Payment companies forecast a major upgrade of China's
corporate card market after the country's State Council announced on April 22 that
foreign companies for the first time can apply to set up bank-card-clearing
operations. Western card schemes like Visa and MasterCard are expected to be
allowed to settle transactions in Chinese yuan, a service for which
state-backed network China UnionPay has enjoyed a near monopoly. Experts say
the move, a significant lurch toward liberalization, will open China to global
card issuers and virtual card numbers and make traveler data consistent with
global norms.
Foreign companies will be allowed to set up
clearinghouse subsidiaries and apply for licenses from June 1 and operate publicly
18 months later. Payments businesses told BTN
they anticipate banks will start issuing Visa and MasterCard corporate cards in
yuan, and they expect other benefits, including greater acceptance of Western
schemes throughout China, innovation in the Chinese corporate card market, a
significant improvement in management information and the spread of virtual
card payments. Potential players also expressed caution as they await from the
China Banking Regulatory Commission precise details and regulations and a
clearer definition of the services they will be permitted to offer.
The Global Business Travel Association
forecasts China will become the largest business travel market in the world in
2016, yet it remains a difficult one for travel managers to integrate into
their multinational managed programs. Domestic distribution system TravelSky Technology
has a monopoly on domestic air reservations, yet, while it and UnionPay shut
out Western competition in their respective sectors, neither offers data and
other corporate-travel-friendly back-office processes to the same standard.
At present, Visa and MasterCard have to cobrand
with UnionPay if they wish to accept yuan-denomination cards, and that means paying
access fees to UnionPay for every transaction. Citi has taken a different
approach since 2012, when it became the first U.S. bank to launch a corporate
card product in China. It offers customers two cards—a UnionPay card for use in
China and another Visa or MasterCard for international trips. Meanwhile,
AirPlus International, as an issuer on the airline-owned network Universal Air
Travel Plan, since 2008 has dominated business air ticket payments through Chinese
travel agencies. That's thanks to the Chinese government effectively barring bank-owned
competitors from competing. AirPlus achieved 92.3 percent market share of China's
Billing and Settlement Plan card settlements in 2013.
In spite of their head starts over other issuers,
Citi and AirPlus welcomed China's decision to liberalize, which follows a World
Trade Organization ruling against the country's restrictive policies dating
from 2012. "It looks like Visa and MasterCard will be able to issue
locally, which will open up the market in a big way," said Deven Somaya, Citi
regional wholesale cards head for treasury and trade solutions.
Somaya said his company needs to examine the
fine print on numerous issues—including acceptance rules, management of payment
terminals and costs—but he already sees advantages to issuing on the same
network in China as in the rest of the world. "At Citi, we own the data
end to end, so we can consolidate management information [from UnionPay
transactions with Visa and MasterCard transactions], but it would lead to more
consistent information," he said.
"This should allow a lot richer data flow
back to the schemes," said Simon Barker, CEO of virtual payments
technology provider Conferma. "There is no ability at the moment to
control and define the data flow because it is controlled by UnionPay. Now, it
should start to look like data used in the rest of the world. This news means
global card issuers can finally move into China."
Barker also predicted that his own specialized
corner of the corporate payments industry will benefit. "It gives us a big
opportunity to globalize the virtual card number market," he said. Our
discussions with AirPlus have indicated significant appetite for a solution in
China." Virtual card numbers are proving a popular way to pay for travel
in emerging economies where many business are not yet comfortable issuing
corporate cards en masse to employees, and many of those employees do not have
well-funded personal credit cards, either.
Making a similar but wider point, AirPlus China managing director Lucy
Wang said, "Corporate travel managers will definitely start to enjoy a
wider choice of products, which are already offered by the foreign payment
networks outside of China. Bringing more innovative and diversified products
into China will also encourage local card schemes to provide more innovative
products. Therefore, there will be positive competition and customers will be
the beneficiaries. AirPlus will also have more opportunities, and we will
introduce more advanced and more convenient business travel management products
to China."
Wang added
that international visitors also are likely to benefit in the long run by
finding more establishments willing to accept their cards. At present, there is
severely limited acceptance of any network other than UnionPay other than by
large merchants, such as chain hotels, in China's handful of "Tier One"
cities. "The ability of foreign payment networks to process local
transactions in [yuan] means processing volumes will soar tremendously in three
to five years, and that will provide a bigger incentive for extending the
acceptance network," Wang said.
Meanwhile,
traffic in the global payments market is not all one-way. Although UnionPay for
the first time will be challenged seriously in its backyard, it is making
significant inroads elsewhere and learning fast from its potential domestic
competitors. Approximately 4.6 billion UnionPay bank cards are in circulation, according
to UnionPay, and settlements on the network totaled $6.7 trillion in 2014,
thanks to acceptance by 26 million merchants in 150 countries. Only Visa and
MasterCard are bigger. "China UnionPay is a massive institution, and it is
growing fast outside China," said Barker. "If it keeps going the way
it is going, it will start giving MasterCard and Visa a run for their money on
the commercial side."
Similarly,
Citi expects stiffer competition from Chinese banks thanks to the new
regulations. "I would envisage local Chinese issuers starting to issue on
MasterCard and Visa," said Steve Robson, Somaya's counterpart for Europe, the
Middle East and Africa.
In a written statement to BTN,
MasterCard said, "It's a large marketplace, and we are keen to play there,
and we are encouraged by the announcement. The full requirements will only
become clear when these detailed regulations are issued. But in the meantime,
there are a lot of people in the company working very hard to get ready for
this opportunity to take advantage of it as soon as we possibly can."
A statement from American Express said, "The State Council's new network regulations are certainly a positive development and we await further information on how these rules will be implemented."