China Guilty of Discrimination Against Foreign Payment Cards
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The World Trade Organisation has ruled that China discriminates against foreign providers of electronic payment services. Currently, only one company in China, UnionPay, is allowed to process yuan-denominated transactions.
According to the WTO dispute panel, Beijing has violated WTO rules by requiring all yuan-denominated payment cards issued in China to work with the network belonging to the state-owned UnionPay, as well as requiring every merchant and ATM to accept UnionPay.
The World Trade Organisation has ruled that China discriminates against foreign providers of electronic payment services. Currently, only one company in China, UnionPay, is allowed to process yuan-denominated transactions.
According to the WTO dispute panel, Beijing has violated WTO rules by requiring all yuan-denominated payment cards issued in China to work with the network belonging to the state-owned UnionPay, as well as requiring every merchant and ATM to accept UnionPay.
At the same time, foreign providers such as Visa, Mastercard and American Express were restricted to foreign currency transactions, and can only issue cards in partnership with Chinese banks and Union Pay.
Reuters explained:
[quote] China requires all foreign card companies to piggyback on UnionPay’s network when accepting yuan payments. This means Visa and Mastercard 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. [/quote]
As a result, “the credit card business is unprofitable for most banks unless they achieve a scale that has so far been the preserve of domestic lenders,” Reuters added.
However, China has rejected the WTO’s claims that UnionPay has acted as an illegal monopoly.
Both parties have 60 days to appeal the ruling and even if China waives its right to appeal, it will still have a reasonable period to bring its laws into line with WTO rules.
It will, however, be up to the United States to ensure that China complies, and the process could take years and lead to further litigation if the two parties disagree on the scope of reforms.
More than $1 trillion in electronic payment services transactions are processed each year in China – making it a lucrative market for the likes of Visa and MasterCard.
In a statement, Visa said it is “hopeful that this ruling will pave the way for international payment companies to participate in the domestic payments marketplace in China.”
Mastercard estimates credit card spending in China will reach $2.5 trillion by 2025, in a country where it remains common to see wads of cash being handed over for big-ticket luxury items.
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