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01 September 2011

Visa and China UnionPay spat escalates and gets ugly

The spat between Visa and China UnionPay has gotten nastier. The two payment networks originally fell out in mid-2010, when China UnionPay rebuffed Visa's demands to stop processing interna­tional transactions for co-branded cards through its own payment system - Visa requires international transactions to be processed only through its network, warn­ing fines will be imposed on the partners disobeying the rules. China UnionPay then turned its back on Visa by refusing to do any new business with Visa. Since then, it appears that each side is getting their friends involved to back them up.

In the latest development, accord­ing to sources close to the World Trade Organisation (WTO), Visa has reportedly been banned from starting any new busi­ness in China for the next year, causing US trade representative Ron Kirk to file a case against China UnionPay with the WTO, in which he cited "market access restrictions and discriminatory limitations on foreign suppliers seeking to engage in the supply of electronic payment services."

According to Kirk: "The Chinese govern­ment committed to open this financial ser­vice market four years ago, but instead, the Chinese government is giving China UnionPay a monopoly over most credit and debit trans­actions by Chinese consumers. China's actions unfairly deprive US credit and debit card com­panies of access to a huge market."

For the time being, Visa is attempting to keep a dignified silence but it will no doubt be smarting over the newly-cosy relationship between China UnionPay and MasterCard, which have recently signed a memorandum of understanding in order to establish "a mutually beneficial relationship".

And to add fuel to the fire, South Korea's largest credit card firm BC Card has also taken China UnionPay's side - according to Chinese press reports, BC Card is planning to file a case against Visa with South Korea's anti-trust watchdog over the issue. BC Card is claiming that Visa recently imposed fines of a combined $100,000 on BC Card, alleg­ing that the South Korean firm did not pro­cess international transactions through the VisaNet payment system.

BC Card said Visa forcefully withdrew $50,000 from its settlement account as it used the network established between BC Card and China UnionPay for international transactions. Chinese holders of UnionPay cards co-branded with BC Card do not have to pay the normal one percent service charge for transactions in South Korea, but Visa imposed fines on BC Card for not using the VisaNet system. Another fine of $50,000 was imposed on BC Card as the local card issuer processed international transactions through the network set up between BC Card and Star Network, a US ATM network.

After starting cooperation with China UnionPay in January 2005, BC Card sealed a business partnership with Star Network in October 2009, enabling BC Card custom­ers to get card services, eliminating the need to pay the one percent service fee for international transactions. BC Card said its alliance with UnionPay and Star Network has benefited both the card issuer and its customers because the card firm does not need to pay royalties to Visa, with its customers saving the one percent charge for international transactions.

Payments Cards and Mobile, July | August 2011