Because China allowed UnionPay to maintain a card-clearing monopoly until 2020, U.S. card firms have to focus on niche markets. American Express is arguably the most suitable for such an endeavor and it plans to focus on China’s premium segment. The card giant’s research has found that there were more than 2.2 million people with more than 6 million yuan in investable assets in the Chinese mainland in 2020, which was expected to continuously increase at an approximately 10% compound annual growth rate until 2025. Amex believes that these consumers would be interested in its premium credit cards, which have been able to clear in renminbi since 2020.
While Amex is known for its high fees, which probably will limit the appeal of its products in the broader China market, it is likely betting the fees will be less objectionable to HNWIs who are its target market. Bloomberg notes the card-clearing fee rate is 0.065% for domestic banks and the acquiring fee rate ranges from 0.5% to 1%. In the U.S., issuers like AmEx charge between 1.4% and 3.5%. Amex will need to build enough scale in China to compensate for lower fee revenue per user.
Similarly, while it questionable how much of an impact Amex will have in a market that with such a strong preference for digital payments, the U.S. card company is betting that an exclusive physical card will appeal to HNWIs who want something rarified. In the U.S., Amex offers its “Black Card.” In China, it offers a “Red Card,” given the auspicious connotations of that color.
At the same time, given Chinese consumers’ preference for debit cards, in late 2021 Amex’s China joint venture Express Technology Co. joined hands with China Industrial Bank to introduce two American Express-branded debit cards, the first debit products to support renminbi transactions on the U.S. card giant's network.
For its part, PayPal was the first foreign company to receive approval to provide online payment services in China. While that market is dominated by Alipay and Tenpay, who together account for about 90% of China’s digital payments, PayPal might to be in a position to give them a run for their money – pun intended – in cross-border payments.
The reason why is that PayPal’s wholly owned China subsidiary in February won approval from the Chinese central bank to almost double its registered capital to 4.52 billion yuan ($666 million), which will be the largest capital base of any nonbank payment provider in China. This is significant because it is far more than Alipay, which has 1.5 billion yuan, and Tenpay, which has 1 billion yuan.
PayPal was finally able to enter the China market following its acquisition of 70% of Beijing-based Gopay Information Technology in early 2019 and the rest two years later. In May 2022, Gopay was officially renamed PayPal Payments. The Chinese PayPal subsidiary has secured several key licenses, including those for online and mobile transactions.
When it comes to cross-border payments, Alipay is an especially strong player given its e-commerce ecosystems. However, PayPal now has money to spend to compete. The question is whether PayPal can offer lower fees than Alipay. We would not hold our breath for that though given PayPal’s reputation for the opposite.
As for other U.S. payment giants, both Mastercard and Visa appear to be stuck. The former was given approval to prepare to enter China in February 2020, but has not reported any progress since. Visa has yet to reach even that preliminary stage.