Credit card issuers have been riding high recently, enjoying a surge of credit card use among consumers, more timely payments, and lower charge-off rates of bad loans. Even the recent $7.5 billion settlement the card companies agreed to with a coalition of merchants didn't tarnish their stars, as investors apparently perceived the end to the wrangling as a positive rather than a negative event. Now, the U.S. has won a case against China, which will most likely open up that country's market to Visa
The World Trade Organization ruled on a complaint the U.S. filed in 2010 regarding UnionPay, China's state-owned network for processing credit card payments. Though the U.S. didn't win on every point, the ruling supports the contention that UnionPay enjoys monopoly status in China, to the detriment of foreign credit companies. Though the decision may be appealed, the ruling is considered a win for U.S. credit card issuers.
UnionPay was created 10 years ago by China's central bank and does have partnerships with banking entities such as Citigroup
This decision is monumental for Visa, MasterCard, and American Express, as well as Discover Financial Services
There are pots of money to be made in this market, which has grown by leaps and bounds over the past few years. Currently, there are approximately 268 million credit cards in circulation in China, up from 207 million one year ago. Estimates from MasterCard expect yearly growth to be between 11% and 14%, and other analysts say the number of issued cards could top 1.1 billion by 2025 -- with the gross profit for each card increasing six times its 2010 level by that date. With that kind of market to look forward to, U.S. card issuers look like a very lucrative investment opportunity indeed.
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Fool contributor Amanda Alix owns no shares in the companies mentioned above. The Motley Fool owns shares of Citigroup and MasterCard and has created a bear call spread position in American Express. Motley Fool newsletter services have recommended buying shares of Visa and creating a write covered strangle position in American Express. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.