A Research On The Development And Industrial Policy For Domestic RMB Bank Card Clearing Schemes

As one important type of non-cash payment instruments, bank cards have been used most frequently in the retail consumption. The bank card clearing scheme is an important part of the bank card industry, which is the core of the entire bank card industry chain and played a pivotal role in the development history of the bank card industry. Namely, the healthy development of the bank card industry highly depends on the quality and efficiency of the interbank transaction’s transfer and clearing service provided by bank card clearing schemes. Nevertheless, with the continued expansion of the domestic bank card industry’s size and the rapid growth of China UnionPay’s network business scale, some controversial events associated with China UnionPay has happened. These events were directly or indirectly involved in the monopoly position of China UnionPay, which made China UnionPay’s monopoly position to be widely questioned and criticized by the public. Therefore, it is necessary to systematically research the industrial policy for domestic RMB bank card clearing schemes, which not only helps the public to form a scientific understanding of the monopoly issue of China UnionPay, but also assists supervisors to make and implement scientific and rational industrial policies for the business of domestic RMB bank card clearing.This paper organically integrates infant industry protection theory, regulatory economics, antitrust economics, two-sided market economics and WTO rules. Based on the technical and economic character and the global competitive landscape of bank cards’POS interbank transaction’s transfer and clearing business, using logical deduction and synthesis analysis, empirical analysis and normative analysis, econometric analysis and case studies, the paper constructs an industrial policy system for domestic RMB bank card clearing schemes, which consists organically of the industry support policy, the anti-monopoly policy and the structure reconstruction policy, and adapts to the realities in China.The main points of the paper can be summarized as the following aspects:(1) The study on the development history of bank card clearing schemes shows that their nature is a new co-opetition business model. Bank card clearing schemes were initially created spontaneously among banks for the need of the development of bank card business. Their open structures made it very easy for banks to issue credit cards and debit card, which promoted bank cards to be used in greater breadth and depth. In competition with closed schemes, bank card clearing schemes ultimately occupied a dominant position. (2) The widespread use of bank cards is not just an alternative to cash payment, which plays an important role in promoting the consumption and economic growth. The establishment of China UnionPay has promoted the rapid expansion of the scale of the domestic bank card industry. The market structure of the domestic bank card industry has the following features. First, the domestic RMB bank card interbank transaction’s transfer and clearing business has been exclusively monopolized by China UnionPay. China UnionPay’s monopoly has both natural monopoly element and administrative monopoly color. Second, the market concentration of bank cards’issuing business has demonstrated an overall downward trend since2000, namely the monopoly degree of the market structure was increasingly weak. There is not an issuing bank with a dominant market position currently. According to Bain’s competition structure classification, the current structure of issuing business locates near the boundary between medium (upper) concentrated oligopoly type and medium (lower) concentrated oligopoly type. Third, the market concentration of bank cards’acquiring business has also demonstrated an overall downward trend since2000, namely the monopoly degree of the market structure was increasingly weak. Chinaums no longer has significant market dominance across the country. According to Bain’s competition structure classification, the current structure of acquiring business approximately belongs to medium (upper) concentrated oligopoly type. The development of the domestic RMB bank card clearing scheme is facing three major problems:the international competitiveness is relatively weak; the dominant market position is abused; the internationalization process is facing uncertainty.(3) Mainly in the theoretical basis of infant industry protection theory and regulatory economics, based on the empirical analysis, the paper forms the following three basic policy orientations. First, China should have its own bank card clearing schemes with independent brands. Second, bank card clearing schemes with independent brands really need the policy support in the infant stage. Third, the monopoly position of one bank card clearing scheme with its independent brand should be maintained during a certain period of time. The analysis of the support policy implemented showed that both the fuzziness of foreign investment access regulations and the restriction on the operational level together constitute a de facto protection to the domestic RMB bank card interbank transaction’s transfer and clearing business, and the protection has provided valuable time for China UnionPay to grow and develop. So, two proposals are provided for the support policy. First, the monopoly position of China UnionPay should be maintained in the short