Not so flexible on credit

CREDIT CARDS, especially overseas plastic, have not made that much of a ripple in the Chinese market so far and the sight of people paying with wads of cash for expensive items is not unusual.

However, overseas credit card companies were flexing their plastic muscles this month after the World Trade Organisation found China was discriminating against foreign bank card suppliers in favour of China UnionPay, a state-owned enterprise that enjoys an illegal monopoly.

The WTO said Beijing was breaking its rules by requiring all yuan-denominated payment cards issued in China to work with the network belonging to China UnionPay, as well as requiring every merchant and ATM to accept UnionPay’s cards.

This restricts credit card companies such as MasterCard, Visa and American Express to foreign currency transactions.

The foreign firms must give a cut of every credit or debit card transaction to UnionPay and the card-issuing bank. In most other countries, the foreign card-issuers pay only the bank because they use their own network.

Combined with the high cost of interbank transfer charges, it has been difficult for the credit card companies to make any money in China, and the market is dominated by domestic lenders.

MasterCard said the WTO ruling would make opportunities for the company “all the more interesting” and that it looked forward to continuing to develop its business in China.

Unseating UnionPay, though, is going to prove quite a challenge. A state-owned company, it is part- owned by the “big four” state- controlled banks of ICBC, China Construction Bank, Agricultural Bank of China and Bank of China. UnionPay already operates in more than 110 countries and claims to be the third most used card in terms of transaction amount.

Enforcing the WTO ruling could take years, so it could be that the sight of big wads of cash is here for some time to come.