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VISA’s pride before a fall over the Chinese wall

I was at a fascinating meeting yesterday looking at developments in credit, debit and prepaid cards. There was a standout moment when we had a discussion about China Unionpay (CUP), China’s card processing operator.

First a bit of background.

CUP was set up under the auspices of China’s central bank in March 2002, and is the only domestic credit card organisation recognised by the People's Republic of China as it is owned by 80 Chinese banks and other state entities.

The reason it is disliked by the likes of Visa, MasterCard and Amex is that there are barriers for these processors to get access into the Chinese markets, whilst CUP feeds off their networks to support processing overseas at discounted rates.

For example, the interchange fee structure that Visa, MasterCard and Amex operate is pretty much ignored by CUP.

Consumers who use cards which simply display a China UnionPay logo will not only be exempted from brokerage fees but also will enjoy various services provided by China UnionPay. However, if they choose to use Visa's settlement channel, they will be required to pay a currency transaction fee of 1 to 2 percent of the total amount they have paid or withdrawn …

At the end of March, the three major global credit card companies, Visa, American Express and MasterCard, pushed the American government to urge China to open up its credit card market to foreign competition. The companies estimated that there was the potential for a 997.8 billion yuan ($150 billion) credit card market in the country. Meanwhile, China UnionPay has expanded its settlement network to 90 foreign countries and areas. They accept not only cards with the China UnionPay logo but also those that display both the Visa and UnionPay logos.

The figures above are actually low-balling it, as the firm describes themselves as follows:

To date, the total number of CUP card issued worldwide has exceeded 2.1 billion; in 2009, the number of CUP card inter-bank transactions reached 7 billion with an amount of USD 1.1 trillion; the overall merchants, POS terminals and ATMs reached 2.13 million, 2.88 million and 930 thousand respectively. China UnionPay has also established partnership with around 400 financial institutions all over the world. As of now, CUP card international acceptance network has been extended to 90 countries and regions. Over 10 of them, including Japan, Korea, Singapore, Russia, Mongolia etc, have issued CUP card.

So the figures are more like over two billion cards transacting over $1 trillion a year.


For a market that size, it does seem a bit strange for Visa to take the bold action of attempting to block CUP users from using their network outside China in June this year, as it resulted in CUP retaliating by blocking Visa from China for a year.

I say strange as Visa has shot themselves in the foot.

Rather than trying to pressure China into opening their borders to trade through international lobbying, whilst trying to partner with them, they have now become an enemy.

Meanwhile, firms like Amex and PayPal have partnered with them.

In a press release last week:

November 18, 2010 

China UnionPay and American Express today announced that they have signed a memorandum of understanding that calls for both companies to explore the expansion of their current cooperative activities. For the past several years, China UnionPay and American Express have cooperated within China where American Express Cards run on the China UnionPay network. This new MOU will establish working teams to develop potential new areas of cooperation between the two companies within China and in markets outside of China.

And in a press release in March:

17 March 2010 

PayPal and China UnionPay, China's bankcard association, today announced that China UnionPay (CUP) card members will be able to use PayPal to shop online, representing a new opportunity for international retailers to sell to a large base of Chinese customers who, combined, hold 2.1 billion CUP cards … Chinese consumers have more disposable income than ever before and are starting to look for the best products the world has to offer. CUP card members will be able to use PayPal in the third quarter of 2010. This gives merchants the opportunity to spend the coming months preparing their Web stores for Chinese consumers, including adding Chinese translation and fast, cost effective shipping methods.

What this says to me is that firms who see China as the land of opportunity must be willing to adapt their business models and, potentially, their principles to gain access. You could admire Visa therefore for not dropping their values … or view them as foolish for sacrificing access to this trillion-dollar opportunity by not changing their business approach.

Meanwhile, a nuance of this story is here in the UK, where RBS WorldPay has been opening access across UK POS and ATMs for Chinese tourists in partnership with CUP.

Chinese tourists only started arriving in London in 2005, and are now the biggest spenders in our country. Apparently, the average Chinese tourist spends about £800, compared to American tourists who spend an average £650 each.

Who would have thought the wealthiest tourists in the world would be Chinese a decade ago?

And who would have thought that RBS would be doing so much to bring wealth to our impoverished nation during these austerity times.

Bravo … or is it shame on you?

Totally depends on your own point of view.


About Chris M Skinner

Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here…

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  • Don’t forget that RBS WorldPay is in the process of being sold, so it will no longer be owned by RBS or indeed by us the tax payers. Sounds like a shame that, once again the UK is selling off a valuable asset.