American Express breaks into China’s payments market
According to CNN, the Chinese central bank has given Amex preliminary approval to handle payments in yuan today (9 November). The firm can now start setting up the payments network through a joint venture with LianLian Group, its Chinese partner.
The development means it is the first US credit card company to get the nod and opens up a world of potential. But as it’s China it also opens up a whole load of complexity.
In every other market around the world, Amex processes transactions through its own network – the hub is in Phoenix, Arizona.
But in China, bless ‘em, they have been handled by state-controlled China UnionPay. It’s a canny move by the Chinese to stifle competition and keep control. No one seems able to stop it.
CNN says once Amex has built its own network in China, it will be able to use it to process payments on its branded cards and collect fees on far more transactions.
In China, Amex, Mastercard and Visa can only issue co-branded cards, typically in partnership with UnionPay. The cards use UnionPay’s network for yuan payments in China, and the US companies’ networks for payments abroad in dollars or other foreign currencies.
With the news today, Amex now has a chance at taking some of UnionPay’s business inside China. We’ll see. Based on past form, the Chinese will probably have more obstacles lined up.
Mastercard and Visa are also looking for permission to build their own networks after China started letting foreign card companies apply for licences last year.
Visa and Mastercard did not immediately respond to requests from CNN for comment. Maybe they’re fuming or sulking at a rival getting ahead.
Those three US firms will have a real fight on their hands to find success in China. UnionPay, Ant Financial and Tencent already dominate the mobile payments market.
As CNN reminds us, the Chinese government dragged its feet for years on opening up its credit card payments market to foreign companies, even after the World Trade Organisation ruled in 2012 that China UnionPay was operating a monopoly.
Mastercard has reportedly formed a partnership with several Chinese entities for its China application, while Visa applied to form a wholly owned entity to operate in China.
Good luck. You’ll need it.