Yours truly has long noted that the PRC has not been too forthcoming about allowing foreign financial services providers to do business in China. As it turns out, not only is it difficult for foreign banks to set up branches in the mainland, but it is also difficult for American credit card firms to get into the RMB payment card transaction business. While the Chinese have acquired a reputation as savers, perhaps it's partly due to a lack of available consumer credit since the government promotes a domestic alternative that precluded the likes of MasterCard and Visa peddling their brands there. While they dominate in the rest of the world, they are minnows in the high-stakes RMB game.In the interest of remedying global economic imbalances, I am thus quite happy to report that the WTO has for the most part ruled in favour of the United States in its case against China over discrimination against international payment card transaction firms in the RMB-denominated arena [DS 413]. From the WTO, no less:
[T]he panel concluded that China maintains CUP [China UnionPay] as a monopoly supplier for the clearing of certain types of RMB-denominated payment card transactions. The specific transactions in respect of which the panel determined that CUP is a sole supplier involve RMB payment cards issued in China and used in Hong Kong, China or Macao, China, or RMB payment cards issued in Hong Kong, China or Macao, China and used in China. Article XVI:2(a) requires Members not to limit the number of service suppliers where market access commitments have been undertaken. The panel found that China acted inconsistently with its mode 3 market access commitment under Article XVI:2(a) of the GATS by granting CUP a monopoly for the clearing of these types of RMB payment card transactions.Mode 3 concerns commercial presence commitments, here obviously those which China made to welcome payment card firms from abroad. Continuing...
Regarding the other Chinese requirements at issue, the panel found that China maintains a requirement that all payment cards issued in China must bear the “Yin Lian”/“UnionPay” logo and be interoperable with that network, a requirement that all terminal equipment in China must be capable of accepting “Yin Lian”/“UnionPay” logo cards, and finally, a requirement that acquiring institutions post the “Yin Lian”/“UnionPay” logo and be capable of accepting all payment cards bearing the “Yin Lian”/“UnionPay” logo. The panel found each of these requirements to be inconsistent with China's mode 1 and mode 3 national treatment obligations under Article XVII of the GATS. It found, through these requirements, that China modifies the conditions of competition in favour of CUP and therefore fails to provide national treatment to EPS suppliers of other [WTO] Members, contrary to China's commitments.That said, some are still pessimistic that this ruling will open the floodgates for the American giants in China since they lack economies of scale against the obviously state-sponsored entity:
China requires all foreign card companies to piggyback on UnionPay's network when accepting yuan payments. This means Visa and Mastercard must give a cut of every credit or debit card transaction to UnionPay and the card issuing bank. In most other countries, the foreign card issuers pay only the bank because they use their own network.Do not doubt though that China is a lucrative market; unbeknownst to the rest of the world, UnionPay has already more cards in circulation than Visa thanks to the sheer size of the Chinese market (where it largely operates as well as in Hong Kong and Macau):
High interbank transfer charges and the inability to charge fees means the credit card business is unprofitable for most banks unless they achieve a scale that has so far been the preserve of domestic lenders. A senior bank executive interviewed by auditing firm PricewaterhouseCoopers for its annual Foreign Banks in China report said scale of at least 20 million cards was needed for the business to be successful.
Mastercard estimates credit card spending in China will reach $2.5 trillion by 2025 from just over $1 trillion now, in a country where it remains common to see wads of cash being handed over for big ticket items such as luxury watches. Some 55 million new credit cards were issued in 2011, up more than a fifth from 2010. There are now 285 million credit cards in circulation in China, according to the country's central bank.It's a story worth following since there's a lot of money at stake. To paraphrase the late Carl Sagan, trilyuns and trilyuns, to be sure.
Set up in 2002, UnionPay is already the world's largest card payment scheme. Its logo appears on 29.2 percent of the 8 billion cards issued worldwide, higher than Visa at 28.6 percent, according to a study by Retail Banking Research in London. It says its cards can be used in more than 100 countries.
