China has to release UnionPay’s monopoly on credit card deals

Have you heard of UnionPay? The Chinese state backed credit card issuer is responsible for 30% of all credit cards held in the world, and in China operates a monopoly over the sector by insisting that transactions in yuan using plastic must use the scheme.

Foreign nationals who are visiting cannot have a UNionPay card, but instead must pay a surcharge when their own credit card uses the UnionPay network and displays a UnionPay logo.

The World Trade Organisation has ruled that this is an unfair monopoly, and that China must create a more level playing field to allow more choice to consumers.

China joined the World Trade Organisation in 2001, and has enjoyed access to world markets and the opportunity to compete in many sectors, including financial services. But the recent WTO ruling is an example of their WTO membership opening up their own market to foreigners – in this case American credit card companies.

The WTO decision stems from an action which was launched by a complaint by the Obama administration in 2010, who had been lobbied heavily by Visa and Mastercard. Fighting for fairer access for American companies to world trade was one of Obama’s key election promises to the business community.

The American government are delighted by the ruling, as were Visa who said in a statement that they are “hopeful that this ruling will pave the way for international payment companies to participate in the domestic payments marketplace in China”.

There is an estimated $1 trillion worth of payment being processed in yuan per annum, which is a huge market that other credit card providers want a piece of. There are signs though that UnionPay card holders can use their cards beyond the Middle Kingdom. Selfridges flagship London department store has started to accept the card in an attempt to woo custom from wealthy Chinese visitors.