Indian UPI and Chinese UnionPay


Friends in the midst of Russia-Ukraine conflict, which attracted western sanctions on Russia and suspension of operations by MasterCard and Visa in Russia, Putin faced new challenges. In the financial crisis thus created by the western forces, neither the US nor the European Union and presumably so, not even Ukraine was able to benefit. Amidst this turmoil, China created an opportunity for itself through its domestic payment settlement system called UnionPay. China is trying to expand its financial dominance in the Russian market. On one hand, where the Chinese UnionPay is witnessing a global rise, we should have a dependable alternative to this. One such alternative that has emerged is India’s United payments interface (UPI). Over the bully nature and debt trap policy followed by China, it would be fair to assume that many countries will be willing to accept Indian UPI against UnionPay. 

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This article establishes a comparison between UPI and UnionPay. But first the rise of UnionPay and its global expansion.

Rise of UnionPay

Before 2002, in the absence of a unified platform, Chinese banks themselves negotiated interbank transactions, clearance and settlement arrangements. Due to the absence of payment processing networks like Visa, banks used to issue their own bank cards- for example, the Bank of China issued ‘The Great Wall’ Card, while the Industrial And Commercial Bank Of China issued ‘Peony’ cards. Due to state regulations, China did not allow foreign players such as Visa and MasterCard to enter the market. Thus, UnionPay was launched in March 2002 to  fill the vacuum. UnionPay had to become a United bank card platform and network that would be used by all Chinese banks. UnionPay acted as the intermediary between the merchants and banks to settle payments. It developed as a national bank card payment company. The concept of Chinese bank cards was started as the golden card project in 1993 by Jiang Zemin,President of the People’s Republic of China, from 27 March 1993 – 15 March 2003. It was publicly available from 2002. After the initiation, UnionPay supported Cross Region Transactions and Cross-Border Transactions as well, thus setting the foundation stone for non-cash transactions in China. By first expanding in 2004, UnionPay in Hong Kong established the first point of sale. After that from 2005 onwards, it collaborated with Discover of the US, JCB of Japan, BC Card of South Korea and Mir of Russia. Take the case of Discover- as a result of collaboration, where the Discover cards from the US were now accepted in the Chinese market, the UnionPay cards got full access to the US market. In 2007 UnionPay cards were accepted in the US, Canada, Mexico and Central America where Discover card network was present. In 2010, UnionPay shook hands with PayPal which further boosted its reach. As of January 2015, UnionPay’s network had extended to more than 150 countries, with over 400 local and international partners.

Expansion of UnionPay is evident, as, in 2010 it took over MasterCard, Visa and American Express with 29.2% worldwide market share, with more than 2.3 billion card payments. Compared to 2014 when the Central Bank Of China claimed that 91% of all Bank cards issued by Chinese banks, or 4.12 billion cards, were provided by UnionPay. In 2015, China issued 4.7 billion union play cards, which thus made it the largest card issuer worldwide. But, it should be noted that most of the cards were issued in the domestic market and China, using its sheer population size, made UnionPay the world’s largest bank card Association.

In the new world

To take UnionPay to the next level, China took the next big step by establishing UnionPay international in Shanghai to boost overseas support of UnionPay, to accelerate Chinese card monopoly at the global stage.  To understand the success of UnionPay, we need to look at the changing pattern of bank transactions. Till the past few years, swiping a card to complete a transaction was considered the greatest innovation of all time. Now times have changed and cards are replaced by QR codes and mobile wallets. UnionPay, in order to adjust to the dynamic business environment has now introduced quick pass and mobile payment services. This was possible with the launch of the new UnionPay app in collaboration with the commercial banks in China. This further boosted the number of transactions. As a consequence in 2018, the growth of UnionPay has been 28.8% year-on-year with the transaction volume of US$14.95 trillion.

