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April 29, 2013

China’s UnionPay markets prepaid card in US banks

UnionPay, China's state-backed payment network, is trying to break into the US payments market by unveiling a prepaid card.The product will be sold in bank branches across the US and marketed as a card, which consumers can use when they travel to China and other foreign countries.

By Sandra Nielsen

UnionPay, China’s state-backed payment network, is trying to break into the US payments market by unveiling a prepaid card.

The product will be sold in bank branches across the US and marketed as a card, which consumers can use when they travel to China and other foreign countries.

Customers will also be able to use the card at US merchants that accept cards from UnionPay or Discover Financial Services, which has an existing relationship with the Chinese company.

The card is the first UnionPay-branded prepaid card issued in the US, and will be issued by Bancorp Bank, a subsidiary of Delaware-based Bancorp Inc.

The move is considered crucial to the UnionPay and Discover partnership, which largely competes against payment giants Visa and MasterCard to process transactions.

The partnership enables UnionPay cardholders to use their credit and debit cards at merchants that accept Discover cards, while Discover cardholders can use their cards at merchants and ATM’s that accept UnionPay in China.

While UnionPay is attempting to grow in the US, Visa, MasterCard and other US card networks have faced challenges tapping into China’s expanding e-payments market.

Chinese government rules require foreign payment networks to partner with UnionPay for cards issued in the country. Under the rules, Visa, MasterCard and others have been unable to process domestic transactions in China.

The World Trade Organization in July ruled that China’s tactics put U.S. companies at a disadvantage, and ordered China to drop the restrictions.

However, with new partnerships in the US, UnionPay could eventually put pressure on Visa, MasterCard and American Express.

According to the Nilson Report, consumers across the globe spent $3.3trn on their UnionPay cards in 2012, a 37% increase from the previous year. This stands in comparison to $5.7trn in purchases made with Visa-branded cards and $2.7trn made with MasterCard-branded cards in the same year.

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