According to information first reported by Bloomberg, China’s government is on its way to delivering a surprising revamp to its vast payments landscape. Up until now, the single card processor in the country allowed to clear transactions has been UnionPay. While skeptics already doubt the reports about the Chinese government allowing Visa and MasterCard in, the development shouldn’t come as a surprise.
There has been no timeframe given, but according to a microblog post by the Chinese government, a state council has established the groundwork for overseas and new Chinese companies to apply to set up card bank clearing services.
With forex brokers needing additional support to accept UnionPay and the very high commissions coming attached to those, this could represent a new opportunity in the Chinese market. But let’s not get ahead of ourselves – the changes are likely to take quite some time – while the Chinese government is eager to reform, the pace of those reforms is only gradual.
Meanwhile in Russia, President Vladimir Putin signed into effect a new law extending the declines for Visa and MasterCard to pay a massive security deposit to Russia’s Central Bank. Under the legislation which was supposed to be enforced on October 31st, VISA and MasterCard had to deposit 25% percent of their average daily turnover to the Bank of Russia.
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Unionpay was launched on the Russian market earlier this year, with the third largest Russian bank, Gazprombank, already having signed a deal with the Chinese card processor last month.
Alternatively, the U.S. card processors should have found a local partner to build a new framework. The move in fact is merely postponing the enforcement and giving more time for the development of Russia’s national payment system, which is most likely to take over all processing of the foreign systems’ transactions.
Both companies together hold about 90% of card transaction processing in Russia, an issue which the Russian government is definitely willing to address in order to reduce the dependency of the Russian payments system to foreign payment systems.
The new national payment system is the government’s choice to take over Visa and MasterCard’s transactions. According to a Russian central bank official, Visa, MasterCard and other international payment systems have already agreed to work on transferring transaction processing to the Russian monopoly in the first quarter of 2014.
The contrasting directions which China and Russia are taking highlight the increasing divergence between the two. The BRICS are taking different directions, with China continuing its efforts towards market reform, while Russia becomes increasingly protectionist and closed for business.