While US card brands dominated the first-half century, Chinese payment firms will grow in importance over the next fifty years, according to the latest research from Morningstar.
The dominance of these Chinese firms will have significant implications for established players such as Visa and Mastercard.
"Much of the growth we expect in the global payment market will come from areas where consumer spending is growing fast and electronic payments are still in their infancy," said the report’s author and Morningstar senior equity analyst, Jim Sinegal.
"In these markets, the Chinese giants are likely to threaten the longstanding dominance of Visa and Mastercard."
The US-based analyst believes that Mastercard in particular will be "somewhat more vulnerable to foreign competitors," given its large presence in emerging markets and smaller relative exposure to the US.
While Sinegal does not see a significant threat from disruptors in the US market, he highlighted that Chinese companies are in the early stages of looking at market opportunities outside of the country. It was only in January, when Alibaba chair Jack Ma met with president Donald Trump to discuss more China-US cross-border commerce.
"Considering Alipay's massive Chinese network of consumers and merchants, an effort to penetrate US merchants seems an obvious next step," Sinegal said.
"China UnionPay is also taking steps to establish itself as a global competitor to Visa and Mastercard. In 2016, 68 million cards bearing the UnionPay brand were issued outside of China."
According to Sinegal, there are two key drivers that will make Chinese firms the most important potential disruptors in the payment space.
The first and most obvious is the sheer size of the Chinese payment market. China UnionPay, for example, is now the largest issuer of credit cards in the world.
"With more than a decade as a monopoly provider in the country, China UnionPay had over 5 billion cards outstanding in 2015 — nearly as many as Visa and Mastercard combined."
The analyst also noted the size of the local market. The one billion consumers - aged between 15 and 64 - makes successful Chinese firms immediately relevant on a global level.
Around $US8 trillion in card payments are processed within China annually. Alipay processes more than US$500 billion per year, about 75 per cent of Alibaba’s Chinese retail volume.
Leapfrogging traditional banking
Even single promotions in China, such as the virtual cash initiative which included “red envelope” gifts for the Lunar New Year, accounted for billions of payment transactions in only a few days.
The other key driver is the ability of Chinese technology firms to leapfrog traditional payment models. Chinese consumers are not only fast adopters of technology, their technology firms have been able to build rival networks to the banks and established card merchants in a relatively short period.
Just as eBay made PayPal a viable payment firm in the early 2000s, Sinegal highlighted that Alipay and Tencent were able to quickly establish large user bases and enter the payment industry – the two firms now account for a vast majority of mobile payments in China.
"Visa and Mastercard used banks to acquire their customers by handing out cards, while Chinese tech giants took advantage of digital distribution to lower customer acquisition costs," said Sinegal.
"The faster adoption of mobile technology, a friendlier regulatory environment - US technology firms are limited in their ability to offer financial services in China - and the leapfrogging of traditional banking in the country’s rapidly advancing economy have made this model possible."