The People’s Bank of China (PBOC) has approved Mastercard to formally start preparing to create and operate a bank card clearing business in China.
It’s doing so through a joint venture (JV) with NetsUnion Clearing Corporation (NUCC), a China-based firm that operates a clearing house platform for third-party payments. The JV will have to complete its preparatory work within a year, at which point it will be able to start operating in China if it receives approval.
This news comes just weeks after Beijing agreed to new rules requiring it to handle applications from US payments companies looking to operate in the country in a timely manner. The rules, which are part of the Phase One trade deal agreement between the US and China, require the Chinese government to accept and review US electronic payments services’ applications to operate in China faster than it previously had in some cases.
While Mastercard’s JV may have been in the works for some time, gaining approval from the PBOC to move forward soon after the agreement suggests that the new rules could enable US payment firms to move into China more easily than before.
If Mastercard’s JV is able to operate in China, it’ll have the chance to compete in the country’s massive payments market — but will face significant competition from both domestic and US firms.
China’s payments market is a valuable target for Mastercard, but it’s already dominated by domestic players. China reportedly had 8.2 billion bank cards for its population of over 1.4 billion in circulation at the end of September 2019, and its third-party mobile payments transaction volume was forecast to be worth 331.4 trillion yuan ($47.6 trillion) in 2020 by iResearch.
Capturing just a sliver of the space could be very lucrative for Mastercard, but with UnionPay dominating the card market and Alipay and WeChat Pay controlling mobile payments in the country, Mastercard may have trouble catching on in China. CEO Ajay Banga addressed the situation in the company’s latest earnings call, saying, “We are late to the party because the digital players there [in China] have already built substantially good businesses and, frankly, with very good offerings.”
Mastercard can try to find other ways to stand out and succeed in China, but the increasing number of foreign firms in the market may make that difficult. Both Amex and PayPal are set to start operating in China as well, so they’re also looking for ways to break into the Chinese payments market, potentially leaning on specific niches to do so. For example, PayPal may be looking to use its established international consumer and merchant bases to position itself as a major player in cross-border payments, especially now that it has partnered with UnionPay.
Each international firm will likely try to find ways to offer unique value to Chinese consumers and businesses so they can succeed in China, but as more firms enter the market it may become more difficult to find a unique angle. Mastercard may be able to rely on offerings like Mastercard Send, its push payments platform that enables cross-border bank-to-bank transfers, to differentiate.
Source: Business Insider