Visa ready for China market opening

PHOTO: Visa ready for China market opening

Visa Inc, the world's biggest card payments network, is gearing up to participate in yuan-denominated business in China, as regulators prepare to release rules facilitating foreign players to enter domestic market possibly as soon as July.

Jeff Liao, country manager of Visa Information Systems (Shanghai) Co Ltd, told China Daily that his fingers are crossed for the opportunity to launch its first single-branded Visa card in China as soon as possible.

"We can support banks to issue a Visa product at any time, if the regulations allow," Liao said.

He added Visa is also open to the option of purchasing a local company, while emphasizing it could also grow organically through developing its own products.

"We're waiting to see what identity Visa can have, what business we can do, and to what extent we can progress to get access to the domestic market."

He said the company is yet to apply to the central bank for any kind of renminbi license.

Chinese laws require foreign credit card companies to co-brand with Chinese partners to support their card services, or to process interbank point-of-sale transactions.

New rules on how foreign players can participate in the domestic payment and clearing system are expected to be announced at the end of July, but when they will become effective is still unknown, according to sources familiar with the matter.

A World Trade Organisation panel concluded in July 2012 that China acted inconsistently with its market access commitment in maintaining China UnionPay Co Ltd as a monopoly supplier for the clearing of yuan-denominated payment card transactions.

Disputes between Visa and UnionPay intensified in 2010, after Visa warned banks not to adopt the UnionPay payment system to process international transactions for co-branded Visa and UnionPay credit cards circulated in places other than the Chinese mainland.

"We always believe that an increasingly open market could generate more competition, which will bring innovation and provide consumers with better choices and services," Liao said.

"As prices go down and the whole market grows bigger, benefits could be shared by all parties, including consumers and financial institutions."

Visa has set a target that more than half of its global business will be generated from markets other than the United States by 2015.

"We are already very close to that, and China has become the largest market among non-US markets in terms of payments volume, with rapid growth," Liao said.

About 60 per cent of Visa's global payments come from debit cards. And in China, growth of debit card payments is faster than that of credit cards, according to Liao.

Visa has signed cooperation agreements with 25 commercial lenders in China, and there are 80 million dual-branded, dual-currency Visa cards in circulation, even without access to yuan-denominated business, Liao said.

He added that if the domestic payment market could be opened to foreign players such as Visa, the company could bring 50 years of experience and products to the market.

He used the example of V.me - a new service from Visa that lets people shop without sharing their card account information with a seller during payments - as a product which has been launched in many markets, and can be used worldwide and connected with global merchants, which could be introduced to China.

"As the Chinese market opens to us, I believe we could have the opportunity to bring such products here, and provide more diversified options to consumers."

Liao said Visa's expertise in online transaction security could also be used in China, such as on verification and providing security solution for online traders. In 2010, Visa bought CyberSource Corporation, a leading provider of electronic payment, risk management, and payment security solutions that is currently registered in Shanghai.

Mary Chong, a partner at KPMG Advisory (China) Ltd, said various major foreign players are preparing to enter the Chinese market, cautiously at first, but they are likely to thrive once the market is fully opened.

"China may let them participate, but I don't think they will let them play a key role in the market," she said.

She added that China has to accept that it cannot control its domestic and non-foreign currency clearing business any more, especially if it hopes to continue growing Shanghai as a global financial centre.

"I think they (foreign companies like Visa and MasterCard) can do credit card clearing."

A senior executive at the Payment & Clearing Association of China, who declined to be named, said that China will probably open its credit card payment market to foreign players, but it's hard to imagine such companies operating interbank clearing networks.

"Giants such as Visa and MasterCard have more experience and strength than UnionPay, and if they created a monopoly in any particular area, China's financial security would be in jeopardy," the source added.

But Liao said that China has opened its market to foreign banks, which hold more transaction and individual cardholder information than Visa, so it would be groundless to keep foreign players out of the market due to financial security fears.

As foreign players such as Visa eye the Chinese market, its biggest opponent UnionPay has been extending its global footprint to more than 140 countries and regions.

Xu Luode, UnionPay's president, said that 95 per cent of debit cards issued by UnionPay in China are single-branded, while half of its credit cards are co-branded with international players such as Visa and MasterCard, a figure which the company will try to lower in the coming years as its own overseas presence improves.In November 2012, UnionPay International Co Ltd was launched in Shanghai to increase its global expansion.

Transactions at merchants using cards carrying the American Express, Diners Club, JCB, Mastercard, Unionpay, and Visa brands totaled nearly 149.4 billion in 2012, a rise of 9.7 per cent on 2011, according to the Nilson Report, a source of global news and analysis covering the credit, debit and prepaid card industries, published in March.

Visa debit cards continued to account for most transactions at merchants, with a share of 39.3 per cent, followed by Visa credit cards with nearly 22.8 per cent.

UnionPay credit card contributed to 3.17 per cent of global transactions at merchants, while transactions made through its debit cards accounted for 2.86 per cent.

The report added that while UnionPay had the highest percentage increase in purchase transactions (up 40.5 per cent), it only added 2.6 billion transactions compared to an increase of 5.04 billion for Visa and 4.92 billion for MasterCard.

UnionPay ranked fifth globally in terms of global acceptance locations, the Nilson Report said, while Visa and Mastercard topped the list with 35.9 billion locations worldwide.

"I believe that UnionPay will become a global force, as a lot of Chinese are going overseas. This is natural. It's just a matter of time," Chong at KPMG said.