Fact Check
A more open clearing market
By Lan Xinzhen  ·  2023-12-04  ·   Source: NO.49 DECEMBER 7, 2023

On November 19, the People's Bank of China (PBC), the country's central bank, announced it will allow Mastercard NUCC Information Technology (Beijing) Co. Ltd., a joint venture between Mastercard and Chinese firm NetsUnion Clearing Corp., to conduct bank clearing business in China. This approval made Mastercard the second international bank card clearing institution operating in the Chinese market, following American Express, which was approved in 2020, and one of the three bank card clearing institutions in China, along with China UnionPay, the country's largest bank card payment processor.

American Express broke China UnionPay's monopoly in the country's bank card clearing market by establishing Express (Hangzhou) Technology Service Co., a joint venture it set up in 2020 with LianLian DigiTech, of which it owns 49 percent. This latest joint venture is 51-percent-owned by Mastercard. This structure underscores China's determination to open its financial sector further to the outside world.

In 2015, the Central Government issued a decision on access management of bank card clearing institutions, which states that all domestic and international companies meeting certain requirements are allowed to establish bank card clearing businesses in China. In 2016, together with the then China Banking Regulatory Commission, which has been reorganized into the National Administration of Financial Regulation, the PBC issued the Measures for the Administration of Bank Card Clearing Institutions. The document applies the same criteria to Chinese and overseas institutions in terms of conditions and procedures for their establishment and the administration of their operations.

In addition to facilitating transfers between bank card issuing institutions, clearing institutions formulate standards and rules, authorizing the issuance and handling of bank cards under their brands, and assisting in the completion of fund settlement. The arrival of more international bank card clearing institutions is likely to prompt the country's bank card clearing industry to improve itself further. This influx also shows China's massive payment market is attractive to foreign banks.

According to regulations, an overseas institution that provides bank card clearing services for entities within the territory of China is required to set up shop in China and obtain the bank card clearing business permit. An overseas institution that provides bank card clearing services only in foreign currencies for cross-border transactions is not required to set up a bank card clearing institution in China. They only need to file a record with China's financial regulators.

Bank cards, used in conjunction with mobile payment platforms, are currently the most popular non-cash payment tools in China. Accounts on mobile payment platforms like Alipay and Weixin Pay are usually bound to multiple bank cards. Statistics from the PBC show by the end of the second quarter of 2023, financial institutions in China had issued 9.62 billion bank cards. In the second quarter alone, the number of bank card transactions around the country reached 127.39 billion, involving 271.76 trillion yuan ($38.1 trillion).

While the coming of international credit card companies will help increase competition and improve the overall standard of clearing services in the Chinese market, precautions must be taken to manage possible risks. Bank card clearing services involve huge amounts of information on multiple players including card holders, businesses and card issuing institutions. The interests of all parties, particularly those of card holders, must be protected. It's therefore important to conduct assessments of professional expertise and operational capabilities of bank card clearing institutions and enforce supervision. Above all, it's crucial to ensure financial security in the process of further opening up China's financial market.

Copyedited by G.P. Wilson

Comments to lanxinzhen@cicgamericas.com

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