After years of unsuccessful attempts to enter China’s massive $27 trillion payments market, Mastercard announced today it has won approval from the People’s Bank of China (PBOC) to begin formal preparation to set up a bank card clearing institution in China. The news is a significant step toward Mastercard being able to do business in China, where large, domestic players currently dominate.
China’s central bank on Tuesday said it had approved an application from Mastercard’s joint venture to establish a bank card clearing business in China, a major step in the US company’s decades-long march to enter the yuan payment and clearing market.
Mastercard’s stock is up 1.4% in the session as the S&P 500 SPX, +0.17% is up 0.7%.
The application was submitted by Mastercard NUCC Information Technology (Beijing) Co., Ltd, a joint venture of Mastercard and NUCC.
The approval, made with China’s banking regulator, is another example of “China opening up its financial industry, and deepening supply-side reforms in the sector,” PBOC said in a statement on its website.
“We remain focused on working with the Chinese government and local partners to grow the overall payments infrastructure,” Chief Executive Ajay Banga said in a release. Keefe, Bruyette & Woods analyst Sanjay Sakhrani said that the move seemed like “a step in the right direction” but noted that the process of receiving formal approval “could take time and there are still a number of unknowns even if approved by the PBOC.”
China has been forced to open up its local currency payments market to foreign companies after a decade of lobbying from foreign players seeking direct access to what is set to be the biggest bank card market by 2020.
The Sino-U.S. Phase I trade deal states that no later than one month after U.S. service suppliers, including Mastercard, Visa and American Express, notify China that preparatory work is completed, China shall accept the licence application.
The coronavirus has put small firms at risk and undermining the national economy with soaring inflation, collapsing home sales, and hard-hit at the retail sectors.
One thing that needs to bear in mind is the timing of the approval when the coronavirus outbreak is threatening the governance of the Chinese Communist Party and this approval is a vital step taken by Wang Qishan to give away more financial interests of the dictating group and win back international support.
By Winnie Troppie