Battle looms over Visa's curbs on UnionPay

PUBLISHED : Friday, 04 June, 2010, 12:00am
UPDATED : Friday, 04 June, 2010, 12:00am

A fierce battle for the control of credit cards used by mainlanders shopping abroad is shaping up after China UnionPay, the nation's sole interbank card operator, protested against Visa International's curbs on the use of their co-branded cards.

Visa has asked its member institutions to block transactions by mainland shoppers who buy goods and services overseas using UnionPay's system, official mainland media reported.

Jennifer Liu, a spokeswoman for Visa's China operations, declined to comment yesterday but said the company would explain later.

'Neither side has the right to unilaterally restrict cardholders' choice for payment channels,' UnionPay said in a statement. 'UnionPay will continue to upgrade services and strengthen international co-operation as it expands the global network.'

The dispute is yet another example of foreign businesses struggling to adapt to the mainland market.

'The domestic market is off-limits to the foreign players while UnionPay has expanded rapidly outside the mainland,' said Liu Chunquan, a senior partner at PanOcean law firm. 'It will boil down to the question whether full market access to China should be put back on the negotiation table.'

Visa, the world's largest operator of retail electronics payment network, has been working closely with UnionPay since the sole domestic bank card payment processor was established in early 2002.

Visa and its rivals such as MasterCard and American Express are barred from tapping the mainland bank card market.

The international bank card giants have been teaming with the Chinese counterpart to issue dual-currency cards bearing both logos. Visa and MasterCard had hoped the dual-currency cards could help them explore the potential of mainlanders' rising affluence amid their soaring overseas travels.

UnionPay, which enjoys a cosy monopoly on the mainland, has already become the world's No 1 bank card operator. But its transaction value still lags far behind the international counterparts.

A company official said the organisation, backed by China's central bank, has aimed to supplant Visa and MasterCard to become the world's largest bank card operator. However, president Xu Luode, a former central banker, publicly played down its threat to the long-established rivals.

Since 2004, UnionPay has been making forays outside the mainland, particularly in Hong Kong and Macau, benefiting from the rise of the mainland's middle class.

The majority of mainland travellers to Hong Kong now use UnionPay's channel to settle payments because it saves them up to 2 per cent in transaction fees compared with Visa and MasterCard.

Retailers in Hong Kong settle payments with shoppers in yuan through UnionPay's system, hence the credit-card holders save on the foreign-exchange conversion fee when they repay the debts.

Last year, HK$42 billion of retail sales were settled through UnionPay's network in Hong Kong. The number represented nearly 15 times the amount in 2004 when mainland shoppers started using UnionPay cards in the city.

UnionPay has expanded to 90 countries and regions with almost 600,000 retailers outside the mainland using its system to conduct transactions.