Daily Management Review

Licenses To Operate In China In Months To Be Sought By U.S. Bank Card Companies: Reuters


07/20/2017




Licenses To Operate In China In Months To Be Sought By U.S. Bank Card Companies: Reuters
License requests to operate in China are being prepared to be submitted within months by U.S.-based payment card companies, including American Express, MasterCard and Visa, reported news agency Reuters citing three people with direct knowledge of the matter.
 
However, it may not be soon that the long wait for the U.S. companies is likely to end. The sources said that including from banking regulators, and for them to pass a security review, as well as meeting other conditions, it may take as long as two years or more for the companies to clear all official scrutiny.
 
After China and the U.S. failed on Wednesday to agree on major new steps to reduce the U.S. trade deficit with China, there has been growing economic friction between the two countries and this move by the U.S. banks comes against such a backdrop.
 
In order to get access to China, it has been more than a decade that U.S. payment network operators have been waiting. According to research firm GlobalData Plc., with an estimated number of cards in circulation forecast to rise to 9 billion from 6 billion in 2016, China is set to become the world's largest bank card market by 2020.
  
In a move triggered by a 2012 World Trade Organization ruling, China first agreed in 2015 to open the card market to local and foreign businesses. However, in the absence of a clear roadmap from Chinese authorities, foreign card companies have been unable to set up local operations.
 
China’s issuance of "necessary guidelines" for the launch of local operations by U.S. payment network operators, leading to "full and prompt market access", was announced in an agreement between Beijing and Washington in May.
 
According to three people familiar with the matter and a copy of the document reviewed by Reuters, the People's Bank of China (PBOC), the central bank, issued the guidelines on June 30.
 
The dominance of state-backed China UnionPay Co Ltd, which currently is the sole operator in a yuan bank card payment network worth more than $8 trillion in China, would be challenged by the expected entry of foreign card companies in the country.
 
"It's exciting that the uncertainty is finally over and they have finally come out with the rule book, but it's not going to be a fast and smooth journey," said one of the people with knowledge of some of the U.S. payment companies' plans.
 
In addition to setting up of extensive local infrastructure, the applicants would be subject to intense scrutiny by the banking regulator as well as security agencies, sources reportedly said.
 
It will apply for a license as soon as possible, an American Express spokesman said. "The PBOC's guidelines clearly set forth the process ... and we're continuing to work with different regulators as we move through this process," he said.
 
There were no comments available from Visa and MasterCard.
 
All payment companies would have to set up technology and data infrastructure and a back-up data system within China, under the conditions laid out by the central bank.
 
The foreign payment network operators feel that this could make it difficult to maintain the confidentiality of proprietary data and fear this could result in internal systems being put under surveillance and hence is a concern for them.
 
"There was some expectation that this requirement would be eased a bit but that has not happened, so all the companies will have to build business plans keeping this mind," said one of the people. "That's the biggest challenge."
 
(Source:www.reuters.com) 






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