China blocks MasterCard processing renminbi transactions

June 2, 2013 6:02 pm

China blocks MasterCard processing renminbi transactions

By Simon Rabinovitch and Jamil Anderlini in Beijing

China has blocked MasterCard from processing credit card transactions in renminbi, raising concerns about Beijing’s willingness to fully open up the sector after the World Trade Organisation found that it unfairly restricted foreign card companies.

According to a document obtained by the Financial Times, the Chinese central bank ordered last month that EPayLinks, an online payment platform, stop issuing renminbi-settled credit cards in partnership with MasterCard.The ruling by the People’s Bank of China comes less than a year after the WTO declared that Beijing discriminated against foreign electronic payment providers by allowing UnionPay – the Chinese rival to MasterCard and Visa – to monopolise domestic renminbi-denominated transactions.

China has said that it would study the WTO judgment and state-owned media have reported that Beijing might announce new rules for its domestic card market as soon as next month.

But in what industry executives say is a sign that China might continue to take a hard line, the central bank put its foot down on the initiative by EPayLinks to launch renminbi-settled cards supported by MasterCard, which was announced earlier this year.

“No payment institution is allowed to co-operate with foreign card companies in developing cross-border payment businesses involving renminbi bank accounts or renminbi payment accounts,” the Chinese central bank ruled.

“Foreign currencies must be used when clearing and settling domestic acquisitions made by people holding foreign credit cards.”

China is among the world’s fastest-growing credit card markets, with 46m cards issued in the country last year. MasterCard has predicted that China will overtake the US as the largest market for cards by 2020, when it is expected to have about 900m.

The explosion in card use has been lucrative for UnionPay, which was set up under the auspices of China’s central bank and is owned by 80 Chinese banks and other state entities. Its revenues more than tripled over the four years to 2011, reaching Rmb6bn ($978m), according to local media reports.

All transactions at Chinese automated banking machines and merchants must be processed via UnionPay’s payments system. Visa and MasterCard are normally required to pay UnionPay a fee on transactions made using their cards in China.

The MasterCard-branded cards issued by EPayLinks were “virtual”, giving customers the ability to buy products online in renminbi, with the deals settled by offshore renminbi processed through the MasterCard payments system.

A representative of EPayLinks said that it had not violated China’s rules because it was not directly co-operating with MasterCard but rather conducting the business through its Hong Kong subsidiary. It added that it would strictly adhere to the central bank’s regulations in its business operations. MasterCard declined to comment.

“Looking at ecommerce, it is clear that there will be a trend of foreign cards being used in China,” EPayLinks said. “The big trend is that this business will be permitted, but the exact policies are still not clear.”

In its ruling, the Chinese central bank appeared to hold the door open to the possibility of foreign card companies eventually being given greater leeway in the domestic market. “We are now researching and drafting regulatory policies for foreign bank card organisations to enter the Chinese payment services market,” it said.