(This article was originally published Monday.)
By Andrew R. Johnson
UnionPay, China's state-backed payments network, unveiled its
first payment card to be issued directly to U.S. consumers Monday
as it advances its global expansion plans.
The UnionPay prepaid card will be sold online and in bank
branches in major U.S. cities in the coming days, executives said
during a presentation at the Plaza Hotel in New York.
UnionPay and its partner, Bancorp Inc. (TBBK) of Wilmington,
Del., are marketing the product primarily to Asian-American
consumers as a card they can use to make purchases when traveling
to China and other foreign countries where UnionPay is accepted by
merchants. Customers will also be able to use it in the U.S.
Transactions made in the U.S. with the card will be settled in
U.S. dollars while those made in China will be settled in yuan.
Those made in other countries will be settled in their local
currency.
"This is the first UnionPay card issued in the United States
targeted at local cardholders," Su Ning, chairman of China UnionPay
Co., said through a translator. The card will be targeted at "those
U.S. residents that frequently travel to the Asia Pacific
region."
Dow Jones Newswires first reported UnionPay's plans Friday.
UnionPay has rapidly expanded outside its home market, where it
is the dominant payment-card brand thanks in part to requirements
that have made it difficult for U.S. companies Visa Inc. (V) and
MasterCard Inc. (MA) to process transactions in China.
The company was established in 2002 under approval of the State
Council and People's Bank of China, and its cards are accepted in
more than 141 countries and regions outside of China, according to
its website.
Consumers made $3.3 trillion in purchases with UnionPay cards
worldwide in 2012, up 37% from a year earlier, according to the
Nilson Report, a payments-industry newsletter. 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.
Live Visa and MasterCard, UnionPay operates a payments network
that processes transactions and partners with banks to issue its
cards.
UnionPay chose Bancorp Bank, a subsidiary of Bancorp, which has
$4.1 billion in assets, to issue the new prepaid card.
Bancorp Bank is largely unknown to consumers but ranks as the
largest issuer of prepaid cards in the U.S., according to the
Nilson Report, a payments-industry newsletter. Last year, Bancorp
Bank's prepaid cards were used to make $20.6 billion in U.S.
purchases, according to preliminary figures.
It issues cards that carry the names of companies and
personalities including NetSpend Holdings Inc. (NTSP),
personal-finance guru Suze Orman and media company Univision
Communications Inc.
In addition to being marketed online, the UnionPay prepaid card
will also be sold through Bancorp Bank's agent network that
includes hundreds of other banks, said Betsy Cohen, chief executive
of Bancorp.
The companies are also using a payments platform from
financial-technology vendor Fidelity National Information Services
Inc. (FIS) to operate the card program, according to James
Hutchison, general manager of prepaid solutions for the
company.
While the companies are pitching the card as a product consumers
can use abroad, they can also use it to make purchases at merchants
that accept UnionPay and Discover Financial Services (DFS) cards, a
person familiar with the product said last week. Discover and
UnionPay struck a deal in 2005 that allows the Chinese company's
cardholders to make purchases at Discover merchants in the U.S.
Similarly, Discover cardholders can use their cards at UnionPay
merchants when in China.
Targeting the product at Asian-American consumers "makes sense,"
said Beth Robertson, a payments-industry consultant.
"It's a community ... that would be more inclined to recognize
the brand and potentially trust the brand," Ms. Robertson said.
U.S. payments companies are hoping a recent decision by the
World Trade Organization will open the door to more business
opportunities in China.
Acting on a complaint filed by the U.S. in 2010, the WTO ruled
last July that China's rules preventing foreign companies from
processing domestic card transactions gave UnionPay "full and
unencumbered access" to its domestic market. It called for China to
drop such restrictions against foreign payment networks and
banks.
It remains to be seen whether the decision will give Visa and
MasterCard more direct access to the Chinese market, which is why
UnionPay's new U.S. deal may spark concerns for investors, said
Donald Fandetti, an analyst with Citigroup Inc. (C).
"I think it will be viewed with some amount of concern on one
hand, but I think people will feel a little bit better because
it's" a prepaid card, Mr. Fandetti said in an interview last week.
"Any further aggressive moves by ... UnionPay would raise investor
fears."
In promoting a prepaid card, UnionPay is targeting a market that
is projected to grow significantly in the coming years.
The amount of money loaded on general-purpose, reloadable
prepaid cards almost tripled from 2008 to 2012, rising to $76.7
billion, according to Mercator Advisory Group. It predicted the
number will rise to $168.4 billion by 2015.
Such cards function like a regular debit card and can be used to
make purchases online and in physical stores. But most prepaid
cards aren't attached to a checking account and are often targeted
to consumers underserved by mainstream financial institutions.
However, the market's growth in the last two years has been
boosted by large lenders including J.P. Morgan Chase & Co.
(JPM), American Express Co. (AXP) and U.S. Bancorp (USB), which
have rolled out competing prepaid products.
Write to Andrew R. Johnson at andrew.r.johnson@dowjones.com.