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
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.