term. This is due to two reasons. On one hand, once the industrial policy protection is canceled, namely the restriction of foreign investment access is liberated, international bank card schemes such as Visa will certainly enter the domestic market aggressively. With a large number of double-labeled cardholders pre-developed and strong overseas acceptance network advantage, these international bank card schemes will be bound to capture the market share of China UnionPay in the territory. On the other hand, the bank card interbank transaction’s transfer and clearing business still has the cost subadditivity in the high business volume range. So, the supervisors should not rush to break the monopoly and introduce the second bank card clearing scheme. Second, it should be recognized that the supervisors are unable to support independent brands through a ceiling limit to the proportion of foreign investment. Before China UnionPay’s international business volume reaches a certain level so as to have the basic capability to compete with international bank card schemes such as Visa in international business, if the restriction of foreign investment access is liberated, it is impossible to effectively protect bank card clearing schemes with independent brands, whether it is China UnionPay or a new brand.(4)"Anti-monopoly Law of the People’s Republic of China" is generally applicable to supervise China UnionPay, but its relevant provisions on special industries and administrative monopolistic conducts is not applicable. It should be noted that the Anti-monopoly Law supervision is mainly targeted at possible monopolistic conducts implemented by China UnionPay. China UnionPay may abuse its dominant market position in the basic network business to eliminate or restrict competition in the competitive business. The case study of "Enforcing to implement POS direct access" shows that China UnionPay is suspected to violate the Anti-monopoly Law’s relevant provision about abusing dominant market position. Therefore, two proposals are provided for the anti-monopoly policy. First, the relationship between the Anti-monopoly Law supervision and the supervision from The People’s Bank of China should be straightened out. A dual supervision model integrating the Anti-monopoly Law and the industrial regulation should be implemented. At the same time, in order to avoid the regulation capture problem due to the close relationship between The People’s Bank of China and China UnionPay, the principle needs to be confirmed that industrial regulatory institutions should not conflict with the keynote of the Anti-monopoly Law. The authority for enforcement of the Anti-monopoly Law has the jurisdiction of the cases on China UnionPay’s monopolistic conducts suspected. The People’s Bank of China has the jurisdiction only in the case of clearly defined industry legislation, and the jurisdiction does not exclude the jurisdiction of the authority for enforcement of the Anti-monopoly Law. In reality, The People’s Bank of China’s jurisdiction is just only the supplement to the jurisdiction of the authority for enforcement of the Anti-monopoly Law. Second, the vertically integrated company "Chinaums" should be divested. According to the ruling in the case of " Enforcing to implement POS direct access", the authority for enforcement of the Anti-monopoly Law should divest Chinaums from China UnionPay system in cooperation with the industrial regulatory authority. As to the special program, it may be considered to transfer the equity of Chinaums from China UnionPay to shareholders including commercial banks according to the initial shareholder structure of China UnionPay.(5) With the continuous development of the bank card industry, it is an inevitable trend to implement market opening policy, relax the entry regulation, liberate the restriction of foreign investment access, and reconstruct the market structure of domestic RMB bank card clearing schemes. Therefore, two proposals are provided. First, it is necessary to take the initiative to transmit a signal that the restriction of foreign investment access will be liberated at the appropriate time, which will help stakeholders to form more positive expectations. On one hand, it is favorable for international bank card schemes such as Visa to maintain and enhance the belief that the market of domestic RMB bank card interbank transaction’s transfer and clearing will be opened up, which can avoid them to implement uncooperative actions frequently so as to damage the interests of cardholders and member banks. On the other hand, the signaling can exert pressure to China UnionPay to increase the efficiency and improve the service so as to enhance the core competitiveness and get fully ready for the challenge from international bank card schemes for the domestic market. Second, it is better to relax the entry regulation for domestic capitals at the appropriate time. If China wins in the case of China electronic payment service measures, China will seize the initiative to liberate the restriction of foreign investment access. Then it is worth considering to relaxing the entry regulation for domestic capitals in an appropriate manner at the appropriate time before the restriction of foreign investment access is liberated. This will help the market of domestic RMB bank card interbank transaction’s transfer and clearing to form and maintain a contestable state and exert the potential competitive pressure on China UnionPay to constrain its market conduct.