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Domestic credit card firm rules in China

Publication Date : 25-07-2012


Around the world, people are used to not leaving home without their American Express card, or finding that Visa is everywhere you want to be.

But not here in China. The plastic of choice -- or lack thereof -- for its 1.3 billion people is UnionPay.

Touted as the fastest-growing payment network on earth, the state-backed player was thrust further into the global spotlight last week after the World Trade Organisation (WTO) ruled that it wields an illegal monopoly on yuan currency payment cards in the booming China market.

Its aggressive expansion at home and abroad has prompted speculation that it could one day become the world's No. 1 provider. In fact, it has already surpassed rivals Visa and Master-Card in card members, according to Retail Banking Research's findings released last August.

"UnionPay is now the largest payment card scheme in the world, issuing three in every 10 cards worldwide," the London-based consultancy's bulletin editor Dominic Hirsch noted.

By comparison, Visa's market share then was 28.6 per cent.

UnionPay has its huge home advantage to thank for its lead over Visa. Of its 2.5 billion-plus members, almost 99.5 per cent are from China.

This comes partly from its favoured position at home.

The WTO ruled that Beijing discriminates against foreign electronic payment networks, and requires them to ride on UnionPay's network and carry its brand on their cards.

But it has also striven hard to be competitive, using chipbased technology for its cards and exploring new platforms such as mobile payments, said Jafizwaty Ishahak, a director at consultancy Frost & Sullivan (Asia-Pacific).

"There is no doubt that UnionPay is among the top key payment and banking card providers," she said, adding that it is successful both within and outside of China.

With China's credit card market set to overtake the United States' as the world's largest by 2020, UnionPay is likely to see its card member base ballooning in coming years.

But it is a long way from becoming a truly global provider, with only about 13 million cards issued outside the country. And in terms of the value of card purchases globally, it lags behind Visa, which handled more than twice the amount UnionPay did last year.

"Currently, UnionPay sees its focus (as) really on serving Chinese banks and consumers," said Foo Boon Ping, managing editor of The Asian Banker publication.

"What is significant to look at is how much it is able to grow its issuing and usage business outside of China," he added. UnionPay is accelerating its overseas expansion amid booming demand from Chinese tourists.

They made about 70 million international trips last year, 22 per cent more than a year ago, according to National Tourism Administration data.

This helped boost the total value of transactions processed by UnionPay by 46 per cent last year to US$2.36 trillion, industry newsletter The Nilson Report said.

Asian markets have been a key target of UnionPay, which has even rolled out a special lounge in Singapore's Ion Orchard mall for its platinum card members to enjoy refreshments and get tourist information.

And in Hong Kong, Macau, Taiwan and South Korea, Chinese tourists' spending on UnionPay cards crossed 100 million yuan ($15.8 million) over this year's May 1 Labour Day public holiday.

The Chinese company has also reached further afield, from high-end British department store Selfridges- the first retailer to install its terminals early this year- to souvenir stores in South Africa.

UnionPay's cards are now accepted in over 120 countries. "However, in terms of building its brand for local card users in these countries, it is still done on a very targeted and selective basis," noted Foo.

At home, UnionPay would also have to work harder to keep its customers, who are "known to be brand-conscious, and are attracted to global brands", he added.

This week's WTO ruling could potentially allow equal access for foreign players. That could intensify competition in China's electronic payment sector, according to Chinese Academy of Social Sciences finance expert Jing Linbo.

Ishahak added that Union-Pay will need more creative products and good partnerships to stay dominant in China.

She said: "State backing is definitely to UnionPay's advantage, but what is important is their ability to maintain existing customers with various offerings."


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