China’s Union Pay Expands Russian Operations

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Two more of Russia’s largest banks, MKB and DOM.FR, have stated they are preparing to issue Union Pay cards – MKB and DOM.RF, with the facilities expected to be open from early 2023, while others are also considering the move.

Russia’s Industrial & Commercial Bank (ICB) is considering the possibility of issuing cards through the China’s Union Pay system, while DOM.RF plans to start issuing Union Pay cards that will be co-branded the existing Russian Mir card. UnionPay is a Chinese financial services corporation headquartered in Shanghai, China. It provides bank card services and a major card scheme in mainland China and is increasing its global presence.

Union Pay acts as an association for China’s banking card industry, operating under the approval of the People’s Bank of China (PBOC, China’s Central Bank). It is also an electronic funds transfer at point of sale (EFTPOS) network, and the only interbank network in China that links all the automatic teller machine (ATMs) of all banks throughout the country. UnionPay cards can be used in 180 countries and regions around the world.

In 2015, Union Pay overtook Visa and Mastercard in total value of payments made by customers and became the largest card payment processing organization (debit and credit cards combined) in the world surpassing the two. However, only 0.5% of this payment volume was outside of China.

Other Russian banks, including Absolut Bank, Rosbank, Ak Bars and Home Credit have also all expressed plans to issue cards via Union Pay. Absolut Bank is going through the process of agreeing an application for connection to Union Pay, while Ak Bars Bank also confirmed that they are actively working on the issue of launching Union Pay, but the time scale has not yet been announced.

Home Credit is assessing the demand for Union Pay cards by its customers and the possible economic effect of their launch. Demand for Union Pay cards has been assessed through Russian public opinion polls regularly conducted by Home Credit, which show that 9% of customers planned to request new cards. A final decision will be made later in the year.

Russia’s Novikombank has stated that Union Pay’s global distribution should not be overestimated, and it is not considered a total replacement for Visa and MasterCard. However, they do feel that Union Pay can achieve a 5–8% share of the Russian payment card market should Visa and MasterCard not return in the near future. Eleven Russian banks officially issue such cards, comprising of Russian Standard, MTS Bank, Gazprombank, RSHB, Solidarity, Bank Saint Petersburg, Primsotsbank, RRDB, Primorye, Zenit, Post Bank, while numerous other banks are undergoing approval procedures with Union Pay.

Evgeny Romanov, a leading analyst for banking ratings at Expert RA, states that the demand for Union Pay cards in Russia will depend on the cost, and that the use of these cards is primarily intended for Chinese tourism. Although Russians can use Union Pay cards in other countries and in Russian shopping centres, and malls in smaller venues there may be difficulties in finding Union Pay ATMs and machines.

In addition, he said, it should be remembered that only a limited number of Russian banks can work with Union Pay, as sanctions have blocked payments by users to and from Russia. But the network is extremely well developed in China, where there should be no problems with their use.

In Russia 2022 to date, Union Pay have issues more than 85,000 cards, including those co-badged with “Mir.” Post Bank has been issuing about 10,000 Union Pay cards a month.

Post Bank have stated that from March to June 2022, their customers spent about 4 billion rubles (US$64.3 million) via Union Pay, of which over 90% was spent abroad. Typical usage was on replenishing electronic wallets, buying air tickets, clothes, business services and car parts.

The largest number of Union Pay transactions by Russian customers were made in Italy, Turkey, the United Arab Emirates, Singapore and the Netherlands . In June, the average purchase on cards abroad amounted to 15,600 rubles,(US$250) and the average ATM cash withdrawals 26,000 rubles (US$416).

China though has an eye on secondary sanctions, although is balancing this against the desire to maintain and expand the use of Union Pay cards around the world. There may be a reaction if Union pay begins to challenge Visa and MasterCard, meaning Union Pay are proceeding with some caution in developing markets.

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Russia Briefing is written by Dezan Shira & Associates. The firm has 28 offices throughout Eurasia, including China, Russia, India, and the ASEAN nations, assisting foreign investors into the Eurasian region. Please contact us at russia@dezshira.com for Russian investment advisory or assistance with market intelligence, legal, tax and compliance issues throughout Asia.

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