Visa Among U.S. Firms Seen Helped by WTO Ruling on China

Visa Among U.S. Payment Firms to Win Partial WTO Ruling
Visa Inc., MasterCard Inc. and American Express Co. were among companies to win partial support from World Trade Organization judges in a U.S. claim that China unfairly restrains the payment processors. Photographer: David Paul Morris/Bloomberg

Visa Inc., MasterCard Inc. and American Express Co. were among companies to win partial support from World Trade Organization judges in a U.S. claim that China unfairly restrains the payment processors.

WTO judges in Geneva yesterday agreed with the U.S. that China unfairly discriminates against foreign suppliers of electronic-payment services by imposing requirements on them that aren’t applied to domestic companies. They rejected the U.S. argument that China UnionPay Data Co., the world’s fastest-growing bank-card network, monopolizes the handling of domestic-currency payment-card transactions.

“It is definitely a mixed bag for both parties,” Scott Lincicome, an attorney at White & Case LLP, said in a phone interview. “The one thing we can safely say for sure is that both sides are going to appeal.”

China has reservations about some parts of the ruling, Shen Danyang, a spokesman for the Commerce Ministry, said in a statement on the ministry’s website yesterday, without giving details.

The U.S. protested to the WTO about the limits on payment processing, saying China favors Shanghai-based UnionPay and forbids foreign companies from issuing their own bank cards denominated in its currency, building networks to support such cards or handling interbank point-of-sale transactions.

Pave Way

“We are hopeful that this ruling will pave the way for international payment companies to participate in the domestic payments marketplace in China,” said Will Valentine, a spokesman for San Francisco-based Visa, the world’s biggest bank-card network. “In the meantime, our existing business in China is healthy.”

MasterCard, the No. 2 network, forecast in September 2010 that China will overtake the U.S. as the largest market for credit cards by 2020, with about 900 million cards in circulation. Total cards probably will increase 11 percent a year as transaction value climbs 14 percent annually until 2025, the Purchase, New York-based company said at the time.

“MasterCard has long been of the view that open payment systems promote growth by reducing the need for cash payments, fostering innovation and reducing system risk,” Jim Issokson, a spokesman for the company, said in an e-mailed statement.

Leslie Sutton, a spokeswoman for Riverwoods, Illinois-based Discover Financial Services, which has an agreement with UnionPay to process the Chinese firm’s card transactions in the U.S., declined to comment. Molly Faust, a spokeswoman for New York-based American Express, declined to comment.

Shares Increase

Visa and MasterCard advanced in New York yesterday after announcing on July 13 that they had agreed along with card-issuing banks to pay $6.6 billion in settling a U.S. antitrust lawsuit brought by merchants. Visa climbed 2.5 percent to $127.15, while MasterCard rose 1.7 percent, AmEx added 1.2 percent and Discover gained 0.5 percent.

Tim Reif, general counsel at the U.S. Trade Representative’s office, called yesterday’s ruling a “decisive victory” that may produce 6,000 new jobs.

“We have achieved a landmark finding by the WTO against every aspect of China’s regulatory regime,” Reif told journalists on a conference call in Washington.

A UnionPay employee at the firm’s U.S. office in Jersey City, New Jersey said she couldn’t comment and directed inquiries to the company’s headquarters in Shanghai. Wang Kongping, a spokesman based in the Chinese city, wasn’t immediately available to comment by phone.

China’s Promise

While the WTO judges found that China imposes four different requirements that violate the organization’s rules, the U.S. failed to establish that China UnionPay is the sole supplier of electronic-payments services, Lincicome said. “The extent to which American service providers see this CUP issue as a very big deal, they will stand to be disappointed,” he said.

Foreign banks must “co-brand” with Chinese operators to execute payments through UnionPay. The U.S. says the rules clash with the promise China made when it joined the WTO to open up its credit- and debit-card markets to foreign processing companies by the end of 2006. WTO judges agreed with the U.S. that China had made pledges on market access when it became a member of the trade arbiter in 2001.

UnionPay, which supplanted American Express as the world’s third-biggest payments network in 2010, processed $2.36 trillion in credit- and debit-card purchases last year, a 46 percent increase from 2011, according to the Nilson Report, an industry newsletter based in Carpinteria, California. Visa handled purchases totaling $5.38 trillion, a 12 percent gain, while MasterCard spending climbed about 15 percent to $2.43 trillion.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE