MasterCard Worldwide’s Sept. 14 announcement of its agreement to enter into a payments business-development deal with China UnionPay, along with news that Global Payments Inc. has gained permission to process card payments in China, suggests U.S.-based card players may be moving closer to cracking open the potentially lucrative Chinese market, analysts say.

A brief statement from MasterCard and China UnionPay, China’s sole payments network, said the two companies have a memorandum of understanding to formulate a business plan that “aims to forge a platform for potential cooperation including online and other payment areas.”

Neither company was available for immediate comment, but analysts suggest the deal is a coup for MasterCard, which is competing fiercely with No. 1 U.S. card brand Visa Inc. for dominance in fast-growing international markets where card spending volume growth is significantly outpacing domestic growth.

Chinese trade restrictions have prevented U.S. payments companies from penetrating its local market, which has caused U.S. payments companies to chafe. Meanwhile, China UnionPay, established in 2002, has grown to become the world’s largest card issuer, with 2.1 billion payment cards in circulation with acceptance in 92 countries.

“The local card market in China is opening up a bit,” Terry X. Xie, a principal analyst with Mercator Advisory Group, tells PaymentsSource. “China is being forced by the industry and foreign governments, including the U.S., to loosen up its tight control of the local market somewhat.”

A proposed business-development deal with China UnionPay could be significant for MasterCard, Beth Robertson, director of payments research at Javelin Strategy & Research, tells PaymentsSource. “A ‘memo of understanding’ sounds soft, but in another way it’s a strong step for MasterCard to get a position in an important market,” she says.

Visa in June generated international headlines about a letter it sent to its banks warning them that as of Aug. 1 it would block any international transactions through China UnionPay, or its bank members would risk incurring fines.

Visa, which has issued dual-branded credit and debit cards with China UnionPay since 2001, counters that the letter it sent to banks last summer was part of “routine communications” to banks reiterating rules that have existed for 15 years.

“Our operating regulations require that all international transactions initiated by Visa-branded cards be processed and cleared through VisaNet, which is not specific to China UnionPay or any other network,” a Visa spokesperson tells PaymentsSource.

While Visa appeared to be blocking China UnionPay’s growth in markets outside of China, MasterCard last summer remained silent on the issue.

“MasterCard may have avoided criticizing China UnionPay publicly because there was an agreement in the works,” Xie speculates. While details about the scope of MasterCard’s deal with China UnionPay are scanty, “the deal may not be broad,” he says.

Visa says it is “fully committed to working with China UnionPay to find areas of common interest that will enable both companies to meet their respective business objectives,” Visa said in a statement.

Separately, Atlanta-based Global Payments on Sept. 14 announced that through its joint venture with Hongkong and Shanghai Banking Corp. Ltd., a unit of HSBC Holdings PLC, it will become the first foreign card processor to handle China UnionPay card transactions. The service will be offered first in Beijing, but Global Payments plans to expand it elsewhere in China, the company says.

Global Payments this expanded its debit acquiring operations in China (see story).

 And last year it added China UnionPay card acceptance in Taiwan (see story). 

Global Payments and HSBC will process both domestic and foreign card transactions, enabling merchants to process Visa, MasterCard, American Express Co., JCB and China UnionPay card transactions on a single platform.

“As China’s economic development continues its rapid growth, payment transactions among Chinese and foreigners traveling to China will continue to increase significantly,” Paul Garcia, Global’s chairman and CEO, said in a statement.

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