Visa has filed an application with the People’s Bank of China to become the first nondomestic payment network with a bank card clearing license, reports the South China Morning Post.

The application comes a little over two years after China’s payments market was first opened to international payment companies. MasterCard has also indicated that it intends to follow in Visa’s footsteps, either by pursuing a clearing license alone or through a joint venture.

Greater competition in China is a blow to UnionPay in the global payment card war.

  • UnionPay’s card share in China has only one direction it can go — down. Lacking significant competition, UnionPay dominates China’s 6.3 billion-card-strong market. The country is so important to UnionPay’s success that despite 99% of the network’s cards being contained to China, UnionPay is able to make up 43% of all cards globally. Because Chinese consumers average 4.5 cards per person and are unlikely to adopt new ones, Visa and MasterCard can only grow at UnionPay’s expense.
  • UnionPay is looking beyond China for growth. Beyond China, UnionPay comprises only 0.5% of total card market share — a drop in the bucket compared with Visa’s 50% share and Mastercard’s 31%, the Financial Times reported. UnionPay is seeking to build inroads overseas beginning with targeting international travelers — but may pivot to competing directly for overseas customers. In addition to growing new cardholders, this strategy could widen margins for UnionPay — in China, clearing houses charge 0.6%, much slimmer than the 1-2% rates charged overseas.

Emerging markets will be critical to UnionPay’s growth. UnionPay will face the same challenge internationally that Visa and Mastercard may soon confront in China — the difficulty of beating entrenched competition. To sidestep this challenge, UnionPay is likely to continue aggressively targeting markets with low card penetration with high growth potential, such as Myanmar, Indonesia, Malaysia, Kazakhstan, and the Democratic Republic of Congo.  

The U.S. payments ecosystem is in the midst of a shift toward mobile, and countless new and old stakeholders are attempting to accelerate this migration, which is moving at a glacial pace relative to other markets globally. But mobile payments can rise to the mainstream. For companies seeking to build out a robust mobile payments product, China’s thriving mobile payments ecosystem offers some insight — and some lessons.

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