Visa Case

“A Sought-After Visa for Entering China‟s Electronic Payment Market and Strategies Beyond” - is a case about violation of WTO policies by China. Chinese government‟s trade policies are giving China UnionPay Company Limited (CUP) a monopoly in the EPS sector. VISA Inc, one of the pioneers in EPS industry, is being discriminated by the monopolistic policy when they first established their first office in China in 1993. CUP is the only local electronic payment services provider whereas foreign companies including Visa are not allowed to transact in local currency. Visa and CUP collaborated in offering a co-branded card named Visa-UnionPay Card for local customers. The objective of this co-brand was to process non-Rmb-denominated transaction through Visa and Rmb- denominated transaction through CUP. On the other hand, after becoming a member of WTO in 2001, China did not open their EPS market in local currency till the end of 2006 which was contrary to the commitment while joining WTO. Therefore, US government filed a complaint in WTO regarding this barrier.

In 2011, 10.4 billion cards were in circulation worldwide whereas 18,155 financial cards were used in China in 2010 including debit, credit and prepaid cards (exhibit 11). CUP was leading Chinese EPS market, accounting for 85.9% of financial cards in China and Visa was behind with 3.1% (exhibit 13). In global market, Visa is leading market share with 39.8% and CUP is far behind with 11.4% (exhibit 7B). While working with co- branded Visa-UnionPay card in cooperation, CUP formed partnerships abroad to issue CUP cards connected to their Rmb-denominated transactions with local currencies. Analysis: The following is a PESTEL analysis:

Political: Governments of the concerned countries are involved in settling conflicts through WTO. Economical: The economic policies of China are uninviting for foreign investors and biased towards local businesses.

Social: Chinese people are inclined towards their local services whereas USA has raised antitrust issues against their own company. Technological: In China, EPS is working on only ATM transactions and card payments. Being advanced in technology, US and China have more opportunities.

Environmental: China has a tourism friendly market environment. Tourism income from inbound travellers in foreign exchange is 22.4billion USD.Tourism expenses by outbound travellers is 33.1billion (exhibit 24). Legal: Legal environment of this case circulates around the member countries of WTO and in this case China failed to abide by the general articles.

Symptoms: Symptoms of this case are CUP‟s monopolistic position in China, dilemma between developing closer or opposite relationship between Visa and CUP, and ensuring Visa-UnionPay card users to use Visa‟s network in international transaction .Client conversion rate from Visa-Union Pay to CUP had been increasing and there is a possibility that CUP will surpass Visa in global market value. Antitrust case had been filed against Visa by U.S merchants.

Problem: The core reasons behind the symptoms are violation of WTO rules by China and relatively higher transaction fees charged by Visa transactions. Recommendation: We are giving recommendations for short and long term plans. Short Term: Firstly, US should continue the case filed against China regarding violation of WTO rules.

Secondly, Visa should offer its clients a premium status named “SmartTravellers”for users of Visa-UnionPay cards when they will use Visa‟s network for international exchange. The tagline for this special premium status One Card, One World! A Visa-UnionPay card user who will withdraw a minimum USD 500 will be in the economy class and USD 1000 in the corporate class. Economy class priority users will get 30% discount in the transaction fees per ATM withdrawal and 7% discount per card payment in retail shops. On the other hand, corporate class priority users will get 50%