2010-09-21

A Sino-U.S. financial war?

银联引发中美金融战? Unionpay triggers a financial war with the U.S.? Tencent, the popular messaging service, has this story as its big topic for the day, with links to many articles on the topic.

It comes on the heels of this story:

Visa blocked in China after Unionpay dispute
Visa first warned Unionpay almost a year ago to stop processing international transactions for co-branded cards through Unionpay’s own payment system rather than Visa’s, a demand Visa makes of all its partners around the world.

But Unionpay, which was set up under the auspices of China’s central bank and is owned by 80 Chinese banks and other state entities, initially refused to comply and issued a scathing rebuttal in June this year when the dispute became public.

While Unionpay has continued to gradually expand its co-operation with companies like MasterCard and American Express, it has refused to consider any new business lines with Visa since the payments group asked it to observe the terms of their agreement, according to people in the Chinese bank card industry.
The U.S. government spent billions to bail out the financial sector; expect this issue to grow in importance the longer it drags on. Also, consider it another front in the protectionist battle. Manufacturing has had a hard time making its case in Congress (Congress mostly supports the arguments of industry, but does nothing tangible in the way of policy), but finance is more powerful and considered more important to the economy by Congress. Also, this is a state owned bank directly competing with a major U.S. and international firm, the media will have no trouble drawing clear distinctions.

The tone of the Chinese articles is completely at odds with the English articles that discuss the monopoly position of Bank of China's Unionpay

At the Chinese link, one of the articles has a quote by Song Hongbing, author of Currency Wars and Currency Wars 2, who compares it to nuclear security, since Visa could eventually data mine the spending habits of the entire Chinese economy.
宋鸿兵:绝大多数中国人不太理解为什么交易系统是万事达和银联的系统扩张和双方竞争,核心在什么地方?在我看来,这个问题最要命的是谁负责清算。清算是金融交易中间最最本质和核心的,掌握着所有交易数据,如果VISA、万事达进入中国,全中国使用VISA、Master卡的人,所有的金融核心机密和信息全部被人掌握了。如果进行数据挖掘,很可能发现个人的消费习惯,甚至账户上大概的资金量,甚至可以追踪每笔钱的去向,这太可怕了,比核武器最最核心的设计机密还要重要得多。这就是双方争夺的要点。
Lame Google translation:
Most Chinese people do not understand why the trading system is the Master and the Consortium of system expansion and competition in both the core in what areas? In my view, the issue is who is responsible for most fatal liquidation. Clearing the middle of the financial transactions and the core issue of the utmost essence, the master of all transaction data, if VISA, MasterCard into China, the Chinese use of VISA, Master card, all the financial heart of all information confidential and be mastered. If data mining is likely to find that personal spending habits, or even about the amount of funds accounts, and even track the whereabouts of each money, this is terrible, the core of the design than the nuclear issue of the utmost confidentiality is much more important. This is both the main points of contention.
He also points out that Visa and Mastercard are basically a duopoly, a monopoly +1.

Other articles mention national security and make similarly strongly worded arguments.

There is also an anti-Visa argument that I haven't come across in the English press. Unionpay previously criticized a move by Visa back in June regarding international transactions, and Visa is seen as the instigator of trouble in China.

Visa, China UnionPay in Dispute on International Credit-Card Transactions
Visa Inc., the world’s biggest payments network, told banks and merchants to use its system to process international transactions by Chinese holders of cards co-branded with China UnionPay Data Co.

“Visa regularly reminds its global clients and partners of their obligations to adhere to these rules as well as enforcement actions for non compliance,” Jeremy Griffith, a Sydney-based spokesman for Visa, said in e-mailed comments today. “This is not a new rule and is not specific to China UnionPay or any other network.”

Foreign banks in China must “co-brand” with Chinese operators on credit cards and execute payments through UnionPay, the country’s largest electronic payment network. Visa said international transactions must be processed over its network while UnionPay said in a statement yesterday that the U.S. company doesn’t have the right to block the use of dual-currency credit cards abroad.
Mix in the declining social mood and this is a story that is likely to have legs.

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