Central bank to force dual-network bank cards out of mainland market

By Li Xuanmin Source:Global Times Published: 2016/11/30 19:33:39

No longer cleared for clearing


Credit cards that connect to networks of both China UnionPay and foreign bankcard association will be phased out of the Chinese mainland market. The end of dual-network credit cards, a product created exclusively for the Chinese mainland market, aims to help UnionPay build up its brand and improve the security of its network, experts said. Although customers are unlikely to be affected by the new rule, experts noted that foreign bank card associations will likely to suffer in the short term. 

Photo: CFP

Photo: CFP



Dual-network bank credit cards, which can operate through the domestic bank card association China UnionPay and foreign networks such as Visa and MasterCard, will soon be phased out the Chinese domestic payment card market.

The document to end the use of dual-network credit card was released during a meeting organized in mid-November by the People's Bank of China, the country's central bank, several sources close to the matter told the Global Times on Monday. Participants of the meeting include major commercial banks and bank card associations.

Although the central bank has not disclosed a specific deadline, one of the sources, a China UnionPay employee who declined to be identified, noted that the end is near, likely at the beginning of 2017.

Under the new regulation, transactions by foreign bank card associations that have not acquired domestic bank card clearing licenses should be denominated in foreign currencies and cannot be conducted in the domestic market. Any of their transaction conducted within the Chinese border before obtaining the license will be deemed illegal.

In addition, existing dual-network cards must be replaced by single-network payment card as soon as they expire, according to the rules.

Chinese commercial banks were also ordered not to issue dual-network cards any longer.

On Tuesday, the Global Times visited several commercial banks in Beijing, including Industrial and Commercial Bank of China, China Construction Bank, China Minsheng Bank and Postal Saving Bank of China (PSBC).

Each of them confirmed that dual-network payment cards are no longer distributed to Chinese mainland consumers, even though they had not been notified about the policy.

They also noted that dual-network cards have not been available to the public for a while. "The last time we issued one was in 2015," a PSBC employee who declined to be identified told the Global Times on Tuesday.

Made for China

"The dual-network credit card, a unique product created for the Chinese [mainland] market, has completed its historic mission," Dong Zheng, a Beijing-based credit card expert, told the Global Times on Monday.

The first dual-network credit card in China was jointly unveiled by UnionPay and MasterCard in 2002. That was when the domestic bank card association had not yet marched into the foreign markets, and their foreign competitors hadn't obtained licenses to handle domestic yuan-denominated transactions, Dong claimed.

"Both parties relied on each other to develop their businesses, so they quickly lined up and as a result, the number of dual-network payment cards exploded," Dong said.

However, UnionPay's rapid global expansion in recent years has enabled cardholders to make payments abroad via the Chinese network, which "broke the balance in the alliance," said Guo Tianyong, head of the Chinese banking industry research center at the Central University of Finance and Economics in Beijing.

The conflicts have escalated since 2010. In June 2010, Visa warned banks not to pay through UnionPay network in places outside Chinese mainland, and UnionPay fought back by saying it would reject applications for dual-network cards with Visa's logo, the Securities Times reported in September 2012.

Later in September 2010, US filed a case with WTO, claiming that UnionPay has an illegal monopoly in Chinese mainland market, but such claim was dismissed by the WTO in July 2010, domestic news portal sina.com reported in July 2012.

"UnionPay is looking to build its brand, and this is one of the reasons behind the new policy," Guo told the Global Times on Monday.

A UnionPay spokesperson, who only gave his surname Xue, said the interpretation was "not true."

But he noted that the association has "gained global influence by developing payment networks in more than 150 countries and regions."

Therefore, the time has come "to reiterate the principle of 'one card cleared by one association,' a common practice in the international bank card clearing market," Dong said.

Little impact

The policy is unlikely to affect credit cardholders, according to industry insiders.

"The clearing for overseas payment proceeds as normal," said Xue, the UnionPay spokesperson. "The amount spent in local currencies is converted into yuan and clients can repay it with yuan directly without purchasing foreign currency or incurring any currency conversion cost."

UnionPay card holders can still use credit card abroad, Xue noted.

The conversion procedures for Visa or MasterCard will not be subject to any changes, Dong said.

The two bank card associations generally convert charges into dollars and then change the dollar amount to yuan. The commission fee ranges from 1 percent to 2 percent of the charged amount.

For holders of dual-network credit cards, the new rule will not likely cause much inconvenience for cross-border payments, experts noted.

"Next time when I travel abroad, I will probably need to bring two credit cards: a UnionPay card and either a Visa or MasterCard, because some countries do not support UnionPay," Wang Dashui, a Beijing-based white-collar worker, who has a dual-network card from China Merchants Bank, told the Global Times on Tuesday. "But it will not take up much space in my wallet."

Mixed reaction

Major bank card associations have had a more mixed reaction to the policy. 

Xue told the Global Times on Monday that the policy's impact on UnionPay is "limited," thanks to its well-developed overseas presence.

Because no foreign bank card association has obtained a domestic clearing license so far, they are not allowed to operate in the Chinese market after the policy takes effect, Guo noted.

When contacted by the Global Times on Monday, a spokesperson for Visa declined to comment on the policy.

 "There are both positive and negative effects in the wake of the policy implementation," said a spokesperson for MasterCard, who only gave his surname Wu. Wu refused to elaborate.

The company "has already adjusted its strategy accordingly," Wu said.

The strategy to which Wu referred is possibly the application for a bank card clearing license, Dong said.

In 2015, the State Council, the country's cabinet, announced that China would open up the domestic bank card clearing market to foreign bank card associations.

"Although UnionPay is likely to monopolize the domestic payment market for a short time following the new policy, competition will intensify as foreign competitors enter in 2017," Guo noted.

A brief history of duel-network bank cards

December 2002

China Merchants Bank issues its first dual-network credit card, which can access both the China UnionPay and MasterCard payment networks.

2004-10

China UnionPay expands globally, starting networks in the Asia-Pacific, US and European markets. By the end of 2009, UnionPay had issued 7 million credit cards in overseas markets.

June 2010

Visa warns banks not to adopt UnionPay to process international transactions for co-branded Visa and UnionPay credit cards circulated in places other than the Chinese mainland. In response, UnionPay said it would reject applications for dual-network cards with Visa's logo.

September 2010

The US filed a case with the WTO against China, claiming that China had discriminated against US bank card suppliers in favor of State-owned China UnionPay, which has an illegal monopoly.

July 2012

The WTO dismisses the US claims of illegal monopoly.



   

   

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