After years of unsuccessful attempts to enter China’s massive $27 trillion payments market, Mastercard announced today it has won approval from the People’s Bank of China (PBOC) to begin formal preparation to set up a bank card clearing institution in China. The news is a significant step toward Mastercard being able to do business in China, where large, domestic players currently dominate.
Last year, Mastercard set up a joint venture with NetsUnion Clearing Corp., a clearing house for online payments whose stakeholders included the PBOC, The Wall Street Journal reported. Mastercard together with NetsUnion then refiled its application as a joint venture called Mastercard NUCC Information Technology (Beijing) Co., Ltd. That application has now been approved, allowing preparatory work to begin.
According to regulations, the JV has to complete its preparation work within a year’s time for formal approval to begin domestic bank card clearing activity, the bank said.
“We are delighted and encouraged by this latest decision from the PBOC,” said Mastercard president and CEO Ajay Banga, in a statement. “China is a vital market for us and we have reiterated our unwavering commitment to helping drive a safer, more inclusive and seamless payments ecosystem for Chinese consumers and businesses. We remain focused on working with the Chinese government and local partners to grow the overall payments infrastructure,” he added.
Mastercard is not the first U.S. credit card company to get the green light to begin building out a payments network in China. Instead, American Express was first to receive preliminary approval back in 2018 to clear credit card payments in China. In January, the People’s Bank of China then accepted Amex’s application to clear and settle payments domestically by way of its JV with Amex’s Chinese partner LianLian Group.
PayPal also last fall announced its intentions to enter China through the acquisition of a 70% equity stake in GoPay, making it the first foreign payments platform to provide online payments service in China.
The approvals are a part of the U.S.-China trade deal, which required Beijing to accept and review payments firms’ applications in a timely manner, which hadn’t happened before. Specifically, applications from firms wanting to become bank card clearing houses in China must be accepted within five business days and responded to within 90 days of acceptance. And when the prep work is complete, China has to accept its license application within a month.
Assuming final approval is given to U.S. firms entering China, they’ll still have to compete with large, established players. China had 8.2 billion bank cards in circulation by the end of September, 90% of them debit cards, Bloomberg notes.
But traditional bank cards aren’t the only rival in a market where consumers are accustomed to paying by their phone, as with WeChat Pay. According to a report from Frost & Sullivan, mobile payments in China are expected to grow 21.8% from 2017 to $96.73 trillion by 2023, and the total number of active mobile payment customers is expected to reach 956 million by 2023, up from 562 million in 2017.
In other words, there’s no guarantee that Mastercard, Amex, Visa or other foreign firms will see success in China in the years ahead, if and when their entry is officially granted.
The statement released by the PBOC notes its approval is “an important part of the opening up of China’s financial industry,” but didn’t reference the trade deal directly.