'Wins' but no gain in UnionPay card game

PUBLISHED : Monday, 23 July, 2012, 12:00am
UPDATED : Monday, 23 July, 2012, 12:00am


The World Trade Organisation's (WTO) ruling on the mainland's electronic-payment market is curiously being portrayed as a 'win' by both the warring parties: China and the United States.

Now that the dust is settling, what's becoming clear is that the new ruling is unlikely to lead to wider access to the China market anytime soon for the likes of Visa, MasterCard and American Express.

A WTO dispute panel said in a decision last week that Beijing was breaking WTO rules by requiring all yuan-denominated payment cards issued in China to work with the network belonging to China UnionPay, as well as requiring every merchant and ATM to accept UnionPay's cards.

The panel, however, dismissed US accusations that UnionPay, a state-controlled enterprise, enjoyed a monopoly in China.

It ruled that measures by Beijing had not barred foreign players from entering the market because they had some limited access.

White House spokesman Jay Carney called the ruling a 'win' that showed 'our determination to go after China's efforts to distort global trade rules'. Meanwhile Commerce Ministry spokesman Shen Danyang said, that with some 'reservations', China welcomed the ruling that stipulated foreign companies must meet Beijing's requirements to handle payments.

Central University of Finance and Economics professor Guo Tianyong said Beijing was expected to take a gradual and cautious approach to opening China's credit card payment market 'under the premise that financial security is being safeguarded'. He said security concerns were higher in relation to credit cards than other financial services because of the access to cardholders' personal details.

Shanghai-based China UnionPay, set up in 2002, is owned by the central bank's China Banknote Printing and Minting and 80 Chinese commercial banks. Its logo appears on about 29 per cent of the eight billion cards on issue worldwide, a higher share than Visa's 28.6 per cent, according to Retail Banking Research in London.

Overseas companies have been given limited access to China's US$723 billion payment-processing market. They are not allowed to issue their own bank cards denominated in yuan except for 'co-branded' cards with local banks. When payments take place on the mainland, co-branded cardholders have to use the UnionPay system.

UnionPay has been expanding aggressively and now handles payments in more than 130 countries. Increasing numbers of Chinese use UnionPay to settle their overseas purchases, which prompted Visa to warn clients in 2010 to stop processing international transactions for co-branded cards through UnionPay's system rather than Visa's.

Since then, the foreign companies have tried to tap into China's market by resorting to the WTO.

The panel's ruling can be appealed within 60 days. A final ruling will be hammered out three months after any appeal is received.

Tu Xinquan, deputy dean of the China Institute for WTO studies at the University of International Business and Economics in Beijing, said the WTO's final ruling usually supported most of the panel's primary judgments.

'It is very rare to see a long-term monopoly by one or a few companies in any industry. It is understandable that the government supports some company over a certain period. However, with the rising demand for financial services, opening is inevitable and competition will benefit the sector,' Tu told China National Radio last week.

However, analysts cautioned the opening would be limited, at least in the coming few years, because under terms hammered out for its WTO entry Beijing still required companies to operate on the mainland for at least three years and have two consecutive profitable years before they could apply to provide paymentprocessing services.

Up to now, no international payment service providers have payment-processing companies on the mainland.


The proportion of the world's credit cards that bear the UnionPay logo