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This story appears in the May 2009 issue of Cards&Payments.

In just seven years since its founding, China UnionPay Co. Ltd. has put its mark on nearly 1 billion bankcards, and its network handles the lion's share of payment card transactions in China, supported by an estimated 1.2 million merchant outlets and 160,000 ATMs.

Of course, it helps that state-controlled UnionPay, which remains China's only national bankcard network and association, has a monopoly on all domestic interbank card transactions.

Using that base, the company has been mounting what some call an aggressive campaign to expand acceptance overseas while holding competitors at bay in its growing home market. UnionPay has stated its five-year plan calls for becoming a bankcard association with "Chinese features," consolidating its position at home while becoming a major international brand.

"By controlling the acquiring and acceptance environment, they can effectively exclude Visa and MasterCard and American Express from accessing the majority of merchants (in China)," Terry Xie, director of the international advisory service for U.S.-based Mercator Advisory Group Inc., tells Cards&Payments. Others say UnionPay has not been able to keep merchants from accepting the major international brands and foreign-issued cards.

But a MasterCard executive says UnionPay has tried to discourage its member banks from issuing dual-currency MasterCard or Visa credit cards. UnionPay did not respond to requests for an interview.

UnionPay's member banks had issued 910 million network-branded cards by the end of 2008, estimates Xie. That was about half of the 1.8 billion total cards member banks had on issue in China, more than 90% of them debit or ATM cards (see chart).

Meanwhile, UnionPay has been signing overseas acquiring agreements since 2004, and at the end of 2008 its cards were accepted at 600,000 ATMs in 50 countries and territories outside of mainland China, according to UnionPay figures. About 430,000 merchants in 30 countries and territories accept the cards.

A reciprocal agreement between UnionPay and U.S.-based Discover Financial Services will see UnionPay cards accepted widely at merchant locations and ATMs in the United States. Discover gets access to UnionPay merchants. The Chinese card scheme has not offered similar deals to other international brands, believes Xie.

"China UnionPay doesn't see Discover as a strong potential competitor in the local market," he says.

Dave Duncan, group executive for China and Southeast Asia for U.S.-based processor Total System Services Inc., or TSYS, says UnionPay does not want to make the same mistake he believes Japanese card scheme JCB Co. Ltd. committed in not ensuring customers have enough places to use their cards abroad.

"JCB was dominating the Japanese market," says Duncan, TSYS's former point man in Japan who now oversees the processor's nearly 45% stake in a joint venture with UnionPay that controls the Chinese bankcard processing market. "JCB is losing in Japan because JCB didn't have an effective international strategy."

Building international acceptance is vital for UnionPay's future, says Duncan. But, of course, there is still plenty of room to grow in China.

TSYS estimates only one in 10 merchants with enough sales volume to accept cards actually do so, he says. And TSYS expects credit card issuance in China, at about 150 million cards, to grow, which would likely spur more domestic card purchases.  CP

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