Optimism Tempered with Caution
A version of this post also appeared in the June 2011 issue of Paybefore Legal.
The People’s Republic of China has ventured carefully in the area of payment cards. Its first step was launching its national bankcard network, UnionPay, in 2002. From that beginning, the Chinese bankcard industry has grown rapidly. According to UnionPay, by the end of 2006, there were 1.175 billion bankcards: 1.119 billion debit cards and 56 million credit cards.
In the last five years, closed-loop prepaid cards, especially store and phone cards, also have been booming in China. A recent Mercator report, Prepaid Cards in China 2010, indicated overall sales of closed-loop prepaid cards exceeded $200 billion. For example, a category of cards known as payroll and benefit cards, exceeded US$58 billion in sales. These are not the payroll cards we are accustomed to in the United States, but are essentially closed-loop gift cards given at important holidays, replacing traditional gifts of groceries or cash.
According to the Mercator report, open-loop prepaid cards account for less than 0.01 percent of all prepaid cards in China, primarily due to government concerns about confusion between debit, credit and prepaid. In fact, banks have been forbidden from issuing prepaid cards since 2006.
But, change is coming. For the first time, China has issued regulations that permit nonbanks to issue open-loop prepaid cards, subject to stringent licensing requirements. These new regulations, which appear to be somewhat similar to U.S. money transmitter licensing laws, are summarized below.