The People’s Bank of China (PBOC) announced on October 13 that it issued an administrative approval decision to Visa Information Technology (Beijing) Co., Ltd. (hereinafter referred to as “Visa Beijing”), authorizing the company to prepare for the establishment of a bank card clearing institution. Visa Beijing must complete preparatory work within one year, after which it may submit an application for business commencement. Upon joint review and approval by the PBOC and the State Financial Regulatory Administration, the Bank Card Clearing Business License will be granted.

Visa Beijing is a corporate legal person established in mainland China by Visa Inc. As a foreign-invested enterprise, it was founded in 2015. Visa Inc. is a world-leading digital payments company. According to information on its official website, Visa connects more than 4 billion account holders with over 130 million merchants, around 14,500 financial institutions and government entities across more than 200 countries and regions.

Wang Pengbo, Chief Analyst of the Financial Industry at Bocom Information Consultancy, commented that the approval of preparation work marks another landmark event in the steady opening-up of access to the bank card clearing market. Financial regulators uphold the principle of equal treatment for domestic and foreign investors and approve applicants on a case-by-case basis once they meet requirements. Introducing diversified market participants under controllable risks will enrich supply in China’s bank card clearing market, provide card issuers, merchants and consumers with a wider range of products and services. Healthy competition will also drive the upgrading of payment and clearing infrastructure to better serve the real economy and cross-border trade.

Visa announced on the same day that it had obtained formal approval from the PBOC to prepare a domestic bank card clearing institution in China. “The approval of our preparation application represents another important milestone in Visa’s long-standing commitment to serving the Chinese market,” said Ryan McInerney, Chief Executive Officer of Visa. For more than four decades, Visa has actively participated in the development of China’s dynamic payments industry. Visa will carry out follow-up work in strict compliance with relevant PBOC regulatory rules, striving to launch formal operations in China at an early date.

Visa also stated that China hosts one of the world’s most advanced and vibrant digital payment markets with a highly innovative payment ecosystem, while continuing to advance high-level opening-up of the financial sector. Visa looks forward to bringing its globally leading innovation capabilities, security safeguards and operational expertise to the Chinese market, better serving Chinese consumers and corporate clients, and contributing to the continuous innovation and development of China’s payments industry.

“Securing preparation approval is a critical step for Visa to deepen its presence in China. Once preparations are finished and the operational approval is obtained, Visa will be able to independently conduct RMB bank card clearing business under the Visa brand within mainland China. It will no longer rely on the dual-label card cooperation model, and can directly partner with domestic card issuers and acquirers to tap differentiated scenarios such as cross-border commerce and outbound consumption,” Wang Pengbo projected. Visa will prioritize leveraging its strengths and focus on cross-border use cases including payments by foreign visitors to China and B2B receipts and payments for foreign trade enterprises. For ordinary consumers, payment options for inbound and outbound travel spending will be further enriched, and foreign exchange settlement procedures will become simpler.

To date, China has awarded Bank Card Clearing Business Licenses to three institutions: China UnionPay Co., Ltd., American Express (Shanghai) Bank Card Clearing Co., Ltd., and UnionPay Network Technology (Beijing) Co., Ltd. The three entities obtained their licenses in 2019, 2020 and 2023 respectively.

“A bank card clearing institution, also known as a card scheme, does not directly issue bank cards to individuals. It mainly provides its brand and authorizes partner banks to issue cards bearing its logo,” Wang Pengbo explained. Card schemes build inter-institutional switching and clearing networks, handling transaction routing, fund netting and settlement. They unify operational, message and risk control standards, conduct brand operations and card promotion, and expand acceptance scenarios together with banks and merchants. Banks are responsible for account opening, credit granting and card issuance to consumers.

When talking about the development of domestic bank card clearing institutions, Wang Pengbo noted that multiple players now coexist in the market. The local clearing institution boasts the largest acceptance network coverage, while other players keep improving system interconnection and merchant acceptance upgrades. The landscape of the domestic clearing market has basically taken shape, and competition in cross-border payment tracks remains intense. Foreign institutions should not simply copy mature overseas models. Instead, they need to explore differentiated growth space in niche segments, deepen cooperation with domestic banks and acquirers, control investment pace and avoid blindly rolling out full-scale retail market services.

Industry experts hold the view that China has transitioned from the bank card era to the mobile payment era. From the card issuance side, traditional business for bank card clearing institutions has limited room for growth. Nevertheless, both Chinese and global card schemes are investing in AI-powered payments, and Visa is at the global forefront in this field. In the future, card schemes will no longer be limited to bank card switching and clearing. They will function as smart payment infrastructure to realize cross-platform, cross-institutional and end-to-end payment connectivity.

Source: Shanghai Securities News