Banking

UnionPay network works well: chairman

By Wang Xiaotian (China Daily)
Updated: 2011-03-26 11:11

BEIJING - China doesn't need another interbank network for credit cards, said the board chairman of China UnionPay Co Ltd - the country's only credit card network - in response to an anti-monopoly request from the United States to the World Trade Organization (WTO).

"More interbank networks will raise the cost of commercial banks and lower their profits," Su Ning, head of UnionPay, told China Daily.

Su said that although other international companies process credit card payments, the connecting system within a country is usually a single network set up by the central bank.

Su Ning,?board chairman of China UnionPay

"At first China's central bank, the People's Bank of China, was in charge of this. Because commercial organizations usually have higher efficiency developing these systems, China UnionPay - with commercial banks as stockholders - came into being to take on the mission."

Su, a former deputy governor of the central bank, said although UnionPay is a company, the prices and fees are decided by the central bank.

But some bankers would prefer options other than UnionPay, believing cheaper prices and better services will be generated from increasing competition.

"And that definitely won't increase costs for banks nor harm profitability," said a senior manager of the credit card department at China Merchants Bank who declined to be named.

The manager said although commercial banks are shareholders of UnionPay, they have little say in determining service prices or making other decisions.

China blocked a request by the US on Feb 24 for WTO judges to open up restrictions on companies that process credit-card payments, such as Visa and MasterCard. But it can't block a second request, likely to come this month, Bloomberg reported.

Currently, foreign banks must "co-brand" with Chinese operators and settle payments through UnionPay instead of issuing their own bank cards denominated in yuan.

The US Trade Representative's office said the rules go against the pledge China made when it joined the WTO in 2001 to open up its credit- and debit-card markets to foreign processing companies by the end of 2006.

A source at the Ministry of Commerce close to the matter told China Daily that China separated payment and settlement services from the markets it vowed to open up when joining the WTO, but the possibility of losing the case still exists.

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"In the future there probably will be two paths lying ahead for UnionPay - one is to return to being a non-profit public institution, and the other is to face competition with international credit network companies," said the source, adding that the latter is more likely to happen.

Apart from bright prospects for credit consumption in China, UnionPay's quick overseas expansion in recent years has been in contrast to the limited growth of Visa and MasterCard in China.

This has led to rising friction and increasing pressure from the US government on China, said Guo Tianyong, an economist and director of the Research Center of the Chinese Banking Industry at the Central University of Finance and Economics.

China UnionPay achieved significant progress in the construction of its global acceptance network in 2010, with the number of overseas countries and regions accepting UnionPay cards increasing to 104, according to the company.

"We will continue to expand overseas accepting sites, to facilitate more Chinese consumers to make better use of bank cards overseas," said Su.