(Yicai) Sept. 22 -- Some major Chinese lenders, led by Ping An Bank and China Merchants Bank, are switching the settlement currency for certain overseas credit card transactions to Chinese yuan from US dollars, a shift analysts believe is driven by international card networks.

With the shift to yuan settlement, global payment networks such as Mastercard are trying to narrow the gap with China UnionPay in the cross-border payment experience, deepen their local operations, and seek new growth by improving the experience amid a shrinking credit card market and pressure on fee income, the analysts told Yicai.

China Merchants Bank recently announced that some of its Mastercard credit cards will start settling transborder payments in yuan instead of dollars from Oct. 28. Mastercard will make the conversion from the transaction currency to yuan and submit the payment information to the bank, which will then bill cardholders in yuan.

Earlier, Ping An Bank said that from Sept. 25, its Mastercard, Visa, and JCB credit cards will support foreign currency transactions settled in yuan, with customers able to choose between the redback and the greenback for billing.

When Chinese cardholders previously spent overseas in a currency other than the US dollar, the transaction often had to go through a two-step conversion from the local currency to dollars and then into yuan. In theory, the new arrangement should help reduce exchange rate losses from multiple conversions and currency conversion fees, benefiting users who frequently spend overseas.

However, a senior credit card expert said that exchange rate differences are usually very small, often only a few basis points, so the actual savings will not be significant. “The real improvement lies in the simplification of the payment experience and billing statements,” they said.

“This is a systemic adjustment between the card networks and banks,” a source close to Mastercard told Yicai. “The impact on consumers may not be strongly felt, but for the networks, it represents a major business migration within the Chinese market.”

In addition to settlement currency, risk control and product expansion are other aspects of card-network localization. Some international cards jointly issued by Shanghai Pudong Development Bank and Mastercard NetsUnion Information Technology Beijing, Mastercard’s joint venture in China with NetsUnion Clearing, were recently the subject of fraud.

Even though the cardholders were compensated, the incident highlights the risks associated with cross-border payments.

The number of credit cards and combined credit and debit cards in circulation in China fell for the 11th consecutive quarter to 715 million in the second quarter from the first quarter of this year, according to a payment system operation report from the People’s Bank of China. Over the past three years, the total number of credit cards in the country has declined by over 92 million.

Editor: Futura Costaglione