Playing regional cards right
China UnionPay has become the second biggest card processing and payment brand by transaction volume in Asia Pacific and is expanding its global reach. It is proving a viable threat through its presence in 90 countries and the rapid building of its own network.
The growth of China UnionPay (CUP) is proving to be a thorn in the side of the I more established payment leaders, Visa and MasterCard, Since the company's inception in 2002, it has put 2.1 billion cards into circulation, 200,000 of which are credit cards, With the backing of the Chinese government CUP has also enjoyed a monopoly at home, issuing 98,8% of all cards on the mainland. It also dominates payment processing, with ail transactions in China going through its own network, So far, the only way foreign operators have been able to cash in on China's rapid growth has been by teaming up with local banks, and of course CLIP, to issue co-branded cards, to gain transaction fees from Chinese tourists visiting overseas markets.
But Visa and CUP came to blows in June this year over which payment network merchants should use when processing co-branded payments. Visa also threatened to impose fines upon banks and merchants who use CUP's system instead of its own. It ordered them to use its VisaNet system to process international transactions and said a failure to do so would be a breach of foreign operators overseas.
The scale of this overseas presence is evident in the boom of CUP card usage in overseas markets. A11 h o u g h C U P would not comment or confirm figures, analysts estimate that overseas transaction volume has a compounded annual growth rate of 22%, CUP has been aggressively expanding across the region and is positioning itself as a cheaper clearing and settlement provider than market leaders. Fox Hu, consulting manager, Frost & Sullivan China said, "Visa charges cardholders 1.5% of the total transaction amount if the local transaction currency is not US dollars, while China CUP waives the charges,," even though this is said to be against its co-branded agreements with Visa.
Visa is also believed to have been blocked from starting any new business in China for the next year because of the spat, this led to MasterCard raising its game on the mainland, CUP and MasterCard signed a memorandum of understanding (fVlOU) in September to explore future business development.
Currently, MasterCard also issues co-branded cards with CUP and the fallout with Visa could yield more business for it, Hua Zhang, Beijing-based analyst, Celent, says, "banks will likely issue more co-branded MasterCards market. China is still largely a cash society. Christophe Uzureau, Gartner Research Director, Banking and Investment Services, Hong Kong, explains that domestic card transactions are very low in volume at around one transaction per month, per card.
However, when the more affluent travel overseas, their transactions are of higher value and more frequent. "From a customer perspective, notably business travellers and tourists, the ability to have a co-branded (Visa-CUP) card is still very important that's why [CUP is] building the global acceptance of its card to reduce this reliance on co-branded agreements and that explains some of the nervousness from Visa, There's no doubt it's a very important market for Visa. For Chinese tourists travelling abroad, their average spending is quite high in most cases." He adds, "Co-branded cards remain important because CUP's acceptance in overseas markets is still work in progress."
The ever more mobile and affluent Chinese tourist has greater access across the markets to the CUP network in Asia and merchants are more than happy to cater for them with POS machines and advertising. Meanwhile, governments have even gone as far as to sign agreements to promote the use of CUP.CUP and the Singapore Tourism Board the island. This also led to the creation of the CUP Singapore Tourist Card, in collaboration with multiple commercial banks. With 1 million Chinese visitors to Singapore last year, its no wonder even the government has taken notice, Japan too has jumped on the bandwagon. In the 12 months to March this year, CUP transactions in Japan reached 24 billion Yen (€212.6 million), nearly double that of a year previously. Another rapidly growing market is South Korea where CUP transactions rang up 142 hi!!ion Won (€91,6 million) from January to July, a rise of 163% year on year, according to BC Card.
Credit growth ahead
The growth in card usage is seen as sustainable by market watchers who point to China's rapid GDP growth, which expected to be 10% this year, The growing middle class is also driving more travel, with Asia-Pacific now the world's biggest aviation market. In the first half of this year, Chinese visitor arrivals in the Philippines grew 75%. Singapore saw a 51% increase in Chinese visitors in August and Hong Kong saw a nearly 30% increase in mainland tourists in the same month. Analysts reckon that these growth rates will be sustained, or even exceeded.
CUP's next step
China CUP says it has 2.1 billion cards in circulation, issued to about 700 million people. Of those, 1.9 billion are debit cards and the remaining 200 million are credit cards. Credit cards are expected to boom in years to come, in a recent study MasterCard predicted that China would probably surpass the US to become the world's top credit; card market measured by the number of cards issued by 2020. It also said it expects the number of cards would quadruple to between 800 and 900 million in the next ten years. Despite all the hype, there are some areas in which CUP is weak, but where Visa and MasterCard dominate. As Uzureau says, "TheyYe going to have to move toward more sophisticated product management and card programmes. This will imply more emphasis on strategic marketing and this will require new alliances that enhance the value of the network (notably to Chinese merchants)/'
Analysts also say that if the domestic market were more open to foreign players, this would give CUP more incentive to be competitive and beef up its strategic market-ing. It could also learn a thing or two from the more established players in this field in encouraging the use of its cards.
In the meantime, there is no doubt that CUP's growing global reach is set to continue, Now present in 90 countries, governments, banks and merchants are taking a keen interest in making it easier for the growing population of Chinese visitors to spend their cash.
Source: Payments: cards & mobile