Visa is trying to entrench itself as the world’s premier credit card company by fighting back against the growth of a fast-growing global competitor.
Visa said last week it would ban banks from using China UnionPay Co.’s network for international transactions, according to the Wall Street Journal.
UnionPay Dominates Chinese Market
UnionPay holds a monopoly over the extremely large Chinese credit card market, and did $717 billion worth of transactions last year. The company’s strength restricts any other card issuers from doing business within China, although MasterCard and American Express do business cooperatively with UnionPay within China. UnionPay’s growth has been nearly exponential, rocketing to 122 million cardholders from fewer than 50 million four years ago.
UnionPay also controls a portion of the worldwide market by offering extremely low conversion rates for Chinese travelers. UnionPay has expanded to more than 90 countries around the world and makes an estimated $42 billion off of Chinese traveling overseas.
Visa Gives Banks Incentive to Avoid UnionPay
Visa’s solution to the problem of UnionPay is simple: It’s trying to ban banks outright from using UnionPay’s network. The punishment for using UnionPay would be a financial penalty, which Visa plans on enacting starting August 1.
If its push to keep UnionPay out of the global marketplace succeeds, Visa would not be taking too much of UnionPay’s business. But Visa could be hoping it takes enough business away to make UnionPay reconsider its stance on allowing other companies to operate within China.