US financial services company American Express has just been granted a license to operate a bank card clearing services business in China. The approval that was given to the company by the People's Bank of China, the country's central bank, made American Express the first foreign payments network to have access to China's $27 trillion digital payments market.
The network clearing license was granted by the country's central bank to American Express' Chinese joint venture company, Express Hangzhou Technology Services, over the weekend. According to the PBOC, the joint venture will be required to immediately roll out its clearing services within six months from the approval of the license.
In a statement released by American Express following the approval, the company stated that its bank card clearing network in China will be processing both offline and online payment transactions in collaboration with the country's leading mobile wallet operators. American Express chief executive officer, Stephen Squeri, mentioned that the granting of the license is a major step forward for the company as part of its long-term growth strategy.
The approval is certainly a major win for the US-based card giant, particularly given the fragile geopolitical climate amid the rising tensions between China and the US. Experts have pointed out that China has seemingly shrugged off continued concerns surrounding the tensions and has proceeded with its plan to open up its $45 trillion financial market to foreign capital and investors.
By given the opportunity to tap into China's massive digital payments market, American Express should be able to offset some of the losses in its North American business. Since the start of the pandemic, spending in the US using the company's cards had dropped significantly, reaching a 45 percent drop in March. The company was also forced to set aside a $2.6 billion budget to cover potential losses for its first and second quarters.
American Express is expected to have a hard fight in front of it in China as it faces large domestic competitors that had already established their presence in the digital payments market. Based on the number of mobile transactions in 2018, China has the world's largest digital payments market. The entire industry is worth an estimated 190 trillion yuan, or roughly $27 trillion. As of September of last year, the country had over 8.5 billion bank cards in circulation. Major players in the competitive segment include Tencent Holding's WeChat Pay and Ant Financial's Alipay.
Apart from American Express, other international financial services firms that had applied for licenses in China include Mastercard and Visa Inc. In February, Mastercard had received initial approval for its request to set up a card clearing business in the country.
