“UnionPay has absolute dominance in China, and it’s now expanding beyond that to become a top global player,” James Friedman, a New York-based analyst at Susquehanna International Group who covers payments firms including Visa, said in a telephone interview. “Their numbers show they are already in the league of Visa and MasterCard.”

A case brought by the US government to the World Trade Organization and ruled on in July challenged China’s requirement that foreign card issuers -- including Citigroup, which in August became the first Western bank in China to issue solely branded credit cards -- must use UnionPay’s network for yuan- denominated transactions.

The rules, along with those requiring all Chinese automated teller machines and merchants to use its network, prompted the WTO to order that China stop discriminating against foreign payment companies.

The decision didn’t spell out specific measures, and the WTO also ruled against the US claim that UnionPay is an “across-the-board monopoly.”

“It’s difficult to say which side won after reading the WTO ruling as you basically can’t tell what’s actually going to happen,” Susquehanna’s Friedman said.

A 2005 linkup with Discover Financial Services gave UnionPay access to a network that now reaches about the same number of US merchants as Visa and MasterCard. On November 30, the firm set up UnionPay International to expand further. More than 10 million UnionPay cards have been issued by 65 lenders in 17 countries outside China, according to the company’s website.

Debit-card transactions drive most of UnionPay’s revenue. Its share of combined credit- and debit-card purchase volume for the first half of 2012 rose to 23.8 per cent from 20.9 per cent a year earlier, propelling UnionPay to No. 2 globally behind Visa, while MasterCard’s climbed to 21.7 per cent from 21.5 per cent, according to the Nilson Report, an industry newsletter. Visa’s fell to 46 per cent from 48.9 per cent.

The share of spending volume at American Express, which UnionPay supplanted in 2010 as the third-biggest network by transactions processed, slid to 7.2 per cent from 7.5 per cent.

UnionPay cards issued by banks rose 22 per cent in 2011 from a year earlier to 2.9 billion, according to the Nilson Report. Visa cards rose 4 per cent to 2.3 billion, Nilson said.

Visa’s relationship with its Chinese competitor is similar to that of other firms, Jeff Liao, head of Visa China, said in a statement. The company has provided technology to help China’s payments industry and worked with UnionPay and the government on industry training programs, he said.

“We compete vigorously, but we also cooperate as appropriate on common industry issues,” Liao said.

MasterCard declined to comment. UnionPay doesn’t publish financial statements and interviews with its executives couldn’t be arranged, said Wang Kongping, a company spokesman.

“If you look forward, the world has a new player that wants to be involved,” Diane Offereins, head of payment services at Discover, said in an interview in Beijing in August. “We do see them making good progress in building that international network.”

Chinese residents increased spending abroad through credit and debit cards last year by 67 per cent to 300 billion yuan (US$48 billion), China Daily quoted UnionPay Chairman Su Ning as saying in March.

Chinese spent a record US$7.7 billion on shopping in the US last year, according to US Commerce Department data. Their purchases climbed at least 30 per cent annually in seven of the past eight years, the data show.

“Total transaction volume from UnionPay cards outside of China may not be so significant yet, but it’s a game about future opportunities,” Friedman said.

Domestically, UnionPay dominates the payments market. Its Chinese name, Yin Lian, which means “banks united,” also reflects its ownership structure. Its founding shareholders in 2002 were 85 Chinese banks, led by the five biggest state-owned lenders and approved by the State Council and the People’s Bank of China.

Its largest bank shareholder is China Construction Bank, with a 4.9 per cent stake. Industrial and Commercial Bank of China, Agricultural Bank of China and Bank of Communications each hold more than 3 per cent, data compiled by Susquehanna show.

UnionPay’s top managers, including Chairman Su and President Xu Luode, are former senior officials at China’s central bank. UnionPay boasts on its website visits by Chinese leaders such as President Hu Jintao, Premier Wen Jiabao and Xi Jinping, the incoming president.

Xu, in a 2009 interview in New York with Bloomberg News, said his goal was for UnionPay to be accepted around the globe. “My next step isn’t any nation,” he said. “It’s the world.”

UnionPay’s 2011 profit rose about 78 per cent to 1.07 billion yuan, on revenue of 6 billion yuan, China Business News reported in April, citing data from the company’s shareholder meeting. Over the past four years, UnionPay’s revenue has more than tripled while profit increased almost 11-fold, according to the report.

The company gets about half its revenue from commissions paid by domestic merchants, the 21st Century Business Herald reported in July, without saying where it obtained the information. The rest is from fees on domestic ATM withdrawals, international operations and other businesses, the newspaper said, without giving a breakdown.

The only non-mainland Chinese banks allowed to issue solely branded credit cards in the country are Hong Kong-based Bank of East Asia and New York-based Citigroup. Citigroup’s ability to get an issuing license was “a meaningful development for US bank issuers,” Craig Maurer and Matthew O’Neill, analysts at CLSA Asia-Pacific Markets, wrote in a September 19 note.

Other lenders, including HSBC Holdings, issue cards co-branded with Chinese banks. They typically pay a cut of each transaction to the Chinese partner as well as to UnionPay, whose network must be used for domestic payment processing. Visa’s logo is now printed on cards issued by at least 16 Chinese banks, including Bank of China and Bank of Communications, according to its Chinese-language website.

MasterCard, whose Chinese name means “easy access to everything,” has 18 Chinese lenders issuing cards with its brand, its website shows. MasterCard signed a memorandum of understanding with UnionPay in 2010 to boost its revenue by improving acceptance in China for MasterCard and outside the country for UnionPay cardholders.

AmEx has co-branded credit cards with UnionPay issued by four Chinese lenders including Bank of China and ICBC, according to AmEx’s Chinese-language website.
UnionPay had US$660 billion of credit-card transactions last year, while debit-card volume was US$2.1 trillion, according to Nilson.

Chinese banks had 3.08 billion debit cards circulating at the end of September, a 21 per cent increase from a year earlier, according to the People’s Bank of China.

The number of credit cards printed jumped 19 per cent to 318 million, according to the central bank, which said 88.2 trillion yuan of transactions were made through bank cards in the third quarter.

China’s consumer lending has grown at an average 29 per cent annually from 2005 to 2010 and it’s expected to increase at 24 per cent a year through 2015, according to an August 2011 Boston Consulting Group report. Receivables from credit cards, which were broadly introduced to retail customers only in the early 2000s, could rise 40 per cent annually to reach 2.5 trillion yuan in 2015, according to the report.

China will overtake the US as the largest market for credit cards by 2020, with about 900 million cards in circulation, MasterCard said in 2010. Credit cards featuring UnionPay numbered 285 million and debit cards totaled 2.7 billion as of 2011, according to the Nilson Report.

Chinese tourists are fueling UnionPay’s growth overseas. On Paris’s Boulevard Haussmann, the cards are welcomed by retailers from Galeries Lafayette to Printemps.

France expects as many as 5 million Chinese tourists within five years, or about 700,000 annually, according to a report by its tourist development agency and consulting firm Roland Berger. Chinese tourists typically spend about 3,100 euros (US$4,000) per household on shopping in Europe, the report shows.

Across the English Channel, on an afternoon in July, two tour buses bearing Chinese signs were parked in London’s Knightsbridge district outside Harrods, which opened in 1849 and has counted Sigmund Freud and Oscar Wilde among its customers.

Harrods has seen a sharp increase in sales and larger purchases from Chinese customers following the acceptance of UnionPay in February 2011, Katharine Witty, group director of corporate affairs, said in an e-mail. She declined to give specifics, citing company policy.

“China is certainly among Harrods’s most significant customer base,” Witty said of the store, which employs more than 80 Mandarin-speaking staff. “A large majority of Chinese customers are now taking advantage of the UnionPay option.”

UnionPay introduced a summer promotion at merchants including Harrods, offering a Montblanc key ring to each customer who spent 500 pounds or more using a UnionPay card.

“I don’t have a card issued by foreign banks,” said Li, who was visiting London with her family from Ningbo, a port city in China’s Zhejiang province, with a UnionPay card issued by China Construction Bank. “It’s too much of a hassle to get one.”