September was a busy month for
China UnionPay, the country’s domestic card scheme. First, it
signed agreements to partner with both MasterCard and Global
Payments in the country. Days later it found itself at the centre
of a political dispute between the US and China about foreign
access to the country’s market.


Card schemes: China - credit cards in issueThe Chinese payment card market
is riding a rollercoaster. The country is predicted to one day
overtake the US as the world’s largest credit card market, but was
brought back down to earth this month when the US filed a complaint
with the World Trade Organisation (WTO) against unfair barriers to
entry in its payments industry.

The complaint was made after a
flurry of news announcements relating to China UnionPay (UnionPay),
the country’s domestic card brand, which is owned by a number of
Chinese banks. First, MasterCard and merchant acquirer Global
Payments announced they had signed partnership agreements to work
with UnionPay in China.

Days later, however, it emerged
Visa’s China ambitions had been put on hold following a dispute
between it and UnionPay broke out when Visa put a stop to
UnionPay’s practice of using its own payment system to process
co-branded credit card transactions. Visa claims the rule extends
to all its partners across the globe.

According to Visa’s rules and
policies, transactions with Visa’s dual-currency credit cards must
be handled through Visa’s clearing system to ensure it can provide
cardholders with adequate protection.

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Visa said it would enforce an
initial fine of $50,000 if banks flouted the order, with a further
$25,000 per month to be taken if further violations were to occur.
The dispute soured relations between the two and, according to a
Financial Times report, UnionPay has refused to consider
any more projects with Visa for the coming year, effectively ruling
the network out of further expanding its strategy in China. Visa
currently has more co-branded credit cards with UnionPay than
MasterCard, with 27% of the total credit cards in issue co-branded
between Visa and UnionPay.

That compares to MasterCard’s 23%
and JCB’s 2%, according to Celent, a consultancy. The international
brands co-brand with UnionPay on dual currency cards. UnionPay
processes the domestic, yuan-based transactions and the partner
processes the foreign currency transactions made outside of the
country. Visa’s struggles and the slow progress being made by
MasterCard will have played a part in the decision by United States
Trade Representative Ron Kirk to file the WTO case against

Kirk argued the Chinese government
has gone back on its pledge to open its financial services market
to foreign players by 2006, and has instead gifted UnionPay a
monopoly over credit and debit card transactions by Chinese

“China’s actions unfairly deprive
US credit and debit card companies of access to a huge market,”
said Kirk.

“Opening this market to American
firms would not only restore the level playing field we have been
promised, but could also create additional American jobs as a more
efficient credit and debit system gives Chinese consumers the
ability to buy more goods – including quality, made in America

MasterCard’s memorandum of
understanding (MoU) with UnionPay was to establish a “mutually
beneficial relationship to explore future business

A statement from MasterCard said
working groups will be formed by the two parties whose aims will be
to discuss opportunities, potential co-operation in online
payments, and formulate a business development plan.

“The WTO case is a matter between
the US and Chinese governments,” said a spokesperson for

“The MoU and the WTO case are
independent of each other. Our MOU with China UnionPay itself
speaks volumes for the good relationship we have, and our desire to
cooperate and collaborate.”

Global Payments Asia Pacific, a
joint venture between US-based Global Payments and HSBC, also
struck a deal with UnionPay in September.

Under the agreement, Global
Payments will become the first foreign payment card processor to
launch a CUP card acquiring service in China, which allows it to
process both domestic and foreign card transactions via a common

“As China’s economic development
continues its rapid growth, payment transactions among Chinese and
foreigners travelling to China will continue to increase
significantly,” said Paul Garcia, Global Payments chairman and

“We are delighted to be the first
foreign payment card processor to enter the domestic card
processing market in China in partnership with HSBC.”

The battle for China’s payment
market is a complement to the vast potential for electronic
payments in the country. MasterCard Advisors, a MasterCard research
subsidiary, predicts China will overtake the US as the largest
market for credit cards with 900m cards in circulation by 2020.
That figure is expected to rise to 1.1bn and spending rates to
reach $2.5trn by 2025.

Unfortunately, China’s predicted
growth rates run the risk of becoming overshadowed by squabbling
over exclusion and unfair monopolies.

A compromise needs to be met between the two governments to
ensure the country’s electronic payments rollercoaster doesn’t
reach an abrupt stop.