China has for the first time granted permission to a credit card company from the United States for setting up its own payments network in the second largest economy of the world. This green light has been granted to American Express.
Preliminary approval to handle payments in yuan has been granted to American Express by the Chinese central bank, the company announced during the week end. Following the obtaining of the green signal, American express, together with its domestic Chinese joint venture partner LianLian Group, would now be able to begin the task of developing the payments network in teh market.
Its own network – with its headquarters situated in Phoenix, Arizona, is used by American Express for providing its services in every other market around the world. But the state-controlled payments giant China UnionPay would have to be used the company in China as per regulations of the country. .
American Express will be able to process payments on AmEx branded cards and collect fees on far more transactions after the completion of its own network in China.
Only co-branded cards can be issued by AmEx, Mastercard (MA) and Visa (V) in the Chinese market and typically these companies have to do so in partnership with UnionPay. For yuan payments in China, the cards use UnionPay’s network while for payments in dollars or other foreign currencies in other foreign countries, the and the US companies’ networks are put to use.
Some of UnionPay’s business inside China is being now taken by American Express.
After Beijing last year started letting foreign card companies apply for licenses, permission for setting up their own networks is being sought by Mastercard and Visa.
“We continue to work closely with the Chinese government as we proceed through the application process,” a Visa spokesperson said.
There were no comments available from Mastercard.
Analysts feel that it would be hard for all of the three US companies to create a dent in the Chinese market because the bank card is completely dominated by UnionPay with a hlod base where as the mobile payments market is dominated by the Chinese tech companies Ant Financial and Tencent.
The credit card payments market had been kept closed by the Chinese government and has been dispelling opening it up for years now despite a ruling in 2012 by the World Trade Organization in which the global trade body criticised the China UnionPay of operating a monopoly.
Critics of Chinese policies however may not be satisfied by the country allowing entry of just one American company into the market
The Trump administration has criticised the mandatory rile of setting up of joint ventures with local companies for foreign companies intending to do business in China. US claims that Chinese authorities force foreign companies to transfer valuable technology after foreing firms are forced into setting up joint ventures in certain sectors.
While Visa has reportedly applied to form a wholly owned entity to operate in China, it has been reported that a partnership with several Chinese entities for its China application has been formed by Mastercard.
(Adapted from Mmoney.CNN.com)