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Sept. 10, 2012, 10:13 a.m.
Phil Sealy Research Analyst
Citigroup announced in August that it was to become the first U.S bank to issue Citigroup branded payment cards into the Chinese market, without the co-branding of CUP (China Union Pay), although CUP will be processing the transactions on behalf of Citigroup the drop in co-branding indicates a growing openness in its payment and banking regulations.
I recently complete a study into China’s migration into second generation microcontrollers and one of my main findings was that the Chinese markets as a whole are becoming more open, relaxing its restrictions and allowing non-local vendors the opportunity to compete in markets that traditionally were locked to local vendor participation only.
China’s relaxing regulations is primary driven by two main reasons:
China desire to adopt and migrate to high end technologies, means that outsourcing to non-local vendors is sometimes a necessity with local vendors currently unable to produce a comparable solution
There has been much lobbying about China’s “unfair” regulations, closing off external competition or making it extremely difficult and challenging to enter the market. One example saw both MasterCard and Visa take such a case to the World Trade Organisation to which it won partial support
Pair the relaxing regulations with a dramatically growing market and the recipe is created for banks, financial institutions, smart card and IC vendors to increase their interests and focus within China. The banking population in the region is growing at a substantial rate. As well as a growing market, China is embarking on card migration to its PBOC 2.0 standard alongside a new social security/payments card, to which the government plans to deploy around 800 million by 2015. Overall ABI Research forecasts that the installed base of payment cards within China will increase by 360 million units between now and 2017, at which point China will account for 26% of all smart payment cards in circulation worldwide.
I think although Citigroup have become the first US bank to deploy a sole-branded card, it also needs to be noted that CUP participation is still active with it processing the transactions. I do not believe that this scenario will change in the near or mid-term future. Although China may be softening its stance with its regulations on foreign vendor participation, I believe that partnerships with local vendors will always be a requirement in some shape or form to maintain a slice of the pie for Chinese stakeholders.
More in depth analyses and detailed forecasted data on China’s payment cards market can be located within ABI Research’s Security & ID practice, under the Payment and Banking Cards & Contactless Technologies service.