Visa Suffers in China for Challenging CUP

by Terry X Xie 0

By Terry Xie, Director, Mercator’s InternationalAdvisory Service

The card network war involving CUP and international cardnetworks in China has escalated. Financial Times (FT)recentlyreportedthat Visa has been blockedfrom introducing new products in China for almost a year. In China,international card networks, such as Visa and MasterCard, can onlywork with banks and CUP to issue co-branded cards which carry bothinternational card networks and CUP’s logos but use internationalcard networks’ BIN. These cards would need approvals from both CUPand the corresponding international card network.

A day earlier, the US Trade Representative at WTO filed acomplaint case against CUP’s monopoly in the domestic card networkmarket in China. According to FT, “The year-long virtual ban on newbusiness in China for Visa, the world’s largest payments company,appears to be a major factor in the decision to file a case withthe WTO now.”

According to bankrate.com.cn, a local website that trackscredit card products in China, though there continued to be newVisa/CUP co-branded credit cards on the market over the past sixmonths, its share among all new card products introduced in theperiod droppedsignificantly in recent months. In 2Q 2010, Visa/CUPco-branded credit cards accounted for 3.13 percent of all new cardproducts, down from 15.79 percent from the first quarter. In themean time, MasterCard/CUP co-branded credit cards grew from 13.16percent to 21.88 percent.

MasterCard has been avoiding confronting CUP directly and openly,while Visa has reported threatened to fine acquires and processorsoutside of China who failed to comply with Visa’s rules thatrequire cards with Visa’s BIN (e.g. over 66 million co-brandedVisa/CUP cards) routed through Visa’s network. Earlier this week,MasterCard and CUP announced that have signed an MOU to exploreopportunities to co-operate in areas such as onlinepayments.