By Hu Rongping(胡蓉萍)

Corporation, page 20

Issue No. 542, Oct. 31, 2011

Translated by Li Meng (李萌）

Original article: [Chinese]

Visa and MasterCard process around three quarters of card transactions in Europe and the U.S., but the ban on providing yuan-denominated cards has left them powerless in the world’s fastest-growing market.

Almost all of China’s 2.4 billion cards bear the logo of China UnionPay, a payment system launched by the central bank in 2002. Unable to offer cards to the vast majority of Chinese who only make purchases domestically, Visa and MasterCard are hoping to make their case in China by showing the superiority of their technology.

MasterCard sent Chief Technology Officer Garry Lyons on a recent visit to China with a group of partners from across Asia. Its PayPass system, like Visa’s PayWave, is gaining popularity in Europe and the US, where shoppers can now wave their bank cards in front of sensors in order to make low-value transactions, for example when buying a sandwich in a cafe or a magazine at a newsagent.

Prior to that, the two American card companies developed a standard for payment cards with integrated chips. Most cards issued by western banks now use this technology, whereas many Chinese still rely on magnetic stripes, which have been on the reverse of cards since the 1960s.

Even so, some in the Chinese banking sector think that UnionPay is likely to remain dominant even if Visa and MasterCard fight harder for market share.  

"Technically speaking, China UnionPay isn't lagging behind. Of course, further improvements are needed in the area of risk control. But in five years’ time, when UnionPay catches up in terms of risk control and international interoperability, it's hard to say how much of an edge the two companies will hold if they’re allowed to access the Chinese card market." said a director at the credit card division of a major bank.

China does have its own version of the chip-card standard - developed by the People's Bank of China and known at PBOC 2.0 – but hasn’t yet got an analogue to the contactless payment systems of PayPass and PayWave, leaving a gap that might benefit Visa and MasterCard.  

"This probably means that Visa and MasterCard still have room to expand their business in contactless payment solutions in China," said one source at a major city commercial bank.

But industry expert Yuan Yaozhang is less optimistic for the foreign pair, saying the best the two companies can hope to gain from publicizing their contactless payment standards in China is better brand recognition.

"These international payment companies don’t have a chance of gaining ground by promoting wider adoption of contactless payment given [China’s] current policy and market environment," he said, noting that most of their revenue in the country comes from servicing non-yuan accounts on dual-currency cards, network usage fees and cross-border transactions.

So far, the Industrial and Commercial Bank of China has trialed cards with contactless payments with MasterCard in 2007 and Visa in 2008. However banks or third parties install many of the payment terminals in shops and restaurants and those companies have little incentive to install the foreign card companies’ new technology.

Ling Hai, the president of MasterCard Great China Division, says the company’s next big challenge is to broaden the range of merchants accepting its cards for payments. For now, he’s focused on core business circles with large volume of transactions. 

The translation of this story was edited by Will Bland.