May 12, 2017 / 11:57 AM / 3 years ago

Even with trade pact, U.S. payment networks uncertain on China operations

HONG KONG (Reuters) - The prospects for global payment network operators including Visa Inc (V.N) and MasterCard Inc (MA.N) at last entering the Chinese market remain uncertain, even after the United States and China moved towards starting a licensing process for them.

An ATM machine with types of credit cards accepted is seen inside the Bank of China Tower in Hong Kong, China November 12, 2015. REUTERS/Bobby Yip

As part of a plan to reduce a massive U.S. trade deficit with China, the world’s two largest economies have agreed to expand trade in some sectors and increase access to China for financial firms.

Under a framework announced on Friday, China is likely to issue further “necessary guidelines” by July 16 for the launch of local operations by U.S. payment network operators, leading to “full and prompt market access”.

Foreign operators have been lobbying for more than a decade for direct access to a Chinese market set to become the world’s largest bank card market by 2020. In 2012, the World Trade Organisation (WTO) found China was discriminating against foreign card companies.

Industry insiders said the foreign firms were likely only to submit license applications if Chinese regulators address their concerns on issues including onshore data protection and the near monopoly of state-backed China UnionPay Co Ltd.

“We have been expecting this for a while now. We are not sure how much of those issues will be resolved now,” said a senior executive at a U.S.-based payment network operator, who didn’t want to be named due to the sensitivity of the matter.

Any license application would likely take 6-7 months to be approved by Chinese regulators, the executive said, adding it could take another 12-18 months to set up all the infrastructure and start local operations.

While the U.S. firms have been waiting to offer yuan-denominated cards since the WTO ruling, UnionPay has expanded well beyond China.

Set up in 2002 by China’s central bank and State Council, UnionPay had a 55 percent share in the global debit card market in 2015, compared to 15 percent for Visa and 10 percent for MasterCard, according to Euromonitor International.

In the global credit card market, UnionPay’s share rose to 25 percent in 2015 from 13 percent in 2010, drawing level with MasterCard but lagging Visa’s more than one-third market share.

With UnionPay now in more than 160 countries, some industry officials say its card has become a key tool for China to manage the flow of cash outside the country.

One of the biggest concerns for U.S. payment operators is whether they would have a level-playing field while competing with UnionPay, where former Chinese central bank officials fill several of its top jobs.

“No one expects to get 15-20 percent (China) market share in the foreseeable future, but we hope there won’t be barriers in our efforts to get even low, single-digit market share to justify the investments,” the company executive said.

In response to Reuters request for comment, MasterCard said it looked forward to having “full and prompt” access to the Chinese market. Visa said it looked forward to submitting an application and building its business for the long-term.

Reporting by Sumeet Chatterjee, additional reporting by Matthew Miller; Editing by Ian Geoghegan

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