China’s payment détente is too little too late
China’s recent move to come closer to allowing outside companies to operate inside the country shows gall on behalf of the People’s Bank of China.
China is still playing games and foreign payment systems would appear willing to play along. Even if one made the heroic assumption it was in good faith opening up its domestic payment network market, it’s too late.
In China Visa has perhaps 5%, or less, of the acceptance network that China UnionPay has. American Express likely has less. Networks need critical mass or a clear path to critical mass on both sides of the network to have a viable commercial value proposition for either. CUP owns the largest merchant processor and the largest issuers are state-owned banks.
To put China’s move recent moves into context: As far back as 2001 China made an express commitment as part of joining the WTO to 100% open up its domestic payments market by 2006. At the time it made that commitment China UnionPay, Alipay and WeChat Pay didn’t exist.
As of 2006 there hadn’t been a single domestic Visa, Mastercard, American Express, JCB, PayPal or Discover transaction in China. There still hasn’t. None of the networks complained, each assuming that if it complained it would be punished and if it didn’t it could receive more favorable treatment. When I spoke with the USTR about this they literally were unaware there was an issue.
In 2010 the U.S. brought a WTO complaint against China and substantially prevailed in 2012. China said it wouldn’t appeal. There were a number of hints and announcement that China would put in place a licensing regime. All stonewalling.
Now at the end of 2018 we have an announcement that the PBC has granted Amex approval to begin preparing to get approval. In contrast, China UnionPay, Alipay and WeChat Pay have all enjoyed unfettered access to the U.S. and European markets.