UnionPay: Visa and MasterCard's Tough Chinese Rival

Harrod’s has accepted UnionPay cards since 2011
Photograph by James McCauley/Getty Images
Harrod’s 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 (V), 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 (MA).”
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 (AXP), 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.”