China UnionPay Co. Ltd., the Shanghai-based national electronic-payments network and card brand, grew prodigiously last year but is coming under attack from domestic and foreign rivals vexed by its monopoly powers and runaway expansion.
In March, the Obama administration considered lodging a formal complaint against China with the World Trade Organization for alleged trade-rule violations by barring U.S. companies from competing in the Chinese payments-processing market. American companies, chafing at UnionPay’s dominance in China and leery of its rapid expansion overseas, requested the complaint to push back, analysts who requested anonymity tell PaymentsSource.
“Visa and MasterCard ... are trying anything they can to increase political pressure,” one analyst says. “We expect to see more activity in this area.”
At home, UnionPay is coming under fire from critics who advocate a second Chinese network, analysts say. But the People’s Bank of China, the central bank that regulates financial institutions, is resisting that drive, backed mainly by local government and private capital, analysts contend.
That opposition effectively places the initiative on hold, they maintain. “But who knows?” one analyst asks rhetorically. “That could change.”
Creating a single national network made sense when the Chinese government started UnionPay in 2003, giving it a “strong position” to provide an electronic-payments infrastructure for the emerging consumer class, says Dave Duncan, group executive for China and Southeast Asia at Columbus, Ga.-based processor Total System Services Inc. In 2005, TSYS bought nearly 45% of China UnionPay Data, the UnionPay card-processing subsidiary.
Before the genesis of UnionPay, each Chinese bank had to form its own merchant relationships for card acceptance, Duncan says. But banks might operate cards on different platforms for different regions, so a MasterCard that worked at one bank’s branch in Beijing might not work at its branch in Shanghai, he says.
Today, the China UnionPay Merchant subsidiary operates much like an independent sales organization, acquiring merchants for the roughly 80 Chinese banks that issue cards, and everything runs on the China UnionPay Data network, he says.
The result? Last year, issuance of UnionPay-branded cards in China soared 42%, to 1.3 billion, with spending on those cards increasing by 85% in China, to 6.04 billion yuan, says Terry Xie, director of the International Advisory Service at Maynard, Mass.-based Mercator Advisory Group.
Of the 2.07 billion cards issued overall in China, about 1.88 billion, or 91%, are debit cards, and the rest are credit cards, Xie says. UnionPay issues about 70% of China’s debit cards, while Chinese banks have issued the remainder, Xie says. About 43% of Chinese credit cards are branded UnionPay, while Visa has its brand on 30% and MasterCard on 22%, he says (see chart).
In a bid to become international, UnionPay had issued 7 million cards outside China, up 75% from 4 million at the end of 2008, Xie says. UnionPay has signed acceptance deals with local partners in virtually every major market in the world, but merchants in most locales have yet to realize they can accept and process the cards, he says.
In recent deals, UnionPay in March announced a partnership with PayPal Inc., the online-payments service owned by San Jose, Calif.-based eBay Inc., to compete with China-based Alipay for payments by Chinese Internet users. About the same time, UnionPay expanded its mobile-payments test to three more provinces and three major cities. PS
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