The People's Bank of China cleared Visa's application to prepare, the first formal step toward processing domestic card payments in China. It is not a license, and Mastercard and American Express are already clearing locally through joint ventures.
Visa has spent more than four decades in China without being able to process the country's ordinary domestic card payments. It now has permission to start building the business that would let it do so.
The company said Tuesday that the People's Bank of China had approved its "Application to Prepare," which "allows the company to begin formal preparations to establish a domestic bankcard clearing institution in China." Visa said it will "continue its efforts to complete the process and begin domestic bankcard clearing operations."
Chief Executive Ryan McInerney called the approval "a significant step forward in Visa's long-standing commitment to China." He added: "We greatly appreciate the important role of the leaders of the United States and China in pursuing a constructive and strategically stable relationship between the world's largest economies."
What The Approval Is, And Is Not
The approval is a preparatory stage. It lets Visa set up the entity, systems and arrangements a clearing house needs, but it does not authorize Visa to begin clearing domestic transactions. That requires a further license under the central bank's rules, and Visa gave no timetable. Under the central bank's process, Visa has one year to complete its preparations before applying to operate, according to reports on the approval.
The company also disclosed no investment figure, expected revenue or partners.
Behind Its Rivals
Visa is entering a market where its two main U.S. competitors are already operating. Mastercard and American Express both clear domestic card transactions in China through joint ventures. Visa's release did not say whether it would use a joint venture or a wholly owned structure.
The Stock
Visa shares closed Monday at $389.27, up about 1%, before the announcement. In thin early trading on Tuesday, quotes indicated a gain of about 1.6%. Mastercard closed Monday at $595.09, also up about 1%.
The Diplomatic Framing
Mr. McInerney's comment about U.S. and Chinese leaders is unusual for a regulatory announcement. It can be read as tying the approval to the state of relations between Washington and Beijing, beyond payments regulation alone.
Market Implications
One reading is that the approval opens a long-term growth market. Even a modest share of domestic clearing in China would give Visa a new revenue line there that does not depend on cross-border travel.
A second reading is that the economic value is distant and uncertain. Visa is arriving after its rivals, still needs a final license, and has tied the process publicly to a diplomatic relationship that can change.
What To Watch
Visa's next quarterly results are the first opportunity for management to discuss costs, structure and timing. Any final license from the People's Bank of China would mark the point at which the business can begin generating revenue.