How UnionPay is helping China

UnionPay is offering many benefits to China. To understand these benefits, the Russia-Ukraine conflict is the best example. Many Western countries imposed sanctions on Russia as a reaction to its invasion of Ukraine. On top of the sanctions many Financial transactions settlement companies like Visa MasterCard, American express suspended their operation in Russia. 

“The global interoperability offered by MasterCard, Visa, and Amex has effectively built American soft power in the public consciousness, particularly in the international financial systems space.”    – Sergio Reselli(Sergio Restelli is an Italian political advisor, author and geopolitical expert.)

This is a big reason why the US is able to financially isolate any country it wants. Before the Russia-Ukraine conflict, UnionPay had the majority volume of transactions but most of them were concentrated in the domestic market. Seeing the financial system vacuum in Russia, China is seeing it as an opportunity to fill the gap. In February 2022, when the whole world was focusing on the humanitarian crisis, China relaxed the import of wheat from Russia, and signed a deal for 10 Billion cubic meter of gas as energy co-operation. The Chinese ambassador in Russia urged Chinese business leaders to take this opportunity to fill the gap created in the Russian economy. Using these strategies China is trying to capture the Russian economy, also trying to reduce the US hegemony over global economics. China is challenging the global dominance of the US and trying to establish good relationships with the countries having anti-US sentiments such as North Korea and Iran. This will be done by providing UnionPay as the alternative for transaction settlement all over the world to fulfill its dream of world dominance. 

Present scenario

In 2018 51 million merchants and 2.57 million ATMs accept UnionPay cards. At present UnionPay has presence in 180 countries and regions(2022) Users can also pay through the nearly 2 million payment terminals using the QuickPass mobile app in 35 countries and regions, including Singapore, Japan, Australia, New Zealand, Canada, Russia.

India’s UPI

India launched indigenous RuPay cards in 2012 to settle payments. But in a real sense it is UPI that helped digitize financial transactions in the Indian economy. The share success can be measured from the figures of CY21, when 38 billion transactions of value Rs.71.59 trillion were settled using UPI. compared from 2020, in 2021 UPI witnessed 81% overall growth, moving itself to be the best and one of the most secure mobile payment services. Today, UPI dominates all spheres of financial transactions, starting from a grocery shop, to big showrooms, to individual transfers, all the way up to merchant payments. Using only mobile numbers to receive and send payments by UPI is an area of discussion for the experts. UPI is helping India achieve financial inclusion by reducing the gap between the users and the private companies.

UPI head to head UnionPay

Chinese UnionPay uses a bank card to complete a transaction. Using the UnionPay app, the user first adds the bank card to conduct a transaction. During the settlement of a transaction, the information is first sent from the app to the bank through the bank card. But in order to settle a transaction, UPI directly shares the information with the bank. This  makes UPI easy, fast and secure compared to UnionPay. Apart from this, depending on a single platform of UnionPay is itself a problem. On the other hand, UPI is developed as an open source technology, though the technology is controlled by the government but it can be used by many companies like PhonePe, Google pay and 23 others  provide multiple platforms to the users. While China even today uses card-based payment methods with painting a shiny layer of QR code on it, Indian UPI directly settles the transaction with the banks, giving mobile-based transactions a new direction. Developing UPI 123pay, India is taking the next step to offline digital transactions. Today many of the countries such as Singapore, Bhutan, Nepal and UAE have started using UPI to settle  transactions. NPCL is tying up with the global provider of payment infrastructure PPRO to expand and empower India’s digital payment. Apart from this, experts believe that India can push for credit card transactions as well since just restricting to debit cards will be an under utilization of UPI. Thus, the Indian UPI can challenge China’s UnionPay at global level.

With China’s debt trap policy and bully nature, countries are concerned to adopt UnionPay. They are also worried about the hegemony that the US has. Between all this, India’s UPI international can provide a reliable platform to conduct financial order without any influence. These were a few arguments where UPI could challenge China’s UnionPay at a global level. Do share your thoughts in the comment section.

Paras Madhuram Jasrasaria

SY BSC 2020-23

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