Banking & Finance

Counting cards

Visa fears rise of credit card rival?

Going global:China UnionPay

In Chinese culture four is the most unlucky of numbers. Its pronunciation in Mandarin, si, is almost identical to the word for death. Very few locals are prepared to live on the fourth floor of an apartment block. Level forty four is another major no-no.

But the number four has a separate set of negative connotations for China’s domestic bank card organisation, China UnionPay. It symbolises a continued dependance on its largest international rival, Visa.

It all boils down to the bank identification number (BIN), the first digit in the long string of numbers on the front of a credit card.

While UnionPay has its own BIN number, 62, many of its dual-currency cards are affiliated with Visa, so they bear the dreaded number four, as well as the logos of both companies.

And according to the Economic Observer, a competitive frisson is now entering the relationship.

Visa is insisting that all international transactions are routed through its infrastructure on co-branded cards, even in countries where the Chinese payment system is also recognised.

That means, for example, that Chinese tourists shopping in Bangkok are being told that their dual-currency UnionPay cards can only be used to complete a transaction via the Visa payment channels, reports CEO & CIO Magazine.

The move is particularly irksome to card holders because Visa charges special fees for currency exchange. UnionPay makes no such charges, which has made it the natural choice for Chinese travellers.

Visa says that the insistence on the use of its own payment system is only to guarantee a level of service and protection to all parties involved.

There could be other motivations. Visa might be keen to dampen the international growth of UnionPay, for instance, in part to retaliate against the constraints that it faces itself in the China market. UnionPay operates as a monopoly domestically and foreign businesses are barred from establishing a rival card payment system.

In the seven years since its inception, UnionPay has put two billion cards into circulation, making it the world’s largest card issuer (not all are credit cards, mind you, many are bank debit cards).

In 2008, UnionPay’s transaction volumes were $739.49 billion, up 34.2% year-on-year. Its overseas business has doubled in size every year since it was established in 2004. The company’s cards are already accepted for use in 67 countries, and by 2011, it expects that number to increase to 100.

In Asia-Pacific it is already the second largest card company in terms of transaction volume, surpassing industry stalwart MasterCard and growing faster than the market leader, Visa. By promoting the issuance of its cards overseas, UnionPay is becoming a regional network. There are already 30 banks in Hong Kong and Macau that issue cards with its logo, as do all the major banks in Korea. Sumitomo Mitsui in Japan and United Overseas Bank in Singapore have also printed UnionPay cards.

The next step will be to convince banks outside of Asia to issue cards bearing its logo.

The established global players will be keen to counter the growing competitive threat.

Apart from their seasoned brands, they have a few advantages. “Visa and MasterCard provide issuers with a variety of training opportunities and subsidies, as well as the opportunity to travel. In this regard, UnionPay has nothing,” one industry insider told CEO & CIO Magazine.

UnionPay prefers to portray itself as the underdog. It talks about its own rapid growth (in recognisable Chinese parlance) as a case of ‘peaceful rise’.

“Visa and MasterCard are long-established brands and they have a great deal of advantages in the bank card business,” Xu Luode, president of UnionPay told Reuters last month. “We have always been respectful of them. We don’t compete with them deliberately; we just stick to our own goals.”


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