Financial Inclusion

Visa & MC Face Greater Threat From Other Networks as They Collaborate

MEDICIFounder and Chief Strategy & Innovation Officer

UnionPay collaborated with JCB in 2003 for acceptance of JCB cards in China; with Discover in 2005 for access to Discover’s PULSE network; with Amex in 2010 for expansion of cooperative business activities.

Similarly, NPCI (National Payments Corporation of India) collaborated with Discover in 2010 for acceptance of Discover cards in India and access to the PULSE network; and recently with UnionPay and JCB for acceptance of UnionPay and JCB cards in India respectively.

Not only are these networks growing at a very fast pace, they are also collaborating and working together to allow customers to transact on each other's network freely. As an example, very soon, a Chinese citizen with a UnionPay card can shop easily in India and use her card to pay at all the locations where Rupay (NPCI) is accepted without incurring hefty fees and withdraw cash in the local currency at ATMs and swipe for payments.

As a result of this expansion over last few years, UnionPay is already used in 125 countries and regions with a good degree of ATM and debit card acceptance. When visiting these places for travel, business or study, cardholders can use UnionPay conveniently to withdraw cash in the local currency and swipe for payments. UnionPay Debit cards had the highest purchase volume in the world, and its credit card volumes were large enough. They also have the highest number of cards in circulation on a global scale. The following illustration is a clear evidence of the same:

UnionPay’s global progress can be attributed to the advantage it has in its home country, Chinese travelers with big shopping budgets, its aggressive rollouts with issuers across the world, its vast network of partnerships and collaborations. It has some significant partnerships with other card networks:

Back in 2005, China UnionPay and Discover Financial Services established a partnership opening Discover’s PULSE network to Chinese travelers. This agreement opened the door for merchants on the PULSE network to the purchasing power of Chinese tourists. Acceptance of China UnionPay cards on the PULSE network throughout the U.S. marked the first phase of a long-term agreement signed in May, 2005 by these two card networks.

In 2003, JCB (Japan Credit Bureau) and China UnionPay Co., Ltd. signed a service cooperation agreement which allowed the China UnionPay network acceptance of JCB Cards in China. JCB had also concluded an ATM network service agreement in 2005 for China UnionPay Cards in Japan and had cited plans for further business expansion back then.

Back in 2010, China UnionPay and American Express had signed a memorandum of understanding that called for both companies to explore the expansion of their cooperative activities. For the past several years, China UnionPay and American Express have cooperated within China where American Express Cards run on the China UnionPay network. This MoU in 2010 led to working teams developing potentially new areas of cooperation between the two companies within China and in markets outside of China.

India’s NPCI Follows a Similar Trend

NPCI or National Payments Corporation of India is a government-backed institution that was set up by the Reserve Bank of India to aid the retail payment systems in the nation. NPCI has been the key body behind setting up the RuPay payment card network in India and also establishing IMPS (Immediate Payment System), the real time payment system in India.

Recently, UnionPay entered a partnership with NPCI. The new pact will now enable Chinese travelers to use ATMs as well as make payment card purchases in India. India’s domestic banks would be able to earn transaction fees of up to $1. Besides UnionPay, NPCI has also tied up with Japan Credit Bureau to enable Japanese tourists to use their payment cards in India.

In 2012, NPCI and Discover Financial Services had formed a strategic alliance resulting in the acceptance of Discover cards and Diners Club International cards at NPCI ATMs and point-of-sale terminals for purchases in India. RuPay cardholders can also utilize the Discover, Diners Club International and PULSE networks for international purchases and cash access outside of India.

Let's talk a step back and think what it means

According to forecasts, China and India’s combined GDP has been forecasted to surpass $28 trillion by 2030. This is will be more than one-third of world’s GDP. With the rising numbers of card transactions in both the nations, Visa and MasterCard’s dominance in card transactions is going to be under threat. So what should Visa and MasterCard do?

One thing is for sure, they are watching UnionPay closely as it shows no signs of a downward trend. UnionPay has been expanding aggressively across multiple geographies. Here are a few use cases which highlight UnionPay’s aggressive global moves:

Africa

On August 28, 2013, UnionPay International and Mauritius Commercial Bank (MCB) had jointly announced their cooperation on the issuance of UnionPay cards. This was the first case for UnionPay’s foray into Africa which had brought a new payment channel to local residents.

Middle East

On March 15, UnionPay along with Network International (NI) in Dubai—which is controlled by the largest banking group in Middle East Emirates NBD—announced that NI merchants could accept payment via UnionPay cards from now on. Such a move will bring more convenience to cardholders to use UnionPay cards in the United Arab Emirates.

In December last year, UnionPay International worked with the Cooperative and Agriculture Credit Bank of Yemen (CAC) to issue Yemen’s first UnionPay card and enable local merchants to accept UnionPay cards for the first time. The two sides also signed an agreement to deepen business cooperation.

VisaMC UnionPay

On March 20, UnionPay International launched a new privilege program featuring special discounts at 80 duty-free shops in 70 airports by partnering with 16 world-renowned duty-free groups. Holders of UnionPay cards were able to enjoy exclusive discounts of at least 5% while enjoying the preferential and convenient shopping experiences during their international travels. This was an ideal move by UnionPay to attract more international travelers to adopt the card network.

In the U.S., NYCE and U.S. Bancorp have inked agreements in the past to bring UnionPay’s credit cards into the U.S. So what are Visa and MasterCard doing about the tremendous growth of the competing networks, especially UnionPay? What happens when UnionPay starts the onslaught in the U.S., in their very own backyard? That's my next article.

Amit Goel

MEDICIFounder and Chief Strategy & Innovation Officer

“Amit Goel is the Founder & Chief Strategy & Innovation Officer for MEDICI. Amit’s vision is to build a strong FinTech market network that involves financial institutions, banks, startups, investors, analysts & other key stakeholders across the ecosystem – helping each one of them in a meaningful way by removing the asymmetry of information and providing a platform to engage & transact.\ \ Amit is passionate about bringing actionable FinTech-focused insights, innovative products & services for the FinTech ecosystem. Some of his work involves startup scores, bank scores/assessments, predictive viewpoints & other innovations that have helped MEDICI’s customers and the ecosystem. He has been named amongst the Top 100 FinTech thought leaders/influencers in the world & Top 10 in Asia multiple times by reputed agencies, consulting firms as well as financial institutions. Amit has built MEDICI (formerly LTP) as a new-age, tech-enabled advisory/research firm, which is now considered the #1 global research & innovation platform for FinTech in the world.\ \ Amit has been writing pioneering viewpoints on financial technology space that have been ahead of the curve since 2010. His data-driven predictions have helped the customers as well as the ecosystem. His past work experience includes a strong background in strategy & market analysis and advisory to clients (from big business houses to Fortune 500 firms) in payments, commerce, financial services & IT/technology. In the past, Amit had also founded a successful consulting & research practice called GrowthPraxis and has worked at Boston Analytics, Frost & Sullivan, and Daimler Chrysler in strategy & research.”