Are China’s overtures to foreign payment companies a real policy shift?

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For decades card networks and issuers outside of China have tried to enter the giant Chinese consumer payments markets, but mostly have run into walls because of shifting regulations.

Now China appears to have slightly cracked the door for some services from foreign companies like Visa, Mastercard, American Express, Discover Financial Services’ Diners Club, JCB, PayPal and Wirecard.

The recent moves appear to be a startling policy shift from China’s tradition of barring foreign payment companies and card networks to operate within its borders, despite years of discussions with major card networks that led nowhere.

Though China’s state-run UnionPay card network is accepted all over the world—as are the nation’s two popular mobile apps, Ant Financial’s Alipay and Tencent’s WeChat Pay—China has never previously offered reciprocal acceptance with foreign payment brands.
China in early 2018 said it would open its payments market to foreign companies, but nothing happened immediately to change its market structure, where UnionPay has a monopoly.

The Chinese authorities’ recent decision to let some foreign payment companies work in China could signal a long-awaited thaw in the nation’s stance on competition. But it’s equally likely the moves are narrowly aimed at improving payment options for tourists and Chinese merchants in special cases.

PayPal was the first to declare a change in China’s payments industry isolationism, when the San Jose, Calif.-based company on Sept. 30 said the People’s Bank of China gave PayPal permission to buy a 70% interest in GoPay, a Chinese online payments company.

By gaining control of GoPay’s coveted payments business license, PayPal CEO Dan Schulman boasted it was the first foreign payments platform approved to provide online payment services in China.

Germany-based Wirecard announced a similar deal this month to acquire 80% of the shares of AllScore Payment Services, a Beijing-based payments company specializing in online and cross-border transactions. Wirecard’s deal includes access to a comprehensive set of licenses to conduct digital payments in China, including online and cross-border transactions.

Hours after Wirecard revealed its AllScore deal, Ant Financial and Tencent each announced new programs that will allow in-country acceptance of the major foreign payment networks for the convenience of tourists visiting China.

Most of China’s abundant vending machines—including kiosks to buy tickets and rent bikes—don’t accept cash, a great inconvenience for the estimated 30 million international tourists visiting China annually.

Ant Financial’s Alipay now allows visitors to China to download a “Tour Pass” version of its app and load up to US$285 to a virtual prepaid card issued by the Bank of Shanghai to make QR purchases at stores, kiosks and mass transit for 90 days, bypassing the need to carry cash.

Tencent’s WeChat also has built a similar integration within its app for international card schemes so that tourists visiting China can link payment cards from home to WeChat Pay and use WeChat’s QR codes at merchants across China for the duration of their visit.

Visa and Mastercard both hailed the moves in press releases. Visa said Tencent’s decision to support international payment card brands is a step toward building a “truly global commerce environment.” Mastercard said the new arrangements with Ant Financial and Tencent are a key milestone in helping domestically establish an international and interoperable payments ecosystem.

But there's also cause for doubt that China is truly on the precipice of changing its stance on foreign competitors. “I’m skeptical of any foreign payment network’s or processor’s real opportunity in China’s domestic market,” said Eric Grover, a principal with Intrepid Ventures LLC, who has consulted widely with global payment operators expanding in new markets.

China has raised the hopes of foreign payment operators over the last several years, hinting they might begin negotiations with foreign networks, according to Grover. In each case, discussions fizzled.

“China might be making some small, inconsequential moves that could play well as an opening in trade negotiations,” Grover said.

To be sure, capturing even a fraction of the acquiring, issuing or payments processing business in China, the world’s largest payments market, would be a coup for any foreign payments company, according to Grover.

PayPal and Wirecard may expand their operations by enabling cross-border e-commerce transactions for Chinese consumers and merchants, but Grover suggested these companies are more likely to fill gaps in China’s payments ecosystem, rather than absorb major commercial volume.

“UnionPay is relatively weak online,” Grover said, noting that UnionPay has its own acquiring arm but also uses banks as third-party acquirers, and Chinese e-commerce demand for imported goods is rising.

Other analysts are reluctant to quantify any prospective bottom-line benefits that may result from Alipay and Tencent routing foreign cards through their systems.

Ant Financial and Tencent could open the door for the major card networks to increase their acceptance footprint in China for inbound cross-border transactions from foreign cardholders, a team of analysts at Keefe, Bruyette & Woods speculated last week in a note to investors.

“At this point, many details have yet to be worked out, including costs and method of rollout across merchants,” the analysts said, noting it will likely take some time to see the full effect of the new tourist wallets on U.S. card networks’ payment volume.

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Payment cards Payment processing China UnionPay Visa Mastercard PayPal Ant Financial WeChat China