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China to open bank card clearing market to foreign firms

China will open up the market for clearing domestic bank card transactions to allow competition from foreign companies including Visa and MasterCard. 30 Apr 2015

From 1 June, China will allow non-Chinese companies to apply to the Chinese central bank for a license to run a clearing company in China, the Chinese state council said in a statement.

The move is designed to "protect the rights and interests of card holders and promote healthy competition," the state council said.

Currently, only state-controlled China UnionPay is allowed to provide clearing service for RMB-denominated bank card payments.

Applicants will need a minimum of 1 billion RMB (US$161 million) in registered capital, among other conditions including data protection, the state council said.

Foreign organisations that already provide bankcard clearing services for clients in China should set up foreign-invested companies in the country, and apply for permits within a year, it said.

A decision on each application will take 90 days, and clearing services must officially start within six months of receiving a permit, the statement said.

MasterCard China general manager Chang Qing told financial news site Caixin that he expects a lift in demand for bank card services.

"We are glad to see the decision. It reflects the government's commitment to transforming the country's economic structure, following the cabinet's statement in October it would address the bank card clearing industry," he said.

"In some ways, the bank card clearing business can be seen as a kind of infrastructure, and its openness will facilitate other economic reforms and stimulate domestic demand under this "new normal" period of slower economic growth,"  Chang told Caixin.

A long-standing cooperation between MasterCard and China UnionPay is likely to continue, Chang said.

Hong Kong-based Paul Haswell of Pinsent Masons, the law firm behind Out-Law.com said: "UnionPay’s monopoly and dominance of the China card clearing market is a matter that has frustrated global payment services providers, and on occasion visitors to China and tourists from China because the clearing card monopoly has an impact on the use and acceptance of certain bank cards."

"Allowing the major global clearing companies such as Visa, MasterCard and American Express to offer services in the region is an important step, which can only benefit Chinese consumers and visitors, and ultimately the Chinese economy," he said.

In 2012, the World Trade Organization ruled that China's policies on electronic payment providers discriminated against foreign card companies.