(Yicai) Sept. 22 — Some banks have recently announced their international cards will shift to Chinese yuan from US dollar settlement for cross-border payments. Market analysts believe this move was ultimately promoted by global payment networks.
With the shift to yuan settlement, global payment networks such as Mastercard are trying to narrow the gap with China UnionPay in the cross-border payment experience, deepen their localized operations, and optimize their overall payment experience against the backdrop of a shrinking credit card market and fee income pressure, market analysts told Yicai.
China Merchants Bank recently announced that some of its Mastercard credit cards will start settling transborder transactions in Chinese yuan instead of US dollars from Oct. 28. Mastercard will make the conversion from the transaction currency to yuan and then submit the payment info to the bank, which will send the billing statement to cardholders in yuan.
Earlier, Ping An Bank said that from Sept. 25, its credit cards would support foreign currency transactions to be settled in yuan, with customers able to choose between yuan and US dollar for billing. This adjustment covers cards with Mastercard, Visa, and JCB circuits.
Before the shift, Chinese holders of international cards issued by domestic lenders making purchases in currencies other than the US dollar had to undergo a two-step conversion from the local currency to US dollars to Chinese yuan.
This improvement will help reduce exchange rate losses caused by multiple conversions and currency conversion fees, thus benefiting users who frequently spend overseas.
However, a senior credit card expert said that exchange rate differences are usually very small, often only a few basis points, so the actual savings will not be significant. “The real improvement lies in the simplification of the payment experience and billing statements,” they added.
“This is a systematic adjustment between the payment networks and the banks,” a source close to Mastercard told Yicai. “The impact on consumers may not be strongly felt, but for the payment networks, it represents a major business migration within the Chinese market.”
Beyond the settlement currency, risk control and product expansion are other aspects payment networks’ localization strategy should focus on.
Some holders of international credit cards jointly issued by Shanghai Pudong Development Bank and Mastercard NetsUnion Information Technology Beijing, Mastercard’s joint venture in China with NetsUnion Clearing, recently reported fraudulent overseas payments that occurred without their knowledge or consent.
Even though the cardholders were ultimately compensated, the incident highlighted the risks associated with cross-border payments.
The number of credit cards and combined credit and debit cards in circulation in China fell for the 11th consecutive quarter to 715 million in the second quarter from the first quarter of this year, according to a payment system operation report by the People’s Bank of China. Over the past three years, the country’s total number of credit cards has declined by over 92 million.
Editor: Futura Costaglione
