By Andrew R. Johnson
UnionPay, China's state-backed payment network, is aiming for a
bigger presence in the U.S. through a new prepaid card it plans to
unveil Monday.
The product will be sold by banks that have branches in
predominantly Asian-American communities across the U.S. and be
marketed as a card consumers can use when they travel to China and
other foreign countries, a person familiar with the product
said.
Customers will also be able to use the card in the U.S. at
merchants that accept cards from UnionPay or Discover Financial
Services (DFS), which has an existing relationship with the Chinese
company, a second person said.
The card, the first UnionPay-branded prepaid card issued in the
U.S., will be denominated in U.S. dollars and issued by Bancorp
Bank, a subsidiary of Wilmington, Del.-based Bancorp Inc. (TBBK),
the first person said.
A spokeswoman for UnionPay declined to comment.
The move would allow UnionPay to build on a relationship it has
had since 2005 with Riverwoods, Ill.-based Discover, which operates
a payments network that competes against Visa Inc. (V) and
MasterCard Inc. (MA) to process transactions.
Through that partnership, UnionPay cardholders who travel to the
U.S. can use their credit and debit cards at merchants that accept
Discover cards. Discover cardholders, in turn, can use their cards
at merchants and automated teller machines that accept UnionPay in
China.
Transactions made in the U.S. with UnionPay's new card will run
over Discover's network, the second person said.
UnionPay has been battling to grow its business outside of China
by increasing the number of merchants that accept its cards and
striking deals with foreign financial institutions to issue its
cards to consumers.
"It's the old chicken-and-egg thing," said David Robertson,
publisher of the Nilson Report, a payments-industry newsletter.
"What they decided to do is to build out the acceptance network
first. They wanted their own domestic cardholders to have the
opportunity to use those cards as they traveled for business and
pleasure."
That endeavor is a "far simpler sale" than "it is to get a
card-issuing agreement in another country," Mr. Robertson
added.
Like Visa and MasterCard, UnionPay operates a payments network
and partners with banks to issue its cards.
Consumers made $3.3 trillion in purchases with UnionPay cards
world-wide in 2012, up 37% from a year earlier, according to the
Nilson Report. That compares with $5.7 trillion in purchases made
with Visa-branded cards and $2.7 trillion made with
MasterCard-branded cards.
The number of UnionPay-branded cards in circulation also grew
20% last year to 3.5 billion, compared with the 2.5 billion in
circulation for Visa and 1.2 billion in circulation for
MasterCard.
Bancorp Bank was the largest U.S. prepaid card issuer in 2012,
with purchase volume of $20.6 billion, according to preliminary
figures from the Nilson Report, a payments-industry newsletter. It
issues cards that are marketed under the names of other companies,
including NetSpend Holdings Inc. (NTSP) and personal-finance guru
Suze Orman.
While UnionPay is attempting to grow in the U.S., Visa,
MasterCard and other U.S. card networks have faced challenges
tapping into China's rapidly expanding electronic-payments
market.
Chinese government rules have required foreign payment networks
to partner with UnionPay for cards issued in the country. Under the
rules, Visa, MasterCard and others have been unable to process
domestic transactions in China.
The World Trade Organization in July ruled that China's tactics
put U.S. companies at a disadvantage, and ordered China to drop
restrictions that prevent such businesses from processing domestic
payments.
By striking partnerships in the U.S., UnionPay could eventually
put pressure on Visa, MasterCard and American Express Co. (AXP),
which is both a lender and payments-network operator. But analysts
say it could potentially take more than a decade to generate
comparative purchase volume in the U.S. as Visa and MasterCard.
"UnionPay represents sort of a tail risk to" U.S.-based payment
networks because it could eventually steal share of so-called
cross-border transactions from Visa and MasterCard, said Donald
Fandetti, an analyst with Citigroup Inc. (C). Such transactions are
those made in one country with a card issued in another country,
and are "by far the network's highest margin business."
"It's a risk if they become more prominent and can convince
non-Chinese issuers to use [UnionPay] exclusively," Mr. Fandetti
said.
--Dinny McMahon contributed to this story.
Write to Andrew R. Johnson at andrew.r.johnson@dowjones.com
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