Don't count on Visa and Mastercard winning in China. Here's why:
One Chinese concession that looks likely in trade talks with Washington, D.C., is easing entry for the U.S. credit-card giants that have been knocking on Beijing’s door since it joined the World Trade Organization in 2001.
But investors should restrain expectations in a market where plastic is locked up by a state monopoly, and rapidly being superseded by mobile payments from online ecosystems Alibaba Group Holding and Tencent Holdings . “We have ruled out China as being a significant contributor to the bottom line,” says Sanjay Sakhrani, an analyst covering the credit-card sector for KBW.
To make matters worse, the Chinese internet titans keep payment commissions low in order to retain customers whose data they can mine, so merchants are almost certain to balk at the hefty bite that global players take out of transactions, Sakhrani says. In theory, the U.S. partner could contribute substantially to this effort with advanced technology in fraud prevention, data analytics, and other areas. But any payout is far away. “This is a very long-term opportunity,” Rawat says. “It’s unlikely to be a needle mover over the next two or three years.”
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