Visa and MasterCard shares soar after China opens payments market

Shares of Visa and MasterCard have skyrocketed after the Chinese state council announced that they were opening up its payment transaction market to foreign companies.

Earlier this month, the Chinese state council declared that from June 1st, they intend on regulating their bankcard transaction market to outside networks in order to promote healthy competition. This allows foreign bank companies such as Visa and MasterCard to apply for a licence to handle transactions in the region.

Up until this announcement, only UnionPay, the state-controlled bank card organisation has controlled payment transactions.

In 2012, the World Trade Organization found China to be in violation of trade rules as the nation required all card transactions in China to be handled by Union Pay, effectively creating a monopoly. The WTO stated that China should open their market for bank card transactions by August 2015.

Since the announcement, shares of Visa have gained 4.8 per cent to $68.50, while MasterCard has risen 4.2 per cent to $91.45. Currently Visa and MasterCard have to pay network access fees when accepting yuan payments.

The Chinese payment transaction market will be an area that both Visa and MasterCard will be eager to enter. China’s central bank announced that bank card consumer transactions for both credit and debt stood at 42.38 trillion yuan ($6.84 trillion) in 2014. This represents an annual growth of 33 per cent.

‘‘Although the details on the economic model for processing in China remain limited, we believe gaining access to (about) 20 percent of the world’s population, that was largely off base previously, represents a significant opportunity for both Visa and MasterCard,’’ said Daniel Perlin, an analyst with RBC Capital Markets.

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