Visa, MasterCard Surge on China Move to End Card Monopoly

Updated on

Visa Inc. and MasterCard Inc., the world’s biggest payments networks, climbed the most since October after China’s government indicated it plans to end a monopoly in bank-card clearing.

Visa gained 4.1 percent to close at $68.01 in New York, the best performance in the Dow Jones Industrial Average. MasterCard advanced 3.9 percent to $91.20.

Rules published Wednesday by China’s State Council, which take effect June 1, clear the way for Visa and MasterCard to gain a foothold in that country. It’s the most explicit China’s government has been about its plans to open up the market to U.S. firms, according to David Ritter, a Bloomberg Intelligence analyst.

“Right now, you have one company that controls the entire Chinese market,” Ritter said in a phone interview. “By opening it up, even a small slice of that volume is going to be significant. It’s really impossible to put the revenue opportunity on it but going from zero to anything is progress.”

China UnionPay Co. is currently the sole clearing service provider for yuan-denominated bank-card payments. The World Trade Organization told China in 2012 to stop discriminating against foreign payment firms.

Significant Opportunity

China had 4.9 billion bank cards at the end of 2014, according to the central bank. Visa and MasterCard could double their purchase volumes by 2023 if they gain access to the Chinese market, Darrin Peller, a Barclays Plc analyst, said in a note.

UnionPay cards accounted for $38 out of every $100 in global purchase volume last year, according to the Nilson Report, an industry newsletter. UnionPay also had the highest percentage growth in transactions among all networks last year, climbing 52.3 percent, or an increase of 6.78 billion transactions, the data show.

While China presents significant opportunity for the U.S. firms, it’s unclear how soon they may benefit, said Christopher Donat, an analyst at Sandler O’Neill & Partners LP.

“It’s one thing to have the rules, but rules in China aren’t the same as rules in the United States,” Donat said in an interview. “The devil is in the details.”

Paul Cohen, a spokesman for Foster City, California-based Visa, said the company “will review the new regulations and looks forward to further implementation details to be published.”

MasterCard sees the Chinese government’s decision as “a step in the right direction,” Seth Eisen, a spokesman for the Purchase, New York-based firm, said in a statement.

(An earlier version of this story corrected the number of companies in the Standard & Poor’s 500 Information Technology Index.)

Before it's here, it's on the Bloomberg Terminal. LEARN MORE