Banking & Finance

Inflexible friend

Visa and UnionPay row heats up

Inflexible friend

But not outside China, says Visa...

The slogan for China UnionPay’s (CUP) current advertising campaign is to “Explore the world with UnionPay”. Clearly, Unionpay wants to nurture its image as a company offering international service. Unfortunately, CUP’s overseas partner, Visa, is a lot less keen on that happening.

In fact, Visa recently sent a letter to its member banks on how to process international transactions on cards bearing both the Visa and CUP logos.

The message: stop using the CUP payment system. Transgressors will be fined $50,000 for the first offence, with further penalties for persistent violations, reports the 21CN Business Herald. In some ways this has been on the cards for a while (pun intended). Back in issue 43, WiC suggested that relations between CUP and its international partner were starting to show strain. Most analysts think Visa’s decision is linked to its limited access to the Chinese market, where CUP operates as a monopoly.

US officials have been exploring retaliatory action, and there has been talk of filing a complaint with the WTO. But as little seems to have come of their deliberations, Visa now seems to have decided to be more forceful in taking matters into its own hands.

Although Visa’s grievances might be nothing new, the plans to impose penalties on banks that process CUP payments have turned what was a low-key disagreement into a more public spat. “No party has the right to limit cardholders’ choice of overseas payment network,” a CUP spokesman complains to the Global Times.

Given the choice, most Chinese cardholders would probably choose CUP. This is because Visa charges the cardholder up to 1.5% of non-US dollar transactions, while CUP makes no such charge. The Chinese company also offers a better exchange rate on a range of currencies, according to the Financial Times.

Visa says that the letter was just a routine matter: “Visa regularly reminds its global clients and partners of their obligations to adhere to these rules as well as enforcement actions for non-compliance,” a spokesman told Bloomberg. “This is not a new rule and is not specific to China UnionPay or any other network.”

Still, few doubt that Visa is oblivious to the UnionPay challenge. CUP is expanding its international network aggressively, introducing its card business to 32 new markets last year. It now has a payment footprint in 83 countries. While its share of the international market is still small, it can expect to benefit from steadily increasing consumption as more Chinese venture abroad. China’s outbound tourist market last year was worth an estimated $42 billion, for instance, and a huge chunk of that will have been spent on CUP cards – assuming acceptance by foreign merchants, of course.

Not all Chinese commentators are sympathetic to CUP’s complaints. Zhang Huiming, a professor at Fudan University, thinks that the debacle is symptomatic of Chinese companies’ shortcomings in dealing with their international rivals.“The current status of CUP is kind of embarrassing. The company should refer to its original contract with Visa,” he told the Global Times. “If there is no specific term regarding rights over overseas transactions, it shows CUP lacked business awareness when signing the contract.”

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