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China-ready: the importance of UnionPay card acceptance

The UnionPay card juggernaut will be well fuelled for some time yet thanks to the relaxation of Visa restrictions; a burgeoning Chinese middle class, and a craving for consumerism.

The question is are merchants and acquirers keeping apace?

UnionPay card

Chinese nationals are travelling the globe in unprecedented numbers and in their wallets they are all carrying a golden ticket: a UnionPay card. Chinese tourists are the world’s biggest spenders and with over 100 million expected to take trips abroad in 2015 merchants and acquirers need to be ready. The time is now for merchants and acquirers to not just enable card acceptance but to go the extra mile for this lucrative market: it’s simply time to be China-ready.


The Chinese tourist typically targets high-value, status stores. No-one can afford to tell a Chinese customer that their UnionPay card cannot be accepted in their upmarket High Street outlet. There has been recent movement in this area.

Merchants in Italy – via a November 2014 agreement between UnionPay and Unicredit – will have the ability to accept UnionPay cards at their Unicredit POS terminals within two years.

In January 2015 UnionPay inked a deal with Croatia’s largest acquirer PBZ Group and card transaction processor ISPC. This deal means that UnionPay cards will be accepted in Croatia for the first time.

Last month UnionPay and Canada’s TD Merchant Services announced a deal that will see wider acceptance of UnionPay cards there. UnionPay has been a partner with Discover in the U.S. since September 2013, which has allowed UnionPay cards to be used at more than 4 million merchants in the U.S. and at more than 90% of ATMs. In return UnionPay provides Discover with acceptance at over 4.8 million merchants and 415,000 ATMs in mainland China.

This PR statement revealing the UnionPay-Unicredit deal in Italy touched on a critical point. It stated that the agreement will “successively complete the chip card transformation of UnionPay card acceptance terminals”. This is the first step: achieve UnionPay card acceptance. To successfully hit this target there are technical obstacles that need to be surmounted.

A UnionPay card requires a 6-digit “on-line” PIN. Today most ‘Western’ POS terminal applications cannot accept these cards.

Here at Aviso we have developed a UnionPay interface that allows direct connection to the UnionPay card scheme. We’ll also explore these technical issues later. However, these difficulties have not stopped some large merchants from accepting UnionPay cards. Some realised very early in the game just how lucrative the ‘new’ Chinese customer was. Take London’s Harrods, for example.

Harrods ahead of the curve

Harrods were ahead of the curve. The famous retail giant first welcomed UnionPay (then China UnionPay) to its flagship Knightsbridge store in February 2011. A subsequent press announcement heralded the “permanent installation of 75 dedicated point of sale terminals at its world famous Knightsbridge store and a further eight at its Airport terminal branches.” The announcement claimed that this move made Harrods “the most accessible store in Europe for Chinese shoppers.”

The move has been a stunning success with Harrods claiming £1 for every £5 spent by Chinese tourists in the UK.

The interesting angle from our point-of-view is the installation of ‘dedicated’ POS terminals. UnionPay customers cannot use the regular POS terminals in Harrods, or any other U.K. store, due to the six-digit PIN required by UnionPay. A customer using a UnionPay card must make their way to one of these dedicated POS terminals to perform their transactions. Hardly convenient for the customer, nor for the merchant.

Chinese customers are extremely important to Harrods. In addition to the 75 dedicated UnionPay POS terminals, the High Street king has, according to UnionPay’s own website, also increased its number of Mandarin-speaking staff and is advertising in high-end Chinese publications. While its on-site Harrods Global Blue tax-free shopping service has helped bolster Harrods longstanding international reputation for quality and luxury.

And it’s this quality and luxury that the Chinese customer craves. Back in 2011 Harrods sales staff reported that Hermès was the most sought-after brand among Chinese shoppers, closely followed by Chanel, Louis Vuitton and Dior. The average shopper spent more than £3,500.

In mid-2011 The Ritz became the first five-star London hotel to install UnionPay terminals. It was a move that paid off handsomely. It saw a 17% increase in the number of Chinese guests and a 25% rise in spending by these same guests.

If you haven’t noticed it’s all about being China-ready, a trend replicated across the globe. It’s not just the U.K. high-end market that appreciates the value of accepting UnionPay cards. The U.S. welcomed 1.8 million Chinese visitors in 2013. Earlier that year Saks Fifth Avenue installed PIN pads at registers so Chinese visitors – without American debit cards – could use their UnionPay cards.

UnionPay card acceptance drives tourism decisions

In a 2014 survey undertaken by Tourism Ireland of 1,000 Chinese adults, acceptance of Chinese bank cards was named by 81 per cent as a key factor in their choice of holiday destination.

The statistic proves that to be truly China-ready merchants must have the ability to accept UnionPay cards. According to the New York Times American museums are embracing the potential of Chinese visitors: “Museums of all sizes and types across the United States are trying to cater to the Chinese. The efforts include audio tours and maps in Mandarin; acceptance of UnionPay, a Chinese credit card; and promotion on Weibo, a Chinese social media platform.”

There’s more. According to Bloomberg Business – quoting new analysis by Bank of America Merrill Lynch – 174 million Chinese tourists are tipped to spend US$264 billion by 2019 compared with the 109 million who spent $164 billion in 2014. Perspective? There were just 10 million Chinese outbound tourists in 2000.

A recent March 2015 study undertaken by the InterContinental Hotels Group (IHG) – in partnership with Oxford Economics – revealed that the number of Chinese households earning more than US$35,000 – the threshold to afford overseas travel – will rocket to 63 million by 2023. They will all travel with UnionPay cards making acceptance absolutely mandatory.

Stunning growth of the UnionPay card

Using UnionPay now provides flexibility. Its cards are accepted in over 150 countries, while banks in more than 30 countries issue UnionPay payment cards.

UnionPay is the world’s largest card issuer, accounting for over half of all credit and debit cards circulated globally (source: Nilson Report – Credit/debit cards global circulation 2013). A Nilson report from November 2014 revealed how UnionPay is projected to grow 51 per cent by 2017.

In March 2015 UnionPay revealed that China Construction Bank was now issuing debit cards to Russian customers.

According to the press release the two UnionPay debit cards issued this time take Ruble and US dollar as the settlement currency respectively in order to satisfy different needs of cardholders. UnionPay cards are accepted by more than 100,000 POS terminals and 30,000 ATMs in Russia, which are located in large malls, supermarkets, restaurants, duty-free shops, as well as  other daily consumer places in major cities including Moscow and St. Petersburg.

UnionPay added that the launch of the cards was “influenced by the devaluation of the Ruble. Russia has become one of the hot destinations of Chinese tourists. During the Spring Festival [mid-February], the transaction volume through UnionPay cards witnessed a substantial growth.”

Indeed the number of Chinese tourists (domestic and international) during the 2015 Spring Festival topped 261 million, up 12.9% year-on-year – according to the Chinese National Tourism Administration. International tourist numbers alone reached 5.18 million, up 10% from 2014.

The total global volume of transactions through UnionPay cards was 238.1 billion yuan ($38.7 billion US) during the seven-day Spring Festival, according to the Global Times. Overseas transactions were up 50%. UnionPay card payments in transportation fees jumped by about 95 percent year-on-year, while transactions in travel and retail grew about 88% and 50% respectively when compared with 2014.

How Aviso helps aid UnionPay card acceptance

We don’t want to see dedicated UnionPay terminals – we want merchants to have the ability to accept all card payment types and not have to resort to sending customers to other parts of their store.

Payment acceptance is the minimum that merchants expect from their acquirers. That’s why there needs to be more on offer than just card acceptance. The key requirement and value of acquirers is still payment processing – and this is where some of the difficulties with UnionPay arise. Difficulties that we are aware of and intend on eradicating.

We have developed a UnionPay interface that allows direct connection to the UnionPay card scheme. The transactions, as per usual, will go directly to the merchant’s acquirer. This UnionPay interface is available as a licensable module, or on a payment-as-a-service basis, in conjunction with our partner FEXCO.

The payments-as-a-service option can include the settlement functions that are required to acquire UnionPay transactions.

We’re all about easing transition, however there will need to be some technical adjustments to existing POS terminals. The terminals will have to be enhanced so as to accept the UnionPay six-digit PIN requirement. These POS terminals will also need to have the ability to encrypt this six-digit PIN.

Our trump card here is our Novate offering that can be easily integrated with existing switch architecture to manage new channels (such as UnionPay), or can even replace existing POS systems. Novate can also be used to process transactions originating in multiple currencies and acquire transactions from multiple countries using a single system.

Novate, crucially, copes with the UnionPay requirement for a six-digit online PIN.

The potential results of these POS tweaks should outweigh any initial cost concerns. Costs are, of course, always a concern but in using Novate merchants get access to low-cost routing, hot card and VIP card checking, and faster integration. All features that combine to lower the cost of processing transactions.

The burgeoning Chinese consumer group has an insatiable appetite, merchants and acquirers need to provide the utensils for their feast.

Acceptance of UnionPay cards is merely an amuse-bouche.

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