China Union Pay vs Visa and Mastercard

China Union Pay – so far the only one and first example of new competitor for top three of the international payment systems. Although the idea of ​​a national payment system is haunted by the financial and economic elite of many countries.

Chinese payment system, China Union Pay increasingly predicting the role of the new leader of the payment. In 2011 CUP really has overtaken Visa and MasterCard, 32% of all issued cards was with Union Pay logo. According to the number of transactions we have another picture Union Pay – 4.7 M transactions vs 87.5M and 34.6 million.China Union Pay – is monopoly in China. It is the only company that is allowed for transaction processing in local currency, and its success in the world depends on China’s economic expansion. “The international development of China Union Pay is primarily associated with the development card acceptance points, both in the retail and service outlets, ATM network, especially outside of China. Today success of CUP belongs to growing prosperity of the Chinese card holders and the associated large volume of tourists from China.

However, many analysts believe that China Union Pay awaits a long trip, but successful path of development. Today, participation in China Union Pay costs to a banks less than membership in Visa and MasterCard, – in the short term, this could be an added advantage. But we should say that Visa and MasterCard are spending large budgets on research and investing in new technologies. As soon as China Union Pay will compete not only on the number of customers, but also for the quality of technology and will have to invest a lot of money, then the price list will be equal.

The dominance of multinational companies has several strong disadvantages. First, Visa and MasterCard is very expensive for local banks. For example, the Russian banks for services payment systems pay about $ 4 billion a year – funds leaving the country. For example: Russian Government started new project ” National Payment System” to stop billions dollars  cEstablishment of a national competitor payment systems would return the amount, and to minimize the loss to the cross-rates of national currencies to the dollar and the euro, through which payment systems are spending calculations.Second, Visa and MasterCard not only payment system, but act as a regulator for participating banks….”who likes it???”  And often long list of requirements are exceeds the requirements of the local central banks.Even when local central bank provides commercial bank with entire package of licenses, it is not a convincing fact for Visa and MasterCard .

Banks – members of Visa and MasterCard have to create reserves for operations. For this we have to divert significant resources from the market, that does not add too much comfort. International Geography payments with Visa and MasterCard obliges companies to lay in the business model of the insurance mechanism that provides an absolute guarantee of any transaction regardless of the issuing bank.

Visa and MasterCard – very powerful corporations and political forces, so only China Union Pay accept to fight with them for international market.

Posted by Roman Mikhaelov

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