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UnionPay: a bull in a China shop

UnionPay is hot on the heels of Visa and MasterCard.

Not yet a teenager in the credit card world China’s UnionPay is the upstart that the old men, Visa and MasterCard, now fear.

UnionPay

 

UnionPay has achieved staggering growth since it was established in March 2002. In 2013, it processed payments transactions of over $5.5 trillion – more than Japan’s GDP for the same period. Indeed, UnionPay’s debit card was the most popular payment card in the world in 2013 (see table), surpassing Visa’s credit and debit card options.

Recent research, by the consultancy firm RBR, in a report entitled Global Payment Cards Data and Forecasts 2012-2018, stated that UnionPay’s global market share in 2012 was calculated at 34%, ahead of Visa (25%) and MasterCard (19%). In 2013, UnionPay had 4.2 billion cards in circulation transacting $5.5 trillion.

The birth of UnionPay

UnionPay is a bankcard association established under the approval of the State Council and the People’s Bank of China.

UnionPay’s Mandarin name is Yin Lian: “banks united” – apt as its founding shareholders were 85 Chinese banks, led by five state-owned lenders.

UnionPay operates an inter-bank transaction settlement and switch system through which the connection between bank systems and the inter-bank, cross-region and cross-border usages of bank cards issued by associate banks could be realized.

UnionPay expansion

UnionPay cards are now accepted in 142 countries and regions outside China.

In June, UnionPay launched its first credit and debit card in the Southern Hemisphere, in New Zealand.

UnionPay also promotes issuance of UnionPay standard cards overseas. At present, 66 institutions in 18 overseas countries and regions have issued more than 10 million UnionPay cards locally. Other countries want their citizens to have the ability to use their own cards in China. In late May 2014 UnionPay launched its first Indonesian card. ICBC Indonesia issued the new UnionPay credit card targeting the 600,000 Indonesians who often travel to China every year. ICBC Indonesia is 98% owned by the Industrial and Commercial Bank of China (ICBC).

In September 2013, UnionPay was included in the register of Russian payment systems. Board chairman Andrei Kostin said that in the future it would be appropriate to combine the Russian and Chinese payment system. According to him, it will kill several birds with one stone: to resolve the issue using Russian cards abroad, and also increase the importance of rubles and yuan in the system of international payments.

Discover deal in the US

UnionPay also made the breakthrough in the American market in September 2013 when it partnered with Discover. UnionPay cards are now accepted by merchants on Discover’s network.

UnionPay cards can be used at more than 4 million merchants in the U.S. and more than 90% of ATMs in America also accept UnionPay. In return UnionPay provides Discover with acceptance at over 4.8 million merchants and 415,000 ATMs in mainland China.

Discover’s own website praises the virtues of UnionPay as being the only national network in China with over 1 billion cards in circulation in China alone. They also promote UnionPay for its convenience as Chinese travelers are one of the fastest growing groups of visitors to the U.S. and Canada (source: U.S. Department of Commerce, Canada Tourism Commission).

The aim of global acceptance

UnionPay’s mission is outlined on its website: “The ultimate goal of UnionPay is to become a bankcard association with national authority and trustworthiness as well as international competitiveness and influence, and to create an independent payment brand of China with global influence that serves China and more countries and regions.”

It has national authority – thanks to unyielding support of the People’s Bank of China – and has more than achieved the aim of gaining international competitiveness and authority.

Monopoly allegations

There have also been allegations that UnionPay is effectively operating as a State monopoly. All card payments in China must be processed through UnionPay. Visa, MasterCard and AmEx must use UnionPay’s network for yuan-denominated transactions.

In July 2012 the World Trade Organization (WTO) heard a case brought by the US government in relation to this very topic. The WTO’s verdict was that CUP was breaking trade rules by demanding that all yuan-denominated payment cards issued in China must work with CUP’s network. In addition, every merchant and ATM in China must accept CUP’s cards.

UnionPay acceptance enabled by Aviso

Aviso has developed Novate – our switching system – to allow payment processors to connect to the UnionPay network, thus improving their overall services portfolio and benefitting from this rapidly developing revenue stream.

Aviso recently partnered with OmniPay, a First Data company and global payments processor, to deploy Novate so as to add UnionPay and Japanese Credit Bureau payment network interfaces.

OmniPay needed to act in order to respond to the growing volume of payments made via UnionPay and JCB globally.

The beauty of Novate is that it facilitates new message types whilst working alongside existing payments systems. Enhancing your payment system with Novate will significantly reduce your time and cost worries, especially in the area of developing new products. Novate allows payment processors to quickly acquire the flexibility and agility required to suit the needs of a modern payments systems.

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