Review of Chinese payment systems Union Pay by Monoup

Visa and Mastercard have indeed become top providers of plastic payment cards worldwide, but many countries have their own payment systems that operate predominantly in the local market. One such system is Union Pay, which offers analogous services in China.

The Chinese market generally prefers to have local analogs of various Western products, as the economy strives for self-sufficiency and closed model. In China, there is a local "PayPal" known as WeChat, which also serves as the country's own "WhatsApp." Additionally, there are domestic marketplaces, taxi services, and delivery services. Therefore, presence of a local payment system is not surprising but rather expected.

In this overview of what is Union Pay, we will discuss the main features of this payment system and its role in the Chinese and global economies.

History and services of Union Pay

China Union Pay was launched in Shanghai in 2002 as a unified payment system for processing and issuing debit and credit cards. Union Pay managed to maintain a full monopoly in the market until the emergence of Alipay wallet. 

Notably, payment system primarily issues debit cards, as the use of credit cards is not as widespread as, for example, in the USA. In 2017, company introduced its first QR code for payment purposes, whereas previously, it could only be used within the framework of a plastic card. This limitation likely allowed Alipay to significantly increase its volumes, as the level of fraud with bank cards grew rapidly, and Union Pay's technologies could not compete effectively. More secure online payments offered by Alipay became new favorite payment method for Chinese consumers and remain so to this day.

The payment system is state-owned and, consequently, is actively supported by the government. On average, about 90% of card transactions are conducted with Union Pay cards, including both online and offline payments. Mostly all merchants in China are connected to this payment system.

The main services offered by Union Pay include:

• Plastic bank cards and digital cards accessible through the app.
• Union Pay app, which allows users to manage their finances in real-time and view their available balance at any time.
• Mobile payments, including QR code and QuickPass, which facilitate contactless payments.

Taking this into account, we may clearly define that the advantages of using Union Pay in China are numerous. These include universal acceptance of this card by almost any merchant, full compliance with all state requirements, high security, own payment technology and infrastructure, and integration with all necessary services for Chinese citizens, including government services.

However, there are also downsides to consider.

Drawbacks of Union Pay:

• Limited international usage due to the weak global spread of payment system. It is well known that most popular cards are Visa/Mastercard, and you can pay with them is almost any country. With Union Pay, this is not the case, as payment system is either not supported or significantly limited in some countries. This primarily affects Chinese tourists who face difficulties when traveling in Europe, as they cannot seamlessly pay for all goods and services.
• Excessive state influence can also be considered a drawback, as the government controls all financial flows of its citizens and can manipulate pricing policies, available services, security, and use this information for its own purposes.
• The privacy of personal data for non-Chinese clients is also unclear. Since payment system is fully operated by the Chinese government, it is quite possible that it has direct access to all data, including personal information. Obtaining a Union Pay card is possible in other countries without being a Chinese citizen. Therefore, every user must decide for themselves which payment system is better for them.

International operations of Union Pay

International expansion of Union Pay is certainly on the agenda but has not yet reached desired levels. Although the cards are accepted in 181 countries according to contractual relations, they are not widely popular in some of these countries that much.

The main markets where Union Pay is frequently used are Asia and regions economically linked to China. These include Thailand, Malaysia, Vietnam, Japan, and Korea. In Southeast Asia, nearly 90% of businesses accept Union Pay, and in Japan and Korea, popular networks and large merchants, approximately 50% of businesses. However, in Japan and Singapore, there is still active competition between Union Pay and Visa/Mastercard, which currently have the upper hand.

In Europe and the USA, Union Pay faces more significant challenges, as it is difficult to compete with Visa and Mastercard, which are considered "home" payment systems in the USA. Despite ongoing disputes between EU countries and these payment systems regarding commissions, European Union has not yet rushed to switch to Union Pay, and negotiations continue.

Who should accept Union Pay cards?

Primarily, businesses that operate in China or plan to enter this market. Although this is not an easy task, many companies are attempting it. Numerous firms are entering Chinese market, which is rich in goods, and to succeed there, in addition to Alipay and WeChat, you need to establish debit cards acquiring.

For those aiming to conquer Asian regions where acceptance of Union Pay cards exceeds 20% of the total transaction volume, such as Malaysia. Malaysia is home to a large number of Chinese who have long since moved to the country and are now its citizens. However, the influence of their native culture is so strong that it has accompanied them, along with Chinese banks and, of course, payment system. All such nuances require careful study before entering these markets, and Monoup can assist with this. We conduct market analysis and recommend payment methods to connect, which will allow you to cover the desired region as comprehensively as possible. 

In conclusion, Union Pay is a strong payment system with a quality infrastructure that has been providing excellent service and meeting the needs of its clients for years. However, its close ties with government raise some concerns, especially among clients who are citizens of other countries. In Chinese market, it is an indispensable financial partner who you definitely need to operate. In other countries, accepting Union Pay can be a good supplement to your cashier, further enhancing your payment functionality.