Visa Clears First China Hurdle After 40 Years, Opening Door to 10.27 Billion-Card Market [China Watch]

UnionPay’s dominance faces a challenge

Visa clears first hurdle to enter China’s card market

Visa joins AmEx and Mastercard as three U.S. card firms vie in China

Visa Inc. has been cleared to move directly into China’s domestic yuan-denominated card payments market, more than 40 years after the U.S. card company first entered the country. Until now, Visa had provided international settlement services for foreign-currency cards in China. It will now be able to process onshore yuan card transactions through its own network.

With Visa following American Express and Mastercard in advancing through China market-entry procedures, competition is set to widen in a card-payments industry long dominated by China UnionPay. The move is also being viewed as a tangible result of efforts to open China’s financial markets after a summit between U.S. and Chinese leaders.

China further eases financial restrictions

China’s central bank, the People’s Bank of China, approved preparations on Oct. 13 for Visa’s local unit, Weishi Information Technology Co., to establish a bank-card clearing institution, according to the PBOC and Reuters. It is the first time Visa has received preparatory approval in the formal licensing process for a yuan card-clearing business in China.

The company is a foreign-invested enterprise set up by Visa in China. That distinguishes it from other U.S. card companies that entered the market through joint ventures.

The approval is the first step before a full operating license. Visa must complete preparations within a year, including payment infrastructure and computer systems. It would then need to pass reviews by the People’s Bank of China and the National Financial Regulatory Administration before receiving a bank-card clearing license. That would allow it to approve issuance of Visa-branded yuan cards in China and clear domestic payment transactions.

Card clearing is a core piece of financial infrastructure. It links card issuers and merchants when consumers make payments, processes transaction data and supports settlement of funds. Visa had previously handled overseas payments for foreign-currency cards issued in China, as well as the use in China of cards issued abroad. It was not allowed to process domestic yuan card transactions through its own network.

U.S.-China financial cooperation reaches card market

China opened its bank-card clearing market to foreign companies in 2015 under a State Council decision. But actual market entry took years. American Express became the first foreign company to receive a clearing license in 2020 through a Chinese joint venture. Mastercard secured approval in November 2023 through a joint venture established with NetsUnion Clearing Corp. in China.

Visa’s push into China has been a goal for more than nine years. The company first applied to Chinese authorities for a clearing-business license in July 2017. The latest approval moves its local clearing business, which it has pursued since 2017, into the formal preparation stage.

The move also carries significance for U.S.-China economic ties. Chinese authorities described it as a concrete measure to implement the economic and trade understandings reached at the recent summit between the two countries’ leaders.

Visa Chief Executive Officer Ryan McInerney said in a statement on Oct. 13 that the approval marked an important step in the company’s long-term effort in the China market. He also thanked U.S. and Chinese leaders for helping promote a constructive and stable relationship between the two countries.

The market is vast. About 10.27 billion bank cards were in circulation in China as of the second quarter, The Wall Street Journal reported. The approval gives Visa an opportunity to work with Chinese banks on issuing yuan cards and building out a payment network in a market long led by UnionPay.

Industry participants say gaining market share is a separate challenge. China is already a mobile-payments market where Alipay and WeChat Pay are part of daily life. Even if Visa secures final approval, it will still need to expand bank partnerships, build merchant acceptance and attract consumers.

Competition between UnionPay and foreign card companies may intensify, but how much the market structure actually changes will become clear only after commercial operations begin.

“One thing that will clearly improve is the environment for foreigners using cards in China,” a person in Beijing’s financial industry said. “For Visa, it also means securing a chance to expand its yuan payments business in one of the world’s largest card markets.”

The person added that, from China’s perspective, the move also appears intended to show results in U.S.-China economic cooperation by further opening the market to American financial companies.

Kim Eun-jung, Beijing correspondent, Korea Economic Daily kej@hankyung.com