The People’s Republic Of Plastic

Dominant at home, UnionPay is expanding overseas

Zijing Wu

Harrods has accepted UnionPay cards since 2011


Among the myriad designer brands at the Harrods flagship store in London, Chinese housewife Li Yafang spotted a corporate logo she knows from back home: the red, blue, and green of UnionPay cards. “It’s very convenient,” said Li, 39, as a salesperson rang up a £1,190 ($1,920) Prada Saffiano Lux handbag.

With 2.9 billion cards in circulation — equal to 45 percent of the world’s total last year — UnionPay has grown into a payments processing colossus just 10 years after the company was founded. Now accepted in 135 countries, its share of global credit- and debit-card transaction volume for the first half of 2012 rose to 23.8 percent, propelling it to No. 2 behind Visa International, according to the Nilson Report, an industry newsletter. “UnionPay has absolute dominance in China, and it’s now expanding beyond that to become a top global player,” says James Friedman, an analyst at Susquehanna International Group. “Their numbers show they are already in the league of Visa and MasterCard.”

Yin Lian, UnionPay’s name in Mandarin, means “banks united,” which reflects its ownership structure. Its founding shareholders were 85 Chinese banks, led by the five biggest state-owned lenders. UnionPay’s top managers are former senior officials at the People’s Bank of China, the nation’s central bank. (The company would not make executives available for interviews.)

At home, the Shanghai-based firm enjoys a big competitive edge: The government requires that all automated teller machines and Chinese merchants use UnionPay’s electronic payments network to process payments in the local currency. The rule extends to Visa, MasterCard, and American Express, which typically give UnionPay a cut of each transaction. “We compete vigorously,” Jeff Liao, head of Visa China, wrote in an e-mail, though he noted that there has been cooperation on issues that affect the entire industry.

Taking up a trade complaint filed by the U.S., the World Trade Organization in July ordered China to stop discriminating against foreign payment companies, yet fell short of spelling out specific remedies. Says Susquehanna’s Friedman: “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.”

China’s receivables from credit cards could rise 40 percent annually to reach 2.5 trillion yuan ($397 billion) by 2015, according to a 2011 report from Boston Consulting Group. Citing data presented at a UnionPay shareholders meeting, China Business News reported in April that the company’s revenue has more than tripled over the past four years, reaching 6 billion yuan in 2011, while profit increased almost elevenfold, to $1.07 billion yuan. The main driver of revenue growth has been debit cards: UnionPay had $2.1 trillion in debit-card transactions and credit-card volume of $660 billion last year, according to Nilson Report. UnionPay does not publish financial statements.

Outside China, UnionPay now reaches about the same number of U.S. merchants as Visa and MasterCard, thanks to a 2005 network-sharing agreement with Discover Financial Services. More than 10 million UnionPay cards have been issued by 65 lenders in 17 countries in overseas markets, according to the company’s website.

UnionPay’s growing global reach has been a boon for purveyors of high-end merchandise, whether it’s Italian leather handbags or French perfume. Chinese shoppers this year displaced Americans as the No. 1 consumers of luxury goods, according to a recent Bain & Co. report. Some 60 percent of Chinese purchases happened outside the mainland, the report found.

At Harrods, where UnionPay has been accepted since February 2011, “a large majority of Chinese customers are now taking advantage” of the option, Katharine Witty, group director of corporate affairs at the British department store, wrote in an e-mail. “I don’t have a card issued by foreign banks,” said Li, who was visiting London with her family from the port city of Ningbo. “It’s too much of a hassle to get one.”

The bottom line China’s UnionPay dominates in a market where credit- and debit-card receivables are forecast to rise to $397 billion by 2015.


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