UnionPay announced a new policy towards third-party payment recently, strongly defending its interest in online payment which caused suspects and guesses from market. It stated that non-financial companies(mainly third-party payment) had to transfer offline transaction to UnionPay before December 31 2013. By the end of July 1 2014, third-party payment online transactions had to link to UnionPay.
As the only bank card settlement service provider in China, UnionPay has monopolized offline transaction. Why does it target third-party payment market this time?
China Payment Market
China online payment market is dominated by third-party payment, such as Alipay, Tenpay, ChinaPay(UnionPay online payment), 99Bill, etc. Alipay is the biggest market player, with 45% market share. Tenpay occupies about 20% market. UnionPay’s market share is no more than 10%.
Offline payment includes issuing banks, acquiring banks and clearing bank. China major banks are issuing banks, but banks, third-party payment companies and Chinaums (which is belonged to UnionPay) could be acquiring banks. UnionPay is the only clear bank.
UionPay has no competitor in offline transaction, it has stable shared commission. It seems that UnionPay has no reason to compete with third-party online payment, because it has absolute domination in offline payment market and has a pretty high income. Offline third-party payment together make up no more than 20% market share.
Reasons Why UnionPay Picked a War On Third-Party Online Payment
Online payment market is growing extremely fast, Alipay, Tenpay and other third-party online payment platforms have huge dataflow. Alipay and Tenpay together occupies 70% online payment market. Because of fast payment on third-party payment platforms, they clear transactions with banks directly, thus UnionPay is excluded. Online payment has kept more than 100% annually growth rate in the recent years. When Alipay and other third-party payment companies quietly started their offline payment services, UnionPay reacted strongly.
Central Bank of China newly released acquiring bank management document didn’t prohibit banks and third-party payment direct cooperation. Although it did say online and offline acquiring need to be under unified management, but it didn’t authorize UnionPay to exercise. UnionPay immediately made the announcement to prove it is the only lawful clearing bank.
Last year, online payment transaction reached 7 trillion yuan(USD 1.13 trillion), which was one thirds of offline payment scale. UnionPay wished to enlarge its share in online payment market.