Chinese company Union Pay expands operations in Russia
Two other of Russia’s biggest banks, MKB and DOM.FR, said they were preparing to issue Union Pay cards – MKB and DOM.RF, with the facilities to be open from the start of 2023, while others are also considering doing so.
The Industrial and Commercial Bank (ICB) of Russia is considering the possibility of issuing cards through the Chinese Union Pay system, while DOM.RF plans to start issuing Union Pay cards which will be co-branded with the existing Russian Mir card. UnionPay is a Chinese financial services company headquartered in Shanghai, China. It provides bank card services and a major card system in mainland China and is strengthening its global presence.
Union Pay acts as an association for the Chinese bank card industry, operating under the approval of the People’s Bank of China (PBOC, Central Bank of China). It is also an electronic funds transfer point-of-sale (EFTPOS) network and the only interbank network in China that connects all automated teller machines (ATMs) of all banks in 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 both. 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 their intention to issue cards through Union Pay. Absolut Bank is in the process of accepting an application to connect to Union Pay, while Ak Bars Bank has also confirmed that it is actively working on the issue of launching Union Pay, but the timing 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 gauged through regular Russian public opinion polls conducted by Home Credit, which show that 9% of customers planned to apply for new cards. A final decision will be made later in the year.
Russia’s Novikombank said Union Pay’s global distribution should not be overstated and it is not considered a total replacement for Visa and MasterCard. However, they estimate that Union Pay can achieve a 5-8% share of the Russian payment card market if Visa and MasterCard do not return in the near future. Eleven Russian banks officially issue such cards, including Russian Standard, MTS Bank, Gazprombank, RSHB, Solidarity, Bank Saint Petersburg, Primsotsbank, RRDB, Primorye, Zenit, Post Bank, while many other banks are in the process of approval with Union Pay.
Evgeny Romanov, a leading analyst for bank ratings at Expert RA, says demand for Union Pay cards in Russia will depend on cost, and the use of such cards is mainly for Chinese tourism. Although Russians can use Union Pay cards in other countries and in Russian malls, as well as malls in smaller locations, Union Pay ATMs and ATMs can be difficult to find .
Also, he added, it should be remembered that only a limited number of Russian banks can work with Union Pay, as sanctions have blocked user payments to and from Russia. But the network is extremely well developed in China, where there should be no problems using it.
In Russia 2022 to date, Union Pay has issued over 85,000 cards, including those co-badged with “Mir”. The Post Bank issues approximately 10,000 Union Pay cards per month.
Post Bank said that from March to June 2022, its customers spent around 4 billion rubles ($64.3 million) through Union Pay, more than 90% of which was spent abroad. Typical usage was replenishing e-wallets, purchasing airline tickets, clothing, business services, and auto parts.
The highest number of Union Pay transactions by Russian customers were made in Italy, Turkey, United Arab Emirates, Singapore and the Netherlands. In June, the average card purchase abroad was 15,600 rubles ($250) and average cash withdrawals from ATMs were 26,000 rubles ($416).
China is considering secondary sanctions, however, although it takes into account the desire to maintain and expand the use of Union Pay cards worldwide. There could be a backlash if Union Pay starts to challenge Visa and MasterCard, which means Union Pay is proceeding with some caution in developing markets.
Briefing Russia is written by Dezan Shira & Associates. The company has 28 offices across Eurasia, including China, Russia, India and ASEAN countries, assisting foreign investors in the Eurasian region. Please contact us at [email protected] for Russian investment advice or assistance with market intelligence, legal, tax and compliance issues throughout Asia.