China UnionPay: The World's Largest Payment Card Company
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Case Code: BSTR546 Case Length: 20 Pages Period: 2002-2017 Pub Date: 2018 Teaching Note: Available |
Price: Rs.500 Organization: China UnionPay Industry: Payment Card Industry Countries: China Themes: Strategic Management, International Management, International Marketing |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Monopoly in China
CUP was credited with pioneering the non-cash payment market in China. It played a fundamental role in operating an inter-bank transaction settlement system in China, realizing the interoperability among banks, promoting the bankcard standards and regulations, and providing better and more secure and efficient services. People dubbed the company “China UP”, as it emerged as a new symbol of China’s rising economic profile. By the end of 2009, more than 1.3 billion CUP cards had been issued by various institutions in China. Being a state-owned enterprise, CUP did not disclose its financial information...
International Expansion
China had the largest outbound travel market. Its outbound tourist numbers had increased at an annual growth rate of 19.4% from 3.7 million in 1993 to 20.2 million in 2003. To cater to the financial needs of these tourists, CUP began its international expansion in 2004. In January 2004, CUP’s Point of Sale (POS) terminals were installed for merchants in Hong Kong. By 2006, CUP had reached Australia, Japan, and the US and about 1 million UnionPay cards had been issued overseas. In 2009, the total number of UnionPay cards issued worldwide exceeded 2.1 billion. They were accepted in 90 countries and regions including Japan, Korea, Singapore, Russia, and Mongolia...
UnionPay International
The opening up of the domestic clearing market to foreign players in China led CUP to quicken its expansion plans outside of China. In 2012, UnionPay International (UPI), the international subsidiary of CUP, was established to focus on the growth of CUP’s global business and attract new users by cooperating with local banks, payment networks, and merchants outside of China. Upon the establishment of UPI, 67 major international financial institutions joined as founding members, thereby accelerating the business of the company. According to Simon Lee, assistant dean at the Chinese University of Hong Kong Business School, “This is an effort to expand China’s financial influence globally. The recognition of Chinese brands, especially in finance, is very low abroad. Companies like this are trying to change that.”....
Globalization Strategy of UPI
According to Ge Huayong (Huayong), chairman of CUP, in global markets, UPI pursued growth through what he called a ‘leapfrog development’ strategy wherein the company expanded through acquisitions and partnerships. According to him, UPI learnt about different markets and consumer habits and tailored its services and products to meet the needs of that market. For instance, in the US, UPI focused on getting more merchant acceptance for its products and services, while in Southeast Asia, the company focused on card issuance. According to industry observers, UPI’s presence was felt most strongly in markets closer to home, where it took advantage of growing cross-border travel trends and deepened economic ties to sign agreements with more financial institutions in those countries....
Marketing
UPI offered exclusive privileges and discounts to its cardholders. The company partnered with well-known global online and offline merchants, including the world’s largest shopping groups, airport duty-free shops, cruise liners, airlines, hotel groups, and car rental companies to offer exclusive privileges. UnionPay cards were accepted at more than 22 million merchants outside Mainland China as of October 2017. The company also organized special marketing events and campaigns for its cardholders in different countries during peak seasons like the Chinese New Year and Christmas...
Results
According to Packaged Facts, in 2014, the global payment-card market generated US$17.26 trillion in purchase value. UnionPay debit cards were the most popular payment method in the world as transactions using UnionPay cards totaled US$5.92 trillion in 2014, which represented 34.3% of the market. Its rivals Visa and MasterCard had a market share of 27.6% and 19% respectively. Analysts attributed part of the reason for CUP’s growth to its near monopoly on all transactions in China...
Challenges
Its achievements notwithstanding, analysts said several challenges lay ahead for UPI. According to them, UPI would have a tough time sustaining its position in the global payments industry due to the growing adoption of Real Time Payments. Non-bank players offering online pay, mobile pay, and Online-to-offline (O2O) commerce services had made strong inroads into payments with their e-marketplaces, they added. E-wallets were trying to extend their acceptance through high volume apps like those of cab aggregators...
The Road Ahead
China’s inbound tourism was growing at a steady pace. According to the data released by China’s National Tourism Administration, in the first six months of 2016, the number of inbound tourists reached 67.87 million, growing by 3.8% year-on-year. Due to CUP’s extensive acceptance network in China, more customers were likely to bring UnionPay cards when visiting the country. In 2016, between January and November, the transaction volume of UnionPay cards issued in Korea, Russia, Kyrgyzstan, Indonesia, and Mauritius grew by about 50%. According to Jianbo, "With more people visiting China, UnionPay is facing new opportunities and challenges. We not only provide payment convenience to Chinese people to go abroad, but also endeavor to optimize inbound tourists’ payment experiences to support the personnel exchanges between China and the rest of the world."...
Exhibits
Exhibit I:Card Industry Market Size in China by Transaction Volume (Million), 2007-2016
Exhibit II: UnionPay Products and Services
Exhibit III: Union Pay International-Key Global Markets
Exhibit IV: Value of Card Payments Worldwide, by Scheme, 2015
Exhibit V: Purchase Transactions on Global Cards 2016
Exhibit VI: Global Cards in Circulation Credit & Debit 2016
Exhibit VII: Global General Purpose Cards 2016 Vs. 2015
Exhibit VIII: Mobile Payment Users Worldwide (2009 to 2017)
Exhibit IX: Proximity Mobile Payment Users and Penetration in China, 2014-2020
Exhibit X: Growth in Card Numbers Worldwide by Type, 2014-2020
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