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Nov. 12 (NBD) –American Express (AmEx) became the first foreign payment company allowed to build its own network in mainland China.

People's Bank of China, China's central bank, has granted preparatory approval to the application for a clearing and settlement license from American Express Technology Service (Hangzhou) Company Limited, a joint venture by AmEx and Chinese fintech company Zhejiang LianLian Technology Co Ltd, according to a statement released on the central bank's website Friday.

The JV is given one year for preparation before applying to the central bank for opening the business. 

Many industry insiders see the decision as a milestone in China's reform on the clearing and settlement market and further opening-up of the financial sector.

China's card payment market is currently dominated by state-owned China UnionPay, which takes a 90-percent market share. Since its opening in 2002, the Chinese card association has remained the sole bank card clearing organization in mainland China.

The approval means that soon there will be a second licensed card association offering clearing and settlement services which constitute a vital part of the financial infrastructure. This will improve the competitiveness and efficiency of the bank card industry, and provide consumers with diversified payment services, said Yang Tao, director of the Research Center for Payments and Settlements of the Institute of Finance and Banking at the Chinese Academy of Social Sciences and chief economist of China FinTech 50 Forum.

Compared with the titanic presence of China UnionPay, international card associations have competitive edges since they are familiar with markets in different countries and boast rich experience and mature models.

According to Yang Tao, overseas card associations can highlight their strengths in cross-border payment services, serving high-end customers and improving user experience, therefore satisfying the demands of domestic and foreign customers in the context of renminbi's internationalization.

However, the competition will be fierce even for a well-established international card association like AmEx. 

Approval is only the first step, and the key lies in the operation after opening the business, said Tang Ling, senior vice president of E-payment company Lakala.

People panicked when foreign banks entered China, but so far Chinese banks still hold a dominant position. How the clearing and settlement market will turn out remains uncertain, added Tang Ling.

The huge bank card market in China has long lured foreign clearing and settlement organizations. According to data from the central bank, as of the end of the second quarter this year, the number of China's bank cards in use reached 7.187 billion. Research shows the number is projected to reach 9 billion by 2020, which will make China the largest bank cards market in the world.

It is noted that U.S. payment giants Visa and Mastercard submitted applications to the central bank as well, but the proceeding details are unclear.

Email:limenglin@nbd.con.cn