24 February 2019

China UnionPay’s diminishing allure

By most accounts, China UnionPay should be rock solid. With 182 billion yuan (US$29.8 billion) in interbank transactions in the first seven months alone, it is a money-making machine. Throw in its high-powered, cash-laden backers and you have what amounts to a cartel.

So, why are some shareholders scrambling for the exits?

There are no quick answers and the story could go on endlessly, but most likely, the company is a victim of its own success.

China UnionPay is the country’s sole operator of a third-party card payment platform called EFTPOS (electronic fund transfer at point of sale). Every bank card issued in China is likely to carry its logo but most cardholders have no inkling of the company besides a vague impression that it is a semi-government entity.

In fact, it is owned and operated by a consortium of banks, credit cooperatives and other financial institutions. According to reports, it emerged from the consolidation of smaller regional bank card payment service providers and local government-backed entities.

Interestingly, among its shareholders are a number of non-financial institutions and some lesser-known small and medium-sized enterprises and investment funds.

Other than certain key shareholders such as China Banknote Printing and Minting Corp. under the People’s Bank of China and the big four state-owned commercial banks, up to 35 companies and organizations that have stakes in UnionPay are not engaged in banking at all, 21st Century Business Herald reported.

This has led to questions about how these seemingly unrelated entities could become stakeholders of a company that has a monopoly of China’s interbank card payment services market.

Still, most believe a small stake in UnionPay can be as lucrative as it gets, complete with guaranteed and robust investment returns. Now, however, small investors are not too sure — they have been dumping the stock.

Buffett Investment (no relation to Warren Buffett or his companies), a private wealth management firm in Wenzhou, reportedly tried to offload its shares at 19 yuan each last month after it failed to sell them at 25 yuan apiece in July 2011.

Two other private companies are said to have put their UnionPay shares up for sale.

This is perhaps an early sign that UnionPay is beginning to lose its first-mover advantage. Its success has inspired a host of competitors, some of whom have recently won licenses to offer third-party payment services. As of last year, 161 such licenses had been issued.

To top it all, the National Development and Reform Commission has substantially cut card payment transaction fees, UnionPay’s bread and butter.

– Contact the writer at [email protected]



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