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Ahead of the US congressional hearing on China, merchants ask lawmakers to boot China’s UnionPay out of global standard-setting bodies and pass the Credit Card Competition Act to close “a glaring security gap” in credit card processing.
In a letter sent to lawmakers, the Merchants Payments Coalition (MPC) criticised UnionPay’s participation in global standard-setting organisations such as EMVCo and the Payments Card Industry Security Standards Council (PCI).
Besides UnionPay, Visa, Mastercard, Discover, American Express (Amex) and Japan’s JCB sit on the governing boards of these bodies.
The MPC has called on Congress to address UnionPay’s participation in global standard-setting bodies such as EMVCo and PCI.
Merchants also argued a Chinese national card network that can process payments in the US poses a national security threat.
“Preventing China from infiltrating the US payments system is one of our top priorities”, the merchants say, adding that the passage of the Credit Card Competition Act is a necessary step to achieve this.
The merchants criticised EMVCo and PCI for welcoming UnionPay to their ranks in the 2010s, stating that these bodies “not only set security standards in a closed process but also dictate their implementation”.
“Participation in the two organisations gives UnionPay — and through it, the Chinese government — a role in the creation and implementation of security standards that impact all US businesses and consumers,” merchants said in an emailed statement.
Although merchants are raising the alarm against UnionPay’s role in global bodies, views about the actual impact of such a move diverge.
After all, these bodies are membership organisations and, although UnionPay does have a voice on these standards boards, which given its size and global nature of the rules these bodies set seems reasonable, it is still just one voice of many.
“The PCI Security Standards Council is a ‘global’ standards body” Jeremy King, regional vice president, EMEA at PCI, emphasised.
“In a global economy, the key payment players need to be at the table,” King stressed.
Having international payment players at the table “improves our standards and helps to better secure payment data for consumers, financial institutions and merchants across the globe”.
The involvement of the broader ecosystem from networks to merchants to others “ensures a shared responsibility for the reliability and security of payment transactions and the technology infrastructure that makes them possible”, an EMVCo spokesperson added.
“Our collaboration with hundreds of organisations, regulators and technical bodies around the world is key to EMVCo’s proven model for creating, evolving and promoting specifications that enhance card payment security as part of a global, industry-wide approach to battling fraud,” the spokesperson told VIXIO, emphasising that many industries where global standards are important take a similar approach.
UnionPay is the world's largest card network based on company data and, although predominantly used in China, the international arm of the card network has for a number of years worked to expand its acceptance internationally. As well as the US, UnionPay is accepted in the UK, across the EU and throughout Asia. According to UnionPay, it is accepted in 171 countries and regions.
“We think that those consumers and merchants should be part of a secure system, and we’re sorry to see others don’t share that opinion,“ King told VIXIO.
The letter was sent to Congress ahead of a hearing titled "Combatting the economic threat from China" in the House Financial Services Committee.
During the hearing, Clete Willems, a former senior trade official in the Trump White House and partner at Akin Gump Strauss Hauer & Feld, also cautioned Congress against prohibiting Chinese entities from the global standard-setting bodies.
“It is in the interest of US businesses and consumers that these bodies have global participation to maintain a secure global payments system and to pressure the Chinese government and Chinese actors to adopt global standards,” Willems told the lawmakers.
Merchants want new credit card bill
Merchants say that the level of China’s involvement in the US payment system via the global bodies underscores the importance of the Credit Card Competition Act.
The Credit Card Competition Act was first introduced by Richard Durbin in the Senate last July.
Later, in September, Congressmen Lance Gooden (R-TX) and Peter Welch (D-VT) introduced a companion bill in the House which included provisions that could address some of the merchants’ concerns.
Currently, there is no federal law in the United States that prevents a financial institution from doing business with UnionPay to process payments on its credit cards.
It means that any bank could choose to route its credit card processing to UnionPay.
By doing so, the MPC says they “effectively outsource consumers’ sensitive financial data to a foreign government”.
The Credit Card Competition Act, which is awaiting reintroduction in the new session of Congress, would explicitly forbid card networks that present a national security threat to the country from entering the US market.
“This is a vital provision of the legislation that would significantly serve our national security interests” and “close a glaring security gap”, the merchant group says.
UnionPay credit cards are widely accepted in the United States as a result of its partnership with Discover. More than 80 percent of US merchants and more than 90 percent of the ATMs accept Chinese cards.
Additionally, since 2016, the Industrial and Commercial Bank of China (ICBC) can issue UnionPay cards in the US, being the only bank to do so.
Although UnionPay can hardly be said to be a major presence in the US, the same is true for US card networks in China.
China had traditionally refused to allow foreign card networks to process payment card transactions in Chinese yuan.
It was only after a dispute at the World Trade Organisation that China agreed in 2012 to open up card payment processing to foreign companies.
Nonetheless, despite years of discussions, the applications by Visa and Mastercard are still pending. It is uncertain whether they will get the green light at all and to what extent that would enable them to successfully compete with UnionPay.
Amex is the only foreign card network that, in June 2020, got Chinese regulatory approval via a joint venture with a Chinese entity.
In less than a year, Amex had 14m Chinese merchants on its network and, by last March, the company had 18 issuing bank partners and launched over 60 branded products in China.
