance at Beijing Normal University, said, “The State Council’s decision means that a number of foreign institutions, such as Tokyo-based credit card company JCB International—and not just Visa and MasterCard—will enter the bank card transaction clearing business in China.

“Apart from this, domestic financial institutions are likely to form a new payment service provider, which can compete with China UnionPay.”

The decision will also increase competition among bank card issuers and squeeze China UnionPay’s market, Zhong said.

The People’s Bank of China—the central bank—says China had issued 4.54 billion bank cards by June 30, comprising nearly 4.12 billion debit cards and 422 million credit cards. Bank card transactions amounted to 109.58 trillion yuan in the second quarter, up by 6.14 percent year-on-year.

“If Internet finance companies launch a payment and clearing institution, they are likely to replace bank cards with applications that will generate QR codes to be scanned by a cashier for payment,” Zhong said.

China UnionPay said in a statement to China Daily that it welcomes policymakers’ decision to open up the bank card clearing business.

“As a market player, China UnionPay will resolutely implement the decision and will compete fairly with other market players,” the statement said.

It will continue to cooperate and grow with its competitors while deepening its market transformation and improving its products and services amid competition, the statement added.

MasterCard said in a statement to China Daily that it has long believed that opening payment systems promotes growth by reducing the need for costly cash payments, fostering innovation and reducing systemic risk.

“We look forward to growing our presence and business in China, with the development of e-payments and as we move toward a world beyond cash,” the statement said.

Visa did not reply to China Daily’s request for comment by press time.

Market insiders said the decision will encourage players in the payment market to innovate and compete thoroughly amid the rapidly expanding online payment and e-commerce sectors.

Yu Fenghui, an economist and market observer, said many third-party payment players, with or without licenses, have been operating for years and opening up the market was only a matter of time.

This will enable players with the proper qualifications to grow further under the guidelines, Yu said.

It is essential that regulators keep a close watch to ensure that clearing institutions protect cardholders’ privacy and information, Yu